Category Archives: Silver

Silver imports into India rose sharply last month, hitting the highest January level since Metals Focus began tracking the data in 2008.

Silver imports rose by 37 percent year on year to 875 tonnes.

This jump in imports happened despite higher prices.

Hot Indian Silver Investment Demand

According to Metals Focus, continued strength in investment offtake is fueling Indian silver demand.

Analysts say Indian investors anticipate a price rebound in silver due to it lagging during an impressive rally that drove gold prices to new records in rupee terms last month.

This is reflected in a gold-silver ratio that has climbed to over 91-1.

The gold-silver ratio tells you how many ounces of silver it takes to buy one ounce of gold given the current spot price of both metals. While industrial demand has a much bigger impact on the price of silver than gold, silver is still fundamentally a monetary metal, and its price tends to track with gold over time. The gold-silver ratio reflects this relationship.

In the modern era, the gold-silver ratio has averaged between 40-1 and 60-1. The current ratio running so much wider than that historical spread indicates that silver is underpriced and is a bargain compared to gold.

As with most averages, the gold-silver ratio tends to eventually return to the mean when it gets significantly out of whack. Over the last few decades, this snap-back has tended to happen very quickly. 

Silver demand has been strong in India since last summer when the government slashed taxes on gold and silver imports by more than half. This triggered a significant silver price correction in the domestic market.

The price began climbing again last fall. In October, silver surpassed the key psychological level of ₹100,000/kg. However, according to Metals Focus, the import duty cut restored confidence in the market and encouraged investors to continue to buy aggressively into any price dip.

Improving rural consumption has also boosted Indian silver demand. According to Metals Focus, rebounding silver sales in the countryside reflect a general improvement in the rural Indian economy. Rural silver consumption accounts for around two-thirds of the total Indian demand.

Along with robust demand for silver bars and coins, we can see Indian investment interest in silver reflected in silver-backed ETFs. Around 800 tons of metal flowed into India-based funds last year. They added another 114 tons of silver in January.

According to Metals Focus, “The strength of this demand has helped keep domestic silver prices at a premium to the landed cost, with an average premium of $0.2/oz last month. This contrasts sharply with gold, which has remained in a persistent discount in India.”

Higher Prices Creating Headwinds for Jewelry and Silverware

Higher silver prices have started to drag on the demand for jewelry and silverware in India.

Higher gold prices have also indirectly impacted the silver jewelry market, causing foot traffic in jewelry stores to drop.

According to Metals Focus, “Some seasonal support could emerge with the upcoming wedding season (from March to May), it is unlikely to fully offset the price-related decline in demand. It is also worth noting that silverware is mostly bought as a gift, and so high prices tend to encourage a shift towards lighter pieces.”

Metals Focus expects silver demand in India to remain robust despite headwinds from higher prices that will likely continue to put a drag on jewelry and silverware sales and incentivize some profit-taking in the investment space.

We tend to associate India with gold, but Indians also have a love affair with silver. Over the last decade, investors have accumulated over 17,500 tons of silver in the form of coins and bars.

Many analysts thought rising prices would motivate Indian investors to liquidate their extensive silver holdings. However, according to Metals Focus, selling has been “trivial,” even as the price eclipsed ₹100,000. 

“Our research suggests that investors are still accumulating physical silver to participate in the bull run. This is primarily driven by still positive price expectations.” Continue reading →