Sharp spike in silver price, imports on halt

Mumbai-India (July 1)  Silver has again started rising with prices outperforming gold on reports that major European economies moving towards quantitative easing. In the Mumbai market, the precious metal crossed Rs 45,000 per kg, its highest level since 21 July 2014, and closed 3.67 per cent or Rs 1,600 higher at Rs 45,080.

 Standard gold closed Rs 185 higher at Rs 30,745 per 10 gram in Mumbai. Despite prices rising sharply in precious metals, however, silver is quoted at a 20- to 40-cent discount to the cost of import. Such a high discount have resurfaced in silver after three years. Gold was also quoted at a $37.5 or Rs 900 per 10 gram discount to the cost of import on Friday. Analysts, however, have turned bullish on both precious metals.

At the current price, however, imports have virtually come to a standstill, as several traders are sitting on huge quantities of silver imported at lower prices, and the duty paid thereon was also quite low in absolute terms. Last year, India imported 7,908 tonnes of silver, a record high. Traders are selling silver imported earlier at a discount to market price. At present, the discount per kg in the Ahmedabad market, a major centre for the metal, is Rs 800 per kg or 40 cents, while in Delhi it is at a 20-cent discount.

Chirag Thakker, director of the Ahmedabad-headquartered Amrapali group, said, "No fresh imports will happen as traders have already imported stocks with lower duties (when price was low, the duty counted in absolute terms was low). Silver prices in the international market have broken through the resistance level and psychological level of $19, so it seems a bullish trend has started. At the same time, demand from both Indian jewellers and investors in the physical market has fallen drastically."  

In the international market, silver crossed $19 an ounce on Friday. This was considered as a major technical resistance and if silver closes above that than another bull run is expected to begin. In early trade, silver was trading above $19.39 and retracted later to around $19.25. Gold was trading at $1,335 an ounce.

Explaining the sharp rise in silver prices, T Gnanasekar, director, Commtrendz Research, said, "Silver has outperformed gold during the last few days due to it being relatively undervalued compared to gold, as seen in the ratio. Also, silver tends to catch up with gains in gold with a lag, as costlier gold will force market participants to look for alternative, which is silver".

The gold-to-silver ratio, which was above 80 just a few months ago, is quoted below 70 today, and shows that silver has risen faster than gold. The ratio indicates the number of ounces of silver that can be purchased with one ounce of gold.

At the current price, import duty fixed on silver per kg by the government is Rs 4,163, up from Rs 3,700 a few months ago. However, today market price of silver imported earlier will factor in the prevailing duty of Rs 4,163 instead of the Rs 3,700 that was paid at the time of import. This has prompted traders to start booking profit.

In fact, according to industry sources, because of the sharp rise in prices in a few days time, some short sellers have been caught unawares. Some, who were holding silver bought earlier, had entered into private forward deals to sell silver when price was Rs 42,000 a kg. These dealers sold thrice the quantity they were holding and now were found caught in losses as prices crossed Rs 45,000.

Source: Business-STANDARD