Last Updated : 07 March 2011 at 15:10 IST
Silver investment demand in China soars
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In 2010, China imported an unprecedented 14 percent of global silver as the demand for silver has been growing in the country. Till last year, China has been historically been a net exporter of silver.
In an interview to Silver Investing News, Chris Berry, founder of Mountain House Partners, said: “I know that the Chinese are buying huge blocks of the SLV silver ETF and then selling it to try and get their hands on the physical metal.”
‘You have the Chinese sitting on a store of $2.5 trillion US of which they know is completely useless, so I think they are looking at gold, but also at silver as a store of value and a way to hedge against the decline of the US dollar,’ he said.
While the SPDR Gold Trust exchange-traded fund (GLD) has increased 23.7 percent in the past twelve months, the corresponding silver exchange-traded fund (SLV) has skyrocketed 113.3 percent in the same time period.
In addition to its use as a hedge against inflation, silver is a key component in photovoltaic panels, which means industrial demand for silver is set to increase further as power companies up their utilization of solar energy.
“There is industrial demand for silver. You’ve got really two things going: there is infrastructure growth in Asia, but also silver is used in a lot of consumer goods,” said Berry. He explained that as China’s middle class grows, so does its demand for luxury “quality of life” goods, many of which contain silver. And it’s not only jewelry; silver is also a key component in electronics and the automotive industry.
Berry says that although he does see demand for silver in manufacturing, even in emerging markets like China it is its role as a hedge against inflation that is causing the greatest global demand for the mineral. “I think that has less to do with industrial demand and more to do with its role as a store value.”
According to Jim Steel, senior vice president and metals analyst with HSBC, the rising yield curve is supportive for a metal like silver. Silver benefits from its dual purpose as a currency and an industrial metal, he said.
He says an informal poll HSBC took among buyers of the silver ETFs suggested these buyers are mostly individuals who are holding onto theirs for inheritance reasons and that may be one reason why there’s been less movement out of the silver ETFs. “It could be that silver is off the market for years,” he said.
According to a recent research report from China Research Intelligence (CRI), an important feature of China's silver market is that the domestic price is higher than international market price.
“Domestic price of silver in China is not completely synchronized with the international price and it lags behind with too large fluctuation, resulting in increasing risk of downstream silver consuming enterprises,” says the report.
The CRI report said that China urgently needs to improve the formation mechanism of domestic silver price and seek appropriate trade modes to maintain values and avoid risks. It will be the general trend to introduce silver futures.
China and India are the largest silver marketplaces globally. While unprecedented constructions and setting up of new factories are driving up the industrial demand for silver, rising gold prices is forcing people to opt for silver jewellery in place of gold jewellery.
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