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Silver to outperform in 2013

Rebound in global economy to boost silver price rise

Dilip Kumar Jha  |  Mumbai 

Silver is set to outperform other metals in 2013 amid expectations of a rebound in industrial activities globally. For decades, investors have perceived gold as the best investment avenue. But, 2012 changed the perception due to the metal’s price behavior.

With leaders projecting a rebound in global economy with 3.4% growth this year versus 3.1% last year, investors have now started focusing on silver as an alternative asset class.

The change is evident in returns that the metal offered in 2012. Against a net return of 13.04% in gold, investors obtained 13.46% profit in the year under review. However, returns in silver would surpass all comparable metals in this category with a staggering 34.8% in 2013 following the optimism in global economic growth.

“For decades, investors have perceived gold as the best investment available to them. However, movement in the bullion market in 2012 and 2011 has led many investors to change their focus from the yellow metal to white metal. Consequently, the silver has the potential to outperform with 34.8% returns versus around 13% of other metals in 2013,” said Sugandha Sachdeva, Head (metals, energy and currency), Religare Retail Research.

Around 67% of the global silver production finds applications in industries especially for mobile, photography and electrical sectors. Jewellery and investment, however, contributes to around 28%.

Both, gold and silver, meanwhile, are set to hit the record high in 2013. Gold could hit a record high in 2013 due to soft monetary policy and less tail risk related to a breakup of the Eurozone. Economists are looking for a rebound in global economic growth to 3.4% next year from 3.1% in 2012. Moving ahead, one major headwind related to weaker Indian demand, should abate next year as buyers in the country get accustomed to higher prices from increased duties on gold imports and weak rupee. Further, an expected economic upturn in China should mean more demand from this nation, while global central banks are likely to remain net buyers.

Technically, gold may hit the benchmark Rs 35000 per 10 gms which would open up a way for flawless journey for yellow metal towards Rs 38000 per 10 gms. The strong level of $1920 an oz may offer strong resistance for gold at COMEX and prices may temporarily exceed $2,000 an oz in 2013. Similarly, silver is set to hit Rs 65,000 a kg to get a very strong resistance on the immediate higher side. Once prices close and sustain above the same, significant upside could be expected till Rs 70,000-72,000 kg or even more in the coming month proportionately in global market to around $35.5 an oz.

Shining metal
Commodity (Rs/kg) 2012# 2013#
  Open Close Returns (%) Forecast Returns (%)
Gold (Rs/10gm) 27300 30859 13.04 34500 11.8
Silver 51000 57864 13.46 78000 34.8
Aluminium 107.1 113.1 5.6 134 8.51
Copper 405.95 443.75 9.31 490 10.61
Nickel 992.5 947.1 (-)4.5 1100 16.14
Lead 107.75 127.35 18.2 150 17.79
Zinc 98.3 113.1 15.05 130 14.94

The US based trade group the Silver Institute estimates silver usage in industrial applications to gain nearly 7% to 484 million oz in 2013 and an additional 6% to a record 511.6 million oz in 2014 as forecast by the global consultancy GFMS.

Meanwhile, BNP Paribas has forecast gold and silver to average $1865 an oz and $39.05 an oz followed by Commerzbank at $1950 an oz and $40 an oz respectively.

Prithviraj Kothari, Director, RiddiSiddhi Bullion Ltd, a Mumbai-based bullion dealer, said, “During the middle of 2012 many investors lost faith in gold believing the yellow metal in a bubble stage and was no longer a safe haven asset. Investors shifted their attention to other assets classes.

But, gold started gaining importance once again. Consequently, gold will perform better this year than 2012.”There are positive sentiments in the market as far as economic growth is concerned. GDP growth will also be high. A better economy will bring a rise in demand worldwide. In this case demand for silver will also rise, given its wide use in various industrial applications. Kothari forecast, silver to hit Rs 80,000 a kg level this year.

In contrast, a majority of large base metals are suffering oversupply and hence, prices are likely to remain under pressure.

First Published: Wed, January 09 2013. 14:38 IST