Long considered the more volatile cousin to gold in the commodity markets, silver is fast catching up and becoming a sought-after asset for investors. The recent spurt in performance by the metal has seen it rise by over 23% in 2016, a considerable rise given its average performance in the preceding years.
Silver has been gradually emerging as a strong competitor to gold in recent years in India due to its relatively stable price and the import restrictions placed on gold. There are no such restrictions on the import of silver into the country, making it the metal of choice in these turbulent financial times.
With the markets vacillating as one financial crisis after another destabilises them, investors looking for security have turned their attention to the prospects offered by silver off late.
Benefits of Investing in Silver
While silver was always in demand, it was mainly used as a currency and lost some of its sheen when fiat currency entered the market. Investing in silver looks set to reap rich rewards, as demonstrated below.
Industrial Demand - Silver’s myriad uses in industry have led to an appreciation in its value. Over 55% of silver’s current use is from the industrial and manufacturing sector. Silver is used on a wide scale in emerging energy source materials as well, such as in the photovoltaic industry. This is apart from its use in nuclear reactors, medicine as well as batteries. Medicinal use of silver is rising with its use in nanotechnology and demand looks set to outpace supply in these sectors, pushing up the value of the metal.
Finite Resource - Another factor to consider is silver’s finite supply. Recent data indicates that silver mining, the source for a majority of silver in the market at present, is set to decline by close to 9% this year, with further reductions planned for the next year. With demand only set to increase, there will be competition for limited silver reserves available, leading to a rise in prices.
Stable Investment Option - While initially looked over due to its wild price fluctuations, silver prices have stabilised over the past few years. The relative stability of silver has led to investors renewing their interest in the metal.
Silver’s use as a hedge against a volatile economic market appears to be on the rise, with trends showing hedge funds and big traders investing in silver ETF’s beginning 2016. While the jury is still out on the profit margins these investments will make, the trend distinctly favours silver over its yellow metal rival for the moment.
Rising Ratio - Historically, analysts have been using a silver to gold ratio to measure if a metal was being undervalued in comparison to the other. The gold/silver ratio, which measures the ounces of silver required to buy an ounce of gold, was generally favourable towards gold. This has been changing off late, with the ratio falling in favour of silver.
Analysts have predicted that the ratio will soon reflect silver outperforming gold, bolstered by heightened demand and renewed investor interest.
While silver is fast becoming the commodity of choice for investors, it is susceptible to slumps due to falling industrial demand. The recent slowdown in China dented silver prices, with Japan and Europe also set to cut down their demand for the metal.
In spite of the flagging demand, silver appears to be rising the storm, with investment and the weak Dollar contributing to prices staying more or less stable.
The interest from Indians who are discovering silver as a substitute for gold due to federal policies is also boosting silver trading and purchase in the country. Reports suggest that silver is currently experiencing a boom in the jewellery sector, though gold continues to hold the lion’s share of the market.
Market conditions and the U.S. monetary policy will dictate the future of commodity markets but silver appears able to withstand market turbulence given it current run. While silver continues to be a high-risk investment, investors look set to benefit from its current good run, with many analysts optimistic about its future.
