Is silver the next option?

Updated: Jan 03, 2011, 17:02 PM IST

Reema Sharma

Festivities are all over but the urge to get ‘that lustre’ seems to have no end. The beginning of the month of December saw gold price at an all-time high level of Rs 21,000 per 10 grams in the national capital.

Demand from jewelers severely picking up along with a busy marriage season added to the glory of gold. But the most captivating aspect of the season remained silver which spurted to the record high level of Rs 47,000 per kg just two days ahead of the New Year. International market also showed good buoyancy with silver reaching the 30-year high of USD 30.93 per ounce.

Talking to Zeebiz.Com, Shitij Gandhi, analyst at SMC global expressed hope that prices of both the yellow and white metal reaching newer highs will boost investors demand. Gandhi said, “International silver prices have reached a 30-year peak while local prices kissed new highs and investors can continue to bet on further price rally in precious metals”.

The demand from industrial units and coin makers went up resulting in a good demand for the precious metal.

Although speculation of China tightening monetary policy further rubbed away demand for the precious metals, as the world`s largest exchange-traded fund backed by physical silver, demand has risen to 10,903.34 tonnes, from 9,492.97 tonnes at the end of last year.

Hong Kong dealers believed that silver was catching up with gold, while those in other cities surmise that the metal was supported by physical buying from the industrial sector.

Clubbed with an uncertain economic environment, silver got the required push it needed to reach its 30-year high.

Apart from that, industrial side demands in the past few days has also accounted for silver astounding performance. Eventually when global industrial production recovers, it is bound to give the white metal an upward push.

“The prices surged high mainly due to fall in dollar index along with push up in base metal prices with copper trading at all time highs on global markets,” said Gandhi.

This might not be particular to silver only because in times of uncertain market, investors shy away from shaky assets. And the safest and solid mode of investment becomes silver and gold.

However the gold-silver ratio will push the investors towards believing that the white metal has more to offer this time around.

The rally in silver up around 81% this year versus gold’s 30% gain has narrowed the gold-to-silver ratio.

“The gold-silver ratio, slumped to a four-year low of 46.1 percent, extending its steady decline since August. Silver has averaged about 63 percent over the past year”, added Gandhi.

The trend in decline of silver below 45 percent is seen only twice in the past 25 years. As, silver prices reach new highs, I believe that it will continue to dominate other metals along with gold in coming few months,” opined a cheerful Gandhi.

Will silver outperform gold or does silver have the potential to outperform gold is one question that keeps cropping up every time silver registers newer highs.

The phenomenal potential of this ‘poorman’s gold’ would definitely drive the investors towards believing that silver is the next gold.