Shining silver steals gold’s glitter

CHANDRALEKHA TULAL

Mumbai, Get ready for some myth-busting: Gold ain't the best investment hedge among precious metals. Silver is actually taking the lustre off gold in terms of annual and six-monthly returns.

One-year returns on gold in the spot market is put at 29.4 per cent and is completely overshadowed by silver's sparkling 54.05 per cent. But put that in perspective: both the precious metals have underperformed the sensex, which rose 68.26 per cent during the same period on the back of a spectacular bull run.

Silver suffers because it's cheap and doesn't quite have the emotive value that gold evokes. At Rs 152 for 10 grams compared with Rs 8,150 for 10 grams of gold, silver clearly pales in the glitter stakes.

But in terms of returns on investment, silver is clearly streets ahead of gold. “Silver is gradually emerging as the preferred asset class for the investors amongst precious metals. Increasingly, the investors have realised that gold is relatively over-valued compared with silver,” says Ajoy Pathak, associate vice-president of Kotak Commodity Services.

One reason for the strong showing by silver is the surge in industrial demand for the precious metal which has pushed up prices. “Although silver has wide industrial use, the prices of the metal had dipped on the fear of reduced utility in analog photography with the evolution of digital technology. However, the growing economy, mostly in the Asian countries, has fuelled the demand for electronic goods, which has more than compensated the anticipated fall in silver’s industrial demand,” says Sunil Ramrakhiani, head, IL&FS Investsmart Commodities.

The Securities and Exchange Commission (SEC) has granted permission to Barclays Global Investors International Inc to offer 13 million shares of ‘iShares Silver Trust’, an Exchange Traded Fund whose price will fluctuate based on the metal's price.

“The speculation over the ETF has been on since the middle of last year. Now that the licence has been granted, it will also help the prices of silver as more investors will be allowed to participate in the fund,” says Pathak.

“Moreover, silver jewellery is becoming more trendy with changes in style statements. Crafting units in countries like Turkey and Istanbul are driving international demand for silver jewellery,” says Ramrakhiani.

“The upward trend in silver prices is likely to continue over the next couple of years. It is expected to touch $15 per ounce mark,” he says.

The Silver Institute, an association of the industry, forecasts a greater upside for silver prices. It reckons that investment in silver, which has witnessed a strong resurgence in the last quarter of 2005, will continue to scale new highs due to stronger base metal and gold prices.

Maintaining the scorching pace, silver rates rose to a new high of Rs 15,665 — up Rs 270 — on the bullion market today due to heavy stockists' buying. Silver prices are at their highest since October 1983 and gained 3.6 per cent this week in Comex division of the New York Mercantile Exchange.

Posted: 3/27/06

Source: The Telegraph

Return to: Silver Report

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