x Abu Dhabi, UAEWednesday 24 January 2018

Meltdown over silver price rise

India Dispatch: As the price of silver soars, Indians are melting down their jewellery to cash in

A silver trader weighs ornaments in Ahmedabad, India. Soaring silver prices are driving Indians to recycle jewellery into bars as an easier, more reliable way to invest.
A silver trader weighs ornaments in Ahmedabad, India. Soaring silver prices are driving Indians to recycle jewellery into bars as an easier, more reliable way to invest.

MUMBAI // With soaring silver prices, a growing number of Indians are recycling their silverware and jewellery into bullion bars, a more lucrative form of this year's best performing precious commodity.

But while the trend may make a few extra rupees for canny investors, observers warn it could impede imports in the world's fourth-largest consumer of the metal.

The precious metals consultancy GFMS, based in the UK, says supply of silver from recycling rose 2.8 per cent last year to 558 tonnes from 200 tonnes a decade ago. That number is expected to cross 800 tonnes this year.

"More and more people are converting their silver ornaments, trinkets and utensils into bars," said Suresh Hundia, the chairman of Hundia Exports, a major silver trader in Mumbai. "It's the smartest thing to do these days judging by how metal prices are climbing."

Silver's value per kilogram rose above 67,000 rupees this month, its highest value in more than three decades in Mumbai, India's main bullion centre. Its value in April last year hovered around 28,500 rupees.

Silver outperformed all other precious metals last year, offering a 42 per cent return. Its price rose 80 per cent for the year, almost two and a half times the rise in the price of gold, traditionally the hot favourite among investors.

The gold-to-silver ratio - the number of silver ounces needed to buy 1 ounce of gold - fell to a 28-year low this month to 35.

The growing demand for silver is led by a surge of interest in silver exchange-traded fund holdings, which rose 24 per cent this year to 582.6 million ounces compared with 2009, and demand for silver coins, which climbed 28 per cent to 101.3 million ounces.

Experts say silver bars are easier to store and offer superior returns compared with ornaments, the market value of which is diminished by the additional cost for jewellers to hire artisans.

Silver bars can be sold or bought at various trading platforms at prevailing market prices.

"There is a mad rush for silver bars," said Gnanasekar Thiagarajan, the head of the research company Commtrendz in Mumbai. "The asset was once considered gold's poor cousin but now it is attracting a whole new class of investors that have never traded in this commodity before."

But Mr Thiagarajan warned it is an overvalued asset with no fundamental reasons backing its price. He expects its per-kilogram price to soften by up to 15 per cent this year.

"Amid the mad rush, investors fail to see silver's volatile nature," he says. "They will feel sorry about their investment if prices drop sharply." That was evident last Wednesday when silver prices dipped by nearly 5 per cent in one day's futures trading to close at 67,445 rupees a kg as a large number of speculators locked in gains at record highs.

But such volatility and recycling will not affect silver imports, said Prithviraj Kothari, the president of the Bombay Bullion Association.

Silver, which is highly malleable and ductile, is used for a large number of industrial applications. GFMS said the demand for silver in industry rose 21 per cent last year compared with 2009.

India is the world's largest buyer of precious metals. Silver imports rose 25 per cent last year on 2009 to more than 1,200 tonnes.

Mr Kothari said the trend was likely to continue this year as demand rose among solar panel makers and the electronics industry.

India's growing imports are likely to support global silver prices, he said.