The prices of gold and silver are on a tear. While gold has been breaking new highs, silver's rally has surprised many. On MCX, silver futures have surged from the level of ₹54,000 per kg last week to ₹67,560 in today's session - a gain of 25% in just six days. Both gold and silver have benefited from rising US-China tensions, a tumble in real interest rates as governments and central banks worldwide unleash vast stimulus measures to try and boost economies. Silver however saw some profit-taking at higher levels today and and trading at ₹65,825 on MCX.
"Silver has benefited from persistent gains in gold price on back of weaker US dollar and hopes of continuing stimulus measures. Industrial metals have also benefitted from weaker US dollar but rising US-China tensions remain a cause of concern," Kotak Securities said in a recent note.
Silver holdings with iShares ETF were unchanged Friday at 17379.98 tonnes, a record high level, the brokerage added.
For silver, an added boost came from supply concerns. The Silver Institute earlier this month forecast a 7% decline in mine production this year.
Some analysts say that signs of nascent economic recovery in some countries may also aid demand for silver used in solar panels and electronics.
This week’s Federal Reserve meeting on July 28-29 may provide more clues for gold, and silver traders. Expectations are high that the message from Fed will be dovish and chairman Jerome Powell may signal that rates will stay near zero for longer.
Silver tends to perform very strongly when the desire for wealth protection, or fears of inflation-induced wealth destruction, are high and when global economic activity is improving, according to Citigroup Inc which remains bullish on metal.
Both these factors are expected to boost prices over the next six-to-12 months, driving prices up to $30 by mid-2021 if the bullish momentum continues, said Citigroup analysts.
However, some analysts remain cautious about the sustainability of the recent price rally in silver. "However, a sharp correction is unlikely unless gold prices come under pressure. Hence we maintain buy in dips view," Kotak Securities said. (With Agency Inputs)