Divergent views on silver prices as investment demand down

MUMBAI - Taking centrestage when gold, traditionally viewed as a safe-haven
investment, became unaffordable due to high demand in the wake of the global
economic crisis, silver posted returns that were as high as 34% in April.
But off late, the metal, which has demand both as an investment and for
industrial purposes, has been losing sheen.
Silver, which posted stellar returns earlier, has given only 3-4% returns
over the last five months as against the nearly 25% posted by gold, with
investors and analysts alike increasingly reducing investment in the metal.
And this has led to no one view on the movement of the metal. While some
experts say silver is currently in a phase of long consolidation before a big
move on the upside, others say the high prices seen in April are now a thing
of the past and the metal is unlikely to regain its high levels.
Silver had touched an all-time high of 75,020 rupees per kg on Apr 25, and
market participants were eyeing the magical 100,000-rupee level for the metal,
possibly around the Diwali festival season. In sharp contrast, silver was
traded around 54,000 rupees in October-end.
For an investment strategy too, there are mixed opinions. While some
analysts opine the metal is likely to trade around the current price or may
decline slightly, others say every dip should be used to buy the metal, which
hints at a positive outlook for prices, but without any firm targets.
"The game in silver is over for now," said Pareen Sanghavi of Raksha
Bullions had earlier said, adding gold will continue to give positive returns
over the longer term.
The ongoing Eurozone debt crisis, on its part, has lent further ambiguity
over any definite trend in silver.
"The quantum of debt in the Eurozone region is huge as there are countries
and not companies that are involved in (debt) issues," said Reena Walia, senior
analyst with Angel Commodities. She said recovery in the global economy may take
longer than the earlier crisis, which means silver, also an industrial metal,
may not see a fundamental upside in price.
"I don't see a very big upside for silver...given the current macroeconomic
scenario. Every upside is expected to be followed by a downside due to profit
sales at higher level...before the metal touches the 60,000 rupees point (in
December)," Walia said.
Bhargav Vaidya, precious metal analyst at B.N. Vaidya & Associates, on the
other hand, has a bearish view on the metal. "Though silver is not expected to
fall so sharply this month, we may see it come to 48,000 rupees level in Jan-Mar
as there is no reason for prices to remain so high."
Some dealers see spot prices of silver below 55,000 rupees per kg by end-
December tracking the global trend where year-end profit sales, low trading
volumes and uncertainty over the global economic recovery may drag prices down.
Today, spot silver is trading at 56,515 rupees per kg in Mumbai, according
to data from the Bombay Bullion Association.
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SILVER IMPORTS
Just as opinions on the price direction for silver remain unclear, views on
imports during 2011 are equally divergent. Some traders see imports of the metal
down from previous year due to a liquidity crunch in the market, while others
see it higher on diversification in silver.
"Gold prices have risen unreasonably this year and so investors have
diversified in silver. Due to this, imports of silver are expected to go up by
about 300 tn to 3,000 tn this year," said Prithviraj Kothari, managing director
of RiddiSiddhi Bullions Ltd and the president of Bombay Bullion Association.
India imported 2,700 tn silver last year.
"The money market is very tight this year. I do not see any imports this
month and for this year, I expect imports to come to down to 2,200 tn," said
Haresh Kewalramani, owner of Vishindas Gianchand & Sons and director of Bombay
Bullion Association.
Data available in the public domain shows a different picture. Gujarat's
silver imports shot up 625% to 790 tn in Apr-Oct, from 109 tn last year,
according to data compiled by GSEC Ltd, which runs the air cargo complex in
Ahmedabad. Gujarat is the largest bullion market in the country.
Silver imports in Gujarat in October rose 2,062% to 278 tn, while those in
September rose 193% to 40 tn, the data showed.
Silver imports had risen sharply in October due to good festival demand and
also as prices were around 55,000 rupees per kg, sharply down from the record
high of 75,000 rupees in April.
While a trend for the metal, both in terms of prices and imports, is
difficult to predict as of now, if the current volatility in prices comes down,
analysts said forecasts may be more unanimous.