Thursday, March 1, 2012

In India, silver investors still extremely bullish despite price crash elsewhere

Silver prices leapt to a 7-month high in India on the same day that prices plummeted 7% in the international market. Despite the crash, traders expect a 35% rise by end 2012.

MUMBAI - Silver is shining again in India contrary to the big fall in the international market. The white metal rose by $40.66 (Rs 2000) in one single day on Wednesday and has jumped to a 7-month high here, though it slid by 7% in the international markets later in the evening on the same day. Traders said investors have turned bullish on silver since the precious metal has posted an 18% gain in the last eight weeks.
Traders pointed out that many investors and retailers had built short positions in the markets since they expect prices to react sharply in the immediate future. Several new traders have also taken position in the market and are trading larger stocks.

"Over the last two months, frenetic activity has been seen in silver. Though the price slid massively in the international market on Wednesday, one has to understand that investors have built a position for the past two months here. A lot of new trades have taken place on the multi commodity exchange and the NCDEX in the last two months and, especially, in the last couple of days due to the Greece bailout and Euro stabilising issues, " said M Mathur, research analyst at a broking firm.

He added that the rally in silver - rising over 20% from January this year - is pushing demand in India, with enough indications that it would continue to outperform other metals like gold and copper. "What happened yesterday on the international market was a fluke. Indian investors are not worried," he added.

On Thursday morning, silver continued to trade at a slight discount on the Indian bourses to the Wednesday's high point which neared $1239.46 (Rs 61000) per kilogram ($38.55/ounce) level. Traders said they were not unduly worried about the crash.

Chief economist at Care rating agency noted that the dollar rupee stabilisation has also played an important part in the climb of the white metal in the Indian market and has attracted new investors into the market over the last few months. "We expect the prices to go up by 35% at the end of 2012 given the fact that global factors stand positive for the metal," he said.

Indications available from traders suggest that if one has to look beyond the crash of February 29, silver has outperformed gold, copper and crude oil since the beginning of January. The gold-silver price ratio has fallen from 56 to nearly 51 now, indicating that silver has been outperforming gold.
Similarly, analysts said since the crude silver ratio has come down from 3.86 to 3.57 and that of copper-silver has gone up from 118 to 129, both these ratios are an indicator that silver has done better than either of these commodities.

"Silver shot up on Wednesday and again early Thursday in the Mumbai market. It is down mid afternoon, but only slightly," said S Shah, bullion trader. He added that silver ready had zoomed by $48.58 per kilo to record a new high.

Silver prices have been forecast to jump over $60 per ounce in 2012. The firm overseas trend and a weaker dollar has spurred demand for the precious metal as an alternative investment.
At the Multi Commodity Exchange in Mumbai, silver for delivery in March spurted 0.73% with a business turnover of 9,622 lots, early Thursday. Likewise, the metal for delivery in May traded higher by 0.43% with a trade volume of 5,608 lots.

"Silver has jumped past $1247.67 (Rs 61350) per kilo. In early January, a kilo of silver cost $1036.68 (Rs 51000)," said an analyst adding that silver saw a high of $49 last April on the international markets and has been in a consolidation mode ever since then. He did not want to comment on the crash in price in the international market saying investors continued to be bullish.

India's Hindustan Zinc is set to be a major beneficiary of the metal's surge, as it is the largest producer of silver in India. The company is expected to produce 250 tonnes of the commodity in the current financial year and is likely to raise its production to 500 tonnes in 2012-13.