Commodity Online
MUMBAI: After the fall, the rise. That is the new silver lining for the white metal. Silver has again found favour with investors following its recent rise after the fall it witnessed since mid-2008.

Main reason for its gain is the rise in industrial demand and investors’ new found love for the white metal.

Since mid-2008 , silver had slumped by 57 %. One reason for silver’s fall was the correlation of the white metal with base metals like copper — which declined by 67% during the period — and a rise in the industrial use of silver in the last couple of years.

This year against a gain of 31% in gold, silver appreciated 58%, almost tracking an over 70% rise in copper. The behaviour of silver highlights a pattern of following the price trend in gold, however, with increased price swings due to its correlation with copper.

The price range of silver follows the directive moves of the price range in gold while its value is closer to that of copper. This phenomenon seems supported by a detailed classification of the world silver demand since 2002. The contribution of industrial demand to the total demand has seen an average rise of 2% during the period. In fact, the pace of decline in the photography industry’s contribution to the total demand seems to be stabilising.

There were two distinct developments in demand distribution during 2008: on the back of a global recession, the industrial demand declined by nearly 1%, but the investment demand in terms of coins and medals rose by more than 60% from 2007.

Silver’s exceptional electric conductivity makes it ideal for use in electronics products and its unique chemical property makes it useful in preparation of catalysts. The metal’s less-known anti-bacterial properties are also leading to its increasing use in medical as well as water purification industries.

Other sectors that are expected to see a rise in the use of the metal are food packaging and solar panels. The new-age addition to the industrial demand is expected from the rising use of radio frequency identification, or RFID, a tagging technology used in supply chain management that is expected to replace the bar code identification system in the coming years.

While the industrial demand of the metal is expected to provide strong support to prices, the supply side could be affected by worldwide cuts in mine production of zinc and lead, of which silver is a by-product . The scrap supply added about 1% in 2005-06 , but has declined 3% since 2007. Against a rise of 12% in 2005-06 , the official sector sale has seen an average decline of 30% in the last two years.

This leads us to the last aspect of the demand-supply equation: the investment demand. The retail demand for coins and medals saw a remarkable jump in 2008 while jewellery demand continues to remain subdued. However, the interest in products like exchange-traded funds (ETF) and silver futures has seen a revival this month.