India’s physical investment in silver dropped by a whopping 38 per cent in 2023, even as demand for silver jewellery and wares too declined, the Silver Institute’s “World Silver Survey 2024” has said.  As a result, silver imports plunged by 63 per cent to a two-year low of 111.7 million ounces in 2023.

However, trading in Indian commodity exchanges witnessed significantly higher growth, reflecting the outperformance of silver prices in local currencies relative to the dollar price, the survey, prepared by leading precious metal consultancy Metal Focus, said.

Futures turnover up

On the Multi Commodity Exchange of India, futures turnover rose by 13 per cent and options trading jumped by more than five-fold. 

Physical investment in India was down to 49.3 million ounces (moz) from 79.4 moz on record high prices in rupee terms, resulting in profit-taking. Fresh investors had only limited windows for bargain hunting. 

The growing popularity of ETPs also undermined physical investment in the country, it said. The decline comes after the country’s silver demand doubled and there was a 188 per cent rise in exchange-traded funds in 2022 — a seven-year high.

Investment in the white precious metal was weak in India due to record high domestic prices and weak rural incomes, the New York-based institute’s survey said. 

Customs duty hike

Domestic prices gained after the government increased the customs duty on silver bars from 10.75 per cent to 15 per cent and the duty on silver doré from 9.21 per cent to 14.35 per cent. This resulted in increased recycling of jewellery scrap, particularly silverware and jewellery. 

While global silver prices fell one per cent intra-year, the depreciation of the rupee saw domestic prices rise by 7 per cent. “Indian silver demand has always been price sensitive, and therefore the price achieving new highs last year and holding at higher levels (above  ₹70,000/kg) for several months encouraged investors to take profits while fresh investors had little opportunity for bargain hunting except for during September and October when the price corrected,” it said.

The absence of arbitrage opportunities - where investors buy physical and sell on exchange to earn a yield -for much of 2023 hit demand from high-net-worth individuals who tend to dominate this trade, the institute said.

Some solace

Global silver jewellery fabrication demand dropped 13 per cent in 2023 with the losses mainly concentrated in India after demand eased since topping the record in 2022, it said. 

“On top of destocking, this reflected the impact of record high rupee prices on consumer buying due to the bullion import duty hike and currency depreciation. Excluding India, losses were far more modest at just 3 per cent,” the survey said. 

Losses in jewellery demand were entirely due to South Asia, mainly India, due to high domestic prices. There was, however, some solace as fears that Indian investors might liquidate large portions of their recently acquired holdings did not turn true. 

Bright prospects

However, the survey saw bright prospects for silver demand in India in 2024. Jewellery fabrication is expected to recover in 2024 by a modest 4 per cent across the globe, with India expected to be the biggest contributor, in part as restocking by retailers resumes, it said. 

Global silverware demand is forecast to rise by 7 per cent this year, “again mostly due to India on the back of ongoing economic strength and rising disposable incomes,” the institute said.

In the first two months of 2024, the country imported 94 moz of silver as the rupee eased. Shipments in February rose to a record high of 71 moz, pipping the October 2023 record.

Projecting a modest rise of 50 million ounces for exchange-traded products, the survey said healthier gains are forecast for India as price expectations remain positive. 

Jewellery demand could hold steady in the medium term as structural change in India and an improving global economy counter the modest price gains expected. 

Expectations turn positive

Silverware is expected to behave similarly, but the later fall will be steeper due to greater exposure to the price-sensitive Indian market, the survey said.

Pointing out that investment in India is influenced by the jewellery and silverware market, it said individuals involved in these segments are big investors, often buying silver during low-price periods to be fabricated later. 

“After the drop in demand in 2023, we believe this year’s Indian investment could see a strong increase as the price has held above ₹70,000/kg, which in turn has led to price expectations turning more positive,” the survey said. 

Indian investors have bought upwards of 563 moz of bars and coins in the past ten years, and there remains a risk of large-scale liquidations if prices surge in a short period and reach levels close to ₹1 lakh/kg, it warned.