Silver set to outperform other metals this year

Last Updated: Thu, Jan 10, 2013 02:32 hrs

Amid expectations of a rebound in global industrial activity, silver is set to outperform other metals this year.

With the global economy expected to expand 3.4 per cent this year, against 3.1 per cent last year, investors have now started focusing on silver as an alternative asset class. Last year, against net returns of 13.04 per cent from gold, silver provided investors 13.46 per cent returns. This year, returns from silver are estimated at a staggering 34.8 per cent.

“For decades, investors have perceived gold as the best investment. However, the movements in the bullion market in 2012 and 2011 have led many investors to change their focus from the yellow metal to the white metal….Silver has the potential to outperform, with 34.8 per cent returns, against about 13 per cent of other metals in 2013,” said Sugandha Sachdeva, head (metals, energy and currency), Religare Retail Research.

About 67 per cent of the global silver production is used in industries, especially in the mobile, photography and electrical sectors. Jewellery and investment account for about 28 per cent. US-based Silver Institute estimates the use of silver in industries to rise about seven per cent to 484 million ounce this year. In 2014, it expects this to rise six per cent to a record 511.6 million ounce.

Silver is set to hit Rs 65,000 a kg and face strong resistance on the immediate higher side. Once the price sustains above this, significant upside could be expected at Rs 70,000-72,000 a kg. Proportionately, in the global market, the price may stand at about $35.5 an ounce.

This year, gold, too, could hit a record high due to the soft monetary policy and fewer risks of a split in the Euro zone. Buyers in India are expected to record higher prices, owing to increased duties on gold imports and a weak rupee. Also, an expected economic upturn in China might mean more demand from that nation. Global central banks are likely to remain net buyers.

Price movements ($/tonne)
Commodity 2012# 2013*
In Rs/ kg Open Close Returns (%) Forecast Returns (%)
Gold (Rs/10 gm) 27,300 30,859 13.04 34,500 11.8
Silver 51,000 57,864 13.46 78,000 34.8
Aluminium 107.1 113.1 5.6 134 18.5
Copper 405.95 443.75 9.31 490 10.61
Nickel 992.5 947.1 -4.5 1,100 16.14
Lead 107.75 127.35 18.2 150 17.79
Zinc 98.3 113.1 15.05 130 14.94
Source: Religare; Price for near month delivery on MCX;
# Returns over the year,
* Forecast

Gold may hit Rs 35,000 per 10 gm this year, and this could pave the way to the mark of Rs 38,000 per 10 gm. It may face strong resistance at $1,920 per ounce levels.

BNP Paribas has forecast gold and silver to average $1,865 and $39.05 an ounce, respectively, this year, while Commerzbank estimates gold at $1,950 an ounce and silver at $40 an ounce.

Prithviraj Kothari, director, RiddiSiddhi Bullion, a Mumbai-based bullion dealer, says, “During mid-2012, many investors lost faith in gold, believing the yellow metal was in a bubble stage and was no longer a safe haven asset. Investors shifted their attention to other assets classes. But gold started gaining importance again. Consequently, it would perform better this year.” He estimates silver would hit Rs 80,000 a kg this year.

However, the majority of large base metals face oversupply and, therefore, prices are likely to remain under pressure.

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