Market Strategy

Silver may find support at Rs 41,000/kg

Updated on: Apr 20, 2013
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Prices of silver are undergoing a correction worldwide. The precious metal has lost 18.5 per cent in just one month and is currently trading at $23.1 per cent ounce in global markets.

It may be quite some time before silver prices recover to their previous levels. The health of the global economy will play a large role in this regard. Silver has been battered in global markets amid fears that countries in the Euro Zone that are facing a payments crisis will offload their holdings of bullion in international markets, weakening the allure of the precious metal as an investment haven.

Utility value to help

The moderate recovery in the US economy has also dampened silver investment prospects.

It makes the most investment sense to wait for them to stabilise before taking fresh positions. Silver has been one of the best-performing asset classes over the past five years, appreciating by 35.1 per cent till date. If one was to consider prices only up to the start of 2012, they have risen by nearly 75 per cent.

The ascent was driven primarily by investment appetite for the precious metal. But unlike its more expensive cousin, gold, silver also has industrial use, which will prop up prices after the ongoing decline slows down.

A study commissioned by The Silver Institute, a global silver industry body, says that industrial fabrication demand for silver is likely to touch 484 million ounces (mo) this year, a 6.5 per cent rise from 454.4 mo in 2012. In 2012, silver industrial fabrication is expected to have dipped by 5.7 per cent from the previous year’s levels. And in 2014, the use of silver in industrial fabrication is expected to shoot up to a record 511.6 mo.

Silver is used in traditional industries such as mirrors, ball bearings and batteries, but also as catalytic converters in petroleum refining and food preservation. The remaining demand is primarily for jewellery making or investment purposes

Globally, the price of silver is determined by available supply versus fabrication demand.

In recent years, fabrication demand has outstripped mine production, giving a fillip to the silver recycling industry.

The near- and medium-term trends in silver prices at home are down. Mirroring global rates, the metal has lost over 18 per cent on the MCX in one month and fallen conclusively below the key support of Rs 50,000 a kg, which has turned into a key resistance. It is unlikely to find support before the Rs 40,000-41,000 a kg price band.


Published on April 20, 2013

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