A Case of investing in Silver
With white metal likely to become extinct by 2020,
the next decade may very well see it outshine gold
SILVER, the poor cousin of gold has been on a roll.
Since the beginning of this year, the metal has given a whopping
61% returns. Gold in the same period has given a return
of around 15%.
Also, silver prices have been on all time high levels, and currently
quote at 44,130 per kg. Despite these all-time high levels, buying silver
seems to be catching on in India.
Take the case of 58-year old Usha Joshi, who always wanted to
buy silver. However, the idea of holding silver physically seemed
problematic to her. While she could buy gold through exchange
traded funds (ETFs), she could not do the same in case of silver,
as no silver ETFs are available in India. However, now she has a
solution to her problem. She buys both e-gold and e-silver through
the National Spot Exchange, where it is possible to buy silver in lots
of 100 grams and gold in lots of 1 gram.
At the opportune time, plans to gift these precious metals to her
grandchildren. It's easier than going to a jewellery shop.
So, What's The Silver Story?:
Silver, unlike gold, has a lot of industrial uses. Silver is the best
conductor of electricity, the best heat transfer agent, the best
reflector of light, a marvellous lubricant and a versatile catalyst
and alloy. Other than these properties silver, after gold, is also
the most ductile and malleable. Silver has industrial value and finds
use in dentistry, photography and motherboards.
The demand for these industrial products is on the rise. Besides that,
the global recession has taught people to go beyond paper assets
and invest in precious metals. Hence the recent interest in gold
and silver.
Buy silver for the long term, and has a target of 60,000 per kilo
with a three-year timeframe. What is also not too well known is that
there is less silver on earth than gold. There is less silver bullion in
the world than gold bullion inventory. The shocking thing is how
few people are aware that silver is rarer than gold." He estimates
that global silver inventories have fallen to around 1 billion ounces
(one troy ounce equals 31.1 grams). In comparison there are 5 billion
ounces of gold available around the world. Of course, Butler is very
optimistic on the price of silver.
The Technical Reason:
Silver moved in a band of $10 to $21 per ounce, for a long period from
2007 to 2010. It broke that band after a long time, which makes me
bullish on the metal. He feels that within two to three years, globally
silver could reach $50 per ounce against the current price of $28.4
per ounce, while in India, it could reach 55,000 per kilo from current
levels of around 44,000 per kilo. The rationale for a lower rise in silver
in terms of Indian rupees is due to the fact that Banthia expects the
rupee to strengthen and go up to 42 per US dollar, limiting the gains
in rupee terms.
Gold Versus Silver:
The investment argument of silver is pretty simple. The various industrial
uses of silver are growing and there isn't enough silver going around to
satisfy that demand. Adrian Douglas, the proprietor of Market Force
Analysis, and also a director of GATA (the Gold Anti-Trust Action
Committee), said in a recent interview that the world will run out of
silver in 2020, and thus silver will become the first element from the
periodic table to become extinct.
Given this analysts, expect silver prices to appreciate faster than gold.
As global uncertainty fades and industrial activity picks, I expect higher
demand for silver, so it could move faster than gold.
In the short term, silver prices could see a correction.
However, for retail investors it is very difficult to time the market
and it is best that they accumulate it over a long term. Retail investors
should systematically buy gold and silver every month.
This could constitute up to 10% of your total investment portfolio.
How To Buy Silver:
Of course, the traditional way to buy silver is buying it from your
jeweller. Traditionally, individuals are used to buying coins or silver bars.
Some even buy ornaments, while some families also buy silver utensils.
However, there are a couple of problems in buying coins and bars.
First is that of purity and
Second is of storing it. Silver is bulkier than gold and needs
more storage space.
So, storing bars can be a problem. Physical silver is typically more
bulky and investors sometimes face this storage problem for larger
quantities. This increases the cost of storage and may be the cost
of insurance too. Though smaller investors can easily manage the
storage as a typical 1 kg silver bar would be 99 x 49 x 22 mm in size.
It is not practical to buy 20 kg as an investment — firstly to store
it is cumbersome and secondly, purity may be an issue in some cases.
Also, normally I need to sell it back to the same merchants so that
they recognise the purity. More than that, there is that wealth tax
that has to be paid on physical silver.
While there are a lot of gold ETFs, silver ETFs have not been allowed
as yet. So, how does one buy it for investment? The most practical
solution is to buy e silver. E silver has been launched recently by
National Spot Exchange.
According to brokers, about 30 to 40 crore of silver is traded on a
daily basis, thus giving enough liquidity for retail investors.
This is the same way as you buy shares and they are held in
dematerialised form. In case you want physical silver, you can do
the necessary paperwork with the depository participant and collect it.
However, currently there are limited centres which could be a barrier
for investors. For example, if you stay in Hyderabad, it may not be
feasible to take possession of physical silver as the delivery centres
of National Spot Exchange are located in Mumbai, Delhi and Ahemdabad.
So, go ahead and buy e silver to ride the white metal boom, keep it as a hedge
against inflation or pass it on to your next generation.
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