Commodities

Silver plunges the most since Oct 2009 on global cues

Suresh P. Iyengar Mumbai | Updated on May 02, 2011

silver

Silver, which has witnessed a sharp rally in the last few months, registered its sharpest fall in a day since October 2009 in Asian markets. The plunge was largely due to global developments.

Silver prices in the Mumbai bullion market were down by Rs 3,120 a kg to Rs 68,705 on Monday, after a big swing in prices. In fact, silver has rallied by Rs 16,010 a kg to Rs 72,910 a kg between April 1 and 30. In the futures market, silver for July delivery on MCX was down by five per cent to Rs 67,800 a kg on Monday from Rs 71,350.

The Chicago Mercantile Exchange (CME) on Friday increased the margins on silver futures trading by 13 per cent to $14,513 a contract from $12,825 and maintenance deposits rose to $10,750 from $9,500. MCX had also pushed up the margins to 8.5 per cent from five per cent due to increase in volatility.

“The increase in trading cost has forced many speculators and investors to trim their buy position. Besides the enhanced margin call, the bullion markets across the globe fell in a knee jerk reaction after the confirmation of Osama bin Laden's death by the United States,” traders said.

Mr Navin Mathur, Associate Director, Angel Broking, said CME move to raise the margins had pricked the speculative bubble in silver formed over last few months.

“Fundamentally, there is no proper reason for such a dizzying rally in silver. The demand for silver is weak. Japan economy is in doldrums, China is slowing down, India is fighting high inflation, Europe is in crisis, US economy is tottering, while West Asia is in trouble. Then where is the demand,” he added.

In line with the fall in the white metal, prices of standard gold (99.5 per cent purity) that is used for making jewellery in Mumbai fell by Rs 240 to Rs 22,470 for 10 grams, while pure gold (99.5 per cent purity) was down by Rs 245 to Rs 22,570.

DEMAND

Investment in silver has risen by 80 per cent in the financial year 2010-11. Despite high prices, the country consumed over 2,800 tonnes of silver in 2010-11 against 1,500 tonnes in the preceding fiscal.

On the back of buoyant investment demand, the country imported about 300 tonnes of silver in April. Prices have risen from $30.94 an ounce in January to over $50 in the past four months.

However, silver demand may slowdown in the coming months with the uncertainty in global markets and unwinding of speculative position by investors.

Published on May 02, 2011

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