RAJKOT (Commodity Online): The silver surge seems to be over! While silver outperformed gold in the first six months of 2009, the metal’s urge to compete with gold seems to be exhausted this month.
With gold continuing its unbeaten run in the bullion market at $1,130 per ounce, silver has lost its direction and gains in silver were capped due to movement in base metals and stalled ETF interest.
However, a recovery in economic activity is expected to fuel industrial activities, which, in turn, might support silver prices in the coming days. Silver (silver fix) has rallied 60% so far this year as against the 27% rally in gold. Copper, on the other hand, has jumped 112% so far this year.
Silver’s gain this year has narrowed the gold/silver ratio to 63 this month as against 84.5 during the same period last year. However, silver has increased only 5% since October while gold has surged almost 11% during the same period and has managed to scale newer highs. Copper has also witnessed a modest 6% rise during the period.
After hitting the then record level in March 2008, gold has held up well due to investment and safe haven buying interest. Though silver is supported by industrial demand, investment demand holds up gold prices, which silver lacks.
May be silver cannot catch up with gold due to the lack of investment demand. Gold will continue to have more momentum than silver. Where returns in gold are steady, with silver it is speculative. Gold every year has given more than 20% returns, which is an unlikely case for silver as it is more driven by base metals.
The sharp drop in silver prices last year and firmer gold prices can be attributed to higher investment interest in silver since December 2008.
However, the sharp run-up in prices seems to have stalled investment interest in past few months.
After hitting an all-time high of 8828.14 tonne in July end, silver holdings with IShares, world’s biggest silver backed ETF, fell as low as 8,594 tonne in early October before bouncing back to 8,744 levels in late October.
Depleting stocks continue to remain a matter of concern for silver and will support prices in the long term, say industry veterans.
The gap between mine production and fabrication demand is usually filled by above ground stocks which consists of government sales and supply from scrap.
Refined silver stocks have declined from around 2.2 billion ounces in 1990 to around 300 million ounces.
Overall, gold may continue to determine price direction of silver and it may continue to move up till gold rallies.
