High Gold Price Boosts India's Silver Imports

Source:

"India's appetite for silver has increased as gold is too expensive."

Industrial demand for silver remains weak and the price has failed to deliver on the high hopes of earlier this year. The price has followed the ebbs and flows of investment demand, in much the same way as gold over the past several weeks.

In fact, the silver price had slightly underperformed gold, down 2.4% from the end of May through to July, compared with the 1.3% fall in gold; the gold/silver ratio nudged up to 66-67 in early July, from less than 65 on 23 June.

Although weak, demand has been improving in H110. Chinese imports of silver, for example, have risen YOY each month since November 2009, though the figures are skewed because of the deep recession that year.

May's imports were 482.9t—up 72% over May 2009 and May 2008—before the full extent of the financial crisis became apparent. In the first five months of 2010, imports stood at 2176.5t—up 52% over the same period in 2009.

Indian silver imports were $309.8M in June 2010—up 854% on the year while, in the first six months of 2010, they are up 579%, at $1.69bn. India's appetite for silver has increased because gold has become too expensive. But should the gold price fall, we expect much of this silver will be cashed in for gold.

Short-term Outlook on Silver

While silver more or less tracks gold over the traditionally quiet Q3 period, we expect prices to remain firm and possibly advance going into Q4. The medium- to longer-term prospects in industrial demand for silver are extremely positive and we would not be surprised to see the silver price test $20/oz. in H111.

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