Silver prices have increased by 2.5 times in last 1 year

Even as silver continues to rise to new highs, almost on a daily basis, experts have failed to understand where the white metal is heading. In the past one year, silver price has increased by a whopping 149% or 2.5 times. Analysts and traders are still wondering the driving force behind such high silver prices.

Traditionally, the trend of price growth of both bullion metals — gold and silver — has remained more or less similar. But, this has not been the case in the last one year.

Gold prices in India have shot up by 33% from Rs16,650 per 10 gram on April 22, 2010, to Rs22,000 on April 22, 2011, while silver prices have unexpectedly shot up by 149% from Rs28,090 per kg to Rs70,000 per kg.

It has become scary now, feels MD & CEO of National Spot Exchange Limited (NSEL), Anjani Sinha. “World is highly bullish over silver. Despite climbing new peaks, buying of silver has been continuously rising. The rise of more than Rs1,000 per kg on daily basis is very unique, something never seen before," he said. Sinha seems there is something wrong and fishy.

“Instead of stock market, people are more interested in bullion, particularly silver, these days. Our products - e-gold and e-silver - which we started a year ago, are slowly becoming more popular. Within a year, with more than total 75,000 accounts, we have holding of 87 tonne of silver in our vaults," he said.

As of now, gold holdings with NSEL under e-series are to the tune of 2.3 tonne. “The gold holdings are lower due to the high price. But silver holdings are much more than our expectations," said Sinha.

NSEL is the only company in the country which is offering platform for investors to put money in paper silver or virtual silver. According to Sinha, the growth in silver prices is nothing short of phenomenal if the price trends of gold and silver over the last ten years are compared.

“There are no fundamentals behind such a huge hike in silver prices. If we talk about laws of economics in price trend of bullion, then the gap between supply and demand has never widened. Industry usage of silver has also not increased at that pace. But still the silver prices have increased by 2.5 times in the last one year," explained Sinha.

At international market, the current price of silver is around $46 an ounce (28.35 grams). In 1980, silver touched an all-time high price of $51 an ounce. “The all time high price is just $4 an ounce away. I am expecting silver to make a new high within a month," said Sinha.

At present, as for good investment opportunity, whole world is investing in silver. “Globally, silver ETFs have become very popular while India does not have this product. Because of huge rise in investments, demand in silver, the prices have climbed," he said. Explaining the reason for rise in silver prices, Sinha said that partially, investment demand gets credit for this adding that rest could be speculations.

But, head of commodities research at Nirmal Bang, Kunal Shah believes that the rise in silver is fundamental. “Globally, central banks have lost faith on currencies and so have started investing in bullion, particularly in silver," he said.

In the last one year, investment demand for silver is 10 times high than that of gold. “Being a low priced commodity, whole world is investing in silver. By the end of 2009, across the globe, investment in gold ETF was $94 billion and in silver it was $19 billion. In the last one and half year, the gold ETF investment reduced by 25% to around $70 billion. While investment in silver shot up by 40%. Today, investment in silver ETF is over $26 billion. Hence, the investment demand has pushed up the silver prices," he said.

However, even if we consider investment in demand as the main reason behind rise in silver prices, it should not have jumped by 149% technically. “There could be another reasons beyond fundamentals," said Shah.

Ahmedabad-based bullion and commodity expert, Biren Vakil believes that due to de-dollarisation (means selling of dollars), whole world is investing in bullion. “Performance of equities and real estate is not better. And to hedge against depreciating currencies, bullion becomes the best investment avenue," he said.