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When the silver inventories are high—suggestive of depleting demand from industry quarters where no delivery is taken-- it behaves more like gold and when inventories deplete--suggestive of depleting demand from..

18 Jun 2013

By Rakesh Neelakandan
Gold and silver futures have been pals for sometime now; strictly speaking, that was the case well until April when both commodities were exhibiting similar characteristics. When gold futures moved up, silver too. Silver in a way was tethered to gold.

But given that one could buy as much as 50 times of silver for the same price that one may have to pay for gold, volumes were always high in silver and thereby volatility; multiple opinions dragging the commodity to and fro. But what marked this volatility was nothing else but the dual-demand nature of silver.

Silver, as you are already aware, has industrial applications as well. In other words, silver has got not only industrial demand but investment demand as well. But demands of both nature are mutually exclusive! When the industrial demand of silver is robust, there would be not much of investment demand to speak of and vice-versa.

This is a direct reflection of the state of the global economy; overall there is a slowdown, but there are these pockets of growth, for instance emerging markets.

The slowdown of economy in the developed world ensures that there is at best some investment demand for silver, as much as there is for gold. But the recent sell-off and demand from emerging markets caused a link for silver to develop between it and base metals.

In other terms, when the silver inventories are high—suggestive of depleting demand from industry quarters where no delivery is taken-- it behaves more like gold and when inventories deplete--suggestive of depleting demand from investment quarters--it behaves more like base metals.

The case is well represented in this story on India's MCX Gold and silver (Though Rupee movement is a variable, India being one of the biggest consumers of gold and silver, futures there track Comex gold and silver by a major degree.)


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