India’s silver set to gain sheen from gold, industry

India’s silver set to gain sheen from gold, industry

New Delhi: Indian demand for silver is likely to rise as consumers build stocks to meet growing industrial usage, and surging gold prices are expected to boost the metal’s price in the new year.

Analysts said the international price of silver could rise by up to 40% to $20 an ounce by the middle of 2008, from $14.50 an ounce.

“There is a long way to go on silver. It has to do a lot of catching up with gold," said Gnanasekhar Thiagarajan, director of Commtrendz Risk Management.

Since January, silver has risen only 3.5%, compared with a 20% rise in gold prices during the same period, though the two precious metals usually rise in tandem.

“I expect total silver demand will increase by 8.5% in 2007," said N Prasad, a Chennai-based bullion analyst. “Industrial suppliers and hedgers are likely to buy more of the metal as the prices are expected to rise."

India’s total annual silver consumption is estimated at 3,000 tonnes, but this is likely to go up to about 3,400 tonnes in 2007.

Jewellery accounts for about 20 to 30% of India’s silver demand, while industry uses most of the rest.

Prasad said growing use of the metal in electronic goods such as LCD screens and mobile phones in India, combined with little growth in global mining output, would mean that more users may invest in the metal now before prices hit peaks.

Global silver mine production in 2006 grew marginally in 2006 to 646.1 million ounces.

Industrial demand accounted for 47%, silverware 27% and photographic fabrication 16%, according to the Silver Institute’s World Survey.

Thiagarajan said industrial usage of silver is going to rise further as the metal is used as an eco-friendly substitute for lead in many applications in developed markets.

The anticipated demand is likely to spur investment buying worldwide including in India, the world’s largest gold market, but the lack of a paper savings instrument or an Exchange-Traded Fund may curb its attractiveness.

Indian investors were eyeing the precious metal for investments, but a question mark over purity in buying from jewellers and difficulty in storing large purchases were limiting its potential.

Still, branded suppliers see a rise in demand.

“Our Saanchi silverware has become very popular," said Ashwini Kapoor, deputy general manager of the state-run MMTC, one of the largest bullion importers in the country. “We had brisk sales during the festival season."

He added that April to October sales had risen by at least 30%.

India’s festival season runs from end-August to November, when sales of gold jewellery, coins and medallions peak. Silverware, coins and bars are also bought, more so on certain auspicious days.

“In India, we are yet to see a silver ETF, but I think we will see one soon," said Anindya Banerjee, an analyst with Mumbai-based InvestsmartIndia.

Traders said one of India’s largest private companies was gearing up to launch a silver ETF. Four firms have launched Gold ETFs in the last seven months.

“Tomorrow, if we have a silver ETF in India, then the investment demand will come," said Ashok Mittal, vice-president and country head for commodity brokerage Karvy.

Traders said speculators are also likely to drive up trading of silver contracts in the local commodity exchanges in the next two to three months.

They said prices of silver contracts could rise to Rs22,000 ($556.5) per kg by February, from about Rs19,000.