Indian Silver Investment Surges


"Traders in India were betting big time on silver futures even as retail speculators have ensured that the white metal remains the highest traded commodity on the exchanges."

With a predicted 7% expansion in global demand in 2012 to an unprecedented 968 million ounces, investors in India are using silver as an inflation hedge, hoping that demand will be sustained by global concerns.

On the back of growing interest by small investors in India, the Indian Commodity Exchange, which started operations in late 2009, is to soon introduce micro-volumes of gold and silver contracts of up to 1 kilo each. The exchange is a screen-based online derivatives exchange for commodities. At the end of last year, it had recorded one of its highest volumes in physical delivery of bullion (gold and silver) on its platform.

"With the spurt in the demand of gold and silver in recent times, commodity exchange trading in these precious metals has surged in India, which is arguably the world's largest bullion market. Delivery as a percentage of average open interest was 94.10% in gold, 62.02% in silver and 79.78% in gold of 100 grams," said Nanikbhai Mehta at the exchange.

In just one day, on December 2, 2011, the exchange recorded one of its highest volumes in physical delivery, trading of 3,665.75 kilograms of silver at a commodity delivery value of $4 million (at the current exchange rate).

Mehta added that traders in India were betting big time on silver futures even as retail speculators have ensured that the white metal remains the highest traded commodity on the exchanges. Indian Commodity Exchange, which launched iron ore futures last year, is initiating to launch small contracts in gold and silver.

CEO Rajnikant Patel said that traders who could not afford to trade at high volumes in gold and silver could trade in smaller volumes. Moreover, taking a leaf from its competitor, India's leading commodity exchange, the Multi-Commodity Exchange's (MCX) hedging platform, which has proven to be an effective tool in discovering the best price in the market and has gained industry confidence, the Indian Commodity Exchange too has decided to take a share of the investor pie.

On Friday, the silver March 12 contract was up by 1.08% to $1,169.35 per kilo on the MCX. The SilverM April 12 contract was up by 1.36% and the Silver MIC April 12 contract was up by 1.36%.

"Silver is the hottest commodity and star performer in futures trading, even as speculators build up fresh positions. The white metal has emerged as the favorite investment vehicle for Indian investors. Last year, silver fell 44%. In January 2012 though, silver is up 20%. There are many bulls here that are betting on silver touching $44/oz, almost 40% more than today," said Manish Tolani, bullion analyst at a brokerage firm.

He added that with few alternate avenues for investment, like gold, silver too is enjoying demand as a hedge against inflation and currency fluctuations. "One estimate has it that investors may buy 2,000 tonnes through exchange-traded products, which sold 1,300 tonnes last year. A decisive break over $33.70/oz would signal an upside extension towards $35.70/oz range. A weaker dollar has helped lift silver prices," said Tolani.

Added Prithviraj Kothari of the Bombay Bullion Association, "A powerful dollar can reduce the valuation of gold. But if the debt problems in the Eurozone intensify, then gold, silver, as well as the dollar, will be a safe place for most Indian investors."

The momentum of the white metal has not escaped Asian neighbor, China. Close on the heels of launching the first yuan-denominated gold bar trading in October, Hong Kong's Chinese Gold and Silver Exchange is fending interest over yuan-denominated silver market.

Gold transactions on the exchange currently exceed HK$50 billion each day. With daily transaction of gold in the city's gold exchange set to increase 30% over the next two years, boosted by yuan-denominated gold products, the exchange is to soon roll out its silver trading schemes.

Shivom Seth, Mineweb

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