Scale into Silver

December 9, 2013 at 08:54


Analysts say prices could fall further, though the downside is limited to 10 per cent

Silver prices have been uncharacteristically volatile in the past three months. After a sharp rally in August, which saw prices rise 30 per cent in three weeks, the white metal has cooled down and is currently trading at Rs 44,015 per kg. Global silver prices have slumped 37 per cent so far this year, their biggest annual drop in at least three decades.

The recent drop in domestic silver prices is largely due to a sharp 40 per cent rise in silver imports during October. Analysts expect India’s silver imports to be 5,200-5,400 tonnes by the end of the year. This would be more than India’s record high purchases of 5,048 tonnes in 2008.

“The loss of gold’s status as a safe haven has in turn led to the pressure on global silver prices. The precious metals literally lost their sheen due to the expectations that the Federal Reserve would begin its pullback of the stimulus measures,” says Renisha Chainani, manager, Commodities Research, Edelweiss Comtrade.

But she warns that silver prices may be headed lower. “It doesn’t look like prices have bottomed out, though the downside is limited. If domestic silver prices sustain below Rs 45,000 per kg, they could fall to Rs 40,000-42,000 in the short term,” she says.

Having said that, Chainani points out that the fundamentals for silver are the strongest they have ever been. “The metal is massively undervalued at today’s prices,” she says.

If you are planning to invest in silver, don’t do so at one go. For long-term investors, a staggered approach will work best. They should start accumulating the metal around Rs 44,000 through Rs 40,000,  with 25 per cent investment made at every Rs 1,000 fall in the price of the metal.