Silver futures have been slowly inching upwards on the strength of gold’s recent upside movements both in the international as well as domestic markets.

Silver futures on MCX have moved up 14 per cent in the last one month mainly helped by sharp gains in gold. Silver’s price movements are often influenced by trends in the yellow metal as well as base metals as it also has a role as an industrial metal.

While brokerages are confident of a short-term positive trend in the white metal they believe much would depend on how the monetary measures if implemented would pan out on the money supply scenario.

Already there are indications that Bank of England may not infuse more money into the system.

“Much would depend on the money supply that would come in if monetary measures are brought in by the central banks,” said Dharmesh Bhatia, associate Vice-President – Research, Kotak Commodities.

Although the intermediate trend for silver is positive some brokerages are advising investors to take long positions only for a horizon of 2-3 days.

“We are asking our clients to take a 2-3 days view on gold and silver,” said Pranav Mer, senior analyst, Mangal Keshav Commodities.

According to Bhatia, if announcements or indications from central banks such as Bank of England, European Central Bank and US Federal Reserve do not suggest higher money supply, gold and silver prices could see a reverse trend from current levels.

He said the rupee’s weakness against the dollar was also a factor supporting precious metals in India.

Today, gold futures for October delivery on MCX touched a new record high of Rs 31,777 per 10 gram in trade up until 1 p.m. Silver futures for December delivery were up 2 per at Rs 63,184 per 1 kg.

“If silver futures cross Rs 65,000 level, there could be an upward trend,” said Mer.

Silver futures on MCX had touched a record high of Rs 73,600 per 1 kg in April 2011.

Volumes in silver futures are also high as there is healthy buying in this contract, said Bhatia.

However, the overall upside in silver futures is also partially dependent on base metals. Prices of base metals have been sluggish for most part of this year.

“Copper is still in a range-bound movement though it has gained a little recently along with metals such as zinc and aluminium,” said Mer.

Base metal prices have been slack mainly because of slowdown in Chinese buying, said Nalini Rao, senior analyst, Angel Commodities. Stimulus measures if implemented should augur well for base metals, she said.

However, much would depend on the money supply that would entail from the quantitative measures, said analysts.

The US Federal Reserve is slated to meet next week when a clear picture on the quantitative easing measures would emerge, they said.

(This article was published on September 6, 2012)
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