Why demand for silver is soaring in India

MUMBAI (Aug 22)  India's love for gold is well known. But now another metal has started to shine bright.

Jeweller Kumar Jain says he is noticing a rise in demand for silver at his store, located in a bustling market area in Mumbai.

“Gold prices have gone so high, so people have diverted to silver, because of their budget,” says Mr Jain, adding that buyers are anticipating the value of silver will rise.

Customers mainly buy bars and coins, but jewellery is also growing in popularity, says Mr Jain.

Demand for silver is on the rise across the country, analysts say.

Silver imports into India surged to 5,100 tonnes in the first seven months of this year, according to data from India's Ministry of Commerce and Industry. The country's silver imports for the whole of last year stood at 2,773 tonnes, at 2,218 tonnes in 2020, and 5,969 tonnes in 2019.

“Silver is considered as a safe haven asset, along with gold, and with the recent fall in prices, market participants have grabbed the opportunity to accumulate the metal,” says Navneet Damani, senior vice president of commodity and currency research at Motilal Oswal Financial Services.

“As we are out of lockdown and the pandemic, investing in the white metal amid India's festive and wedding seasons becomes even more attractive,” he adds, with people typically looking to make big purchases during the festive season, which is under way in the country.

India's silver demand receives big boost from investors

Silver futures in India were trading at 55,485 Indian rupees ($697) a kilogram at the close of the market on Friday. That compares to an all-time high of 77,949 rupees in 2020.

Local factors, including the rupee, influence silver's price locally, but it is also driven by the global rate.

“After showing signs of recovery, spot silver once again fell below $20 per ounce and is down month to date as the outlook of further rate hikes [in the United States] drove investors into the greenback [US dollar] instead of non-interest bearing assets,” says Naveen Mathur, director, commodities and currencies, Anand Rathi Shares and Stock Brokers.

The price of the metal is determined by several factors.

“Silver primarily is a mix of two things: industrial and precious metal, hence the number of factors influencing price volatility also maximises,” says Mr Damani.

Silver is used in manufacturing goods in heavy industries and in technology, including smartphones.

“In the coming years, silver may benefit from rising new-age technology demands from electric vehicles, smartphones, solar panels,” says Radhika Gupta, managing director and chief executive at Edelweiss Asset Management, which is launching a combined gold and silver fund this month to tap investor demand.

“Gold and silver both have some commonalities in terms of hedge against inflation and low correlation with equities and fit well in one's portfolio for diversification needs.”

India's market regulator, the Securities and Exchange Board of India, in November 2021 permitted the launch of silver exchange traded funds, in order to enhance participation in the bullion market.

This has prompted several financial institutions in India to set up silver exchange traded funds.

Several analysts are forecasting an upward trend for silver prices.

“We believe that the larger trend is still bullish and the current dip provides an opportunity for medium term investors to enter for an upside target towards 65,000 rupees [per kg] and above,” says Mr Damani. “Our long term bias for a 12- to 15-month perspective is strongly positive towards 80,000 [rupees] and above.”

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