During periods where the precious metals are seeing a great deal of investment demand and rising in price, silver usually enjoys the higher upside—and higher volatility—of the two metals. This has undoubtedly been the case so far in 2016: while gold has rallied an impressive 25% so far this year, silver prices have shot far ahead of their precious metal counterparts, gaining an astounding 43% since January.
However, even as the rest of the world continues to push silver demand ever higher, these elevated prices (back above $20 per ounce) have put a huge backlog in new silver purchases in India.
On a year-to-year basis, India is one of the globe's perennial leaders in silver demand. Last year, the country imported a staggering 7,500 metric tonnes of the argent metal. 45% of this domestic consumption of the metal was for the purposes of investment. Yet imports of silver into India are expected to drop off significantly this year due to the tremendous rise in the silver price mentioned earlier.
Ranjeeth Rathod, the managing director at MNC Enterprises (P) Ltd., an Indian company that imports silver, outlined his own experience: “This year has been extremely bad in terms of demand,” he told Bloomberg News by phone from Chennai. His company bought less than 100 tonnes of silver during H1 2016, far off from its annual average of about 500 tonnes.
During the first half of 2016, silver imports fell by 40% year-on-year. One of the main factors behind this precipitous fall in silver demand is that Indian investors have held off on making new purchases at the current price levels. As a result, inventories for bullion dealers around the country are growing. They had risen to a two-year high as of January. New orders haven't been forthcoming thanks to precious metal prices rising considerably since then.
However, it's not as if India is turning away from silver entirely. Appetite for the metal is simply on hold as dealers sell off their remaining inventories. Furthermore, its use as jewelry is just as popular as its investment purposes to the Indian public. According to Swansy Afonso of Bloomberg News, "[S]ilver is so ingrained in the Indian psyche that the rupee is named after 'Rup,' the Sanskrit [word] for silver." The rupee is the national currency of India, showing the close cultural relationship between silver and money. It is one of many languages where the word for "money" is roughly equivalent to "silver."
Passing Them By
Total imports of silver into India are projected to drop by 30% from last year's numbers. In this way, the country stands out from the rest of the world, which has continued to buy silver. For instance, silver ETFs are stockpiled with a record-high 20,430 tonnes of silver bullion while net-long contracts in the silver futures market are also at their highest ever on record.
One silver lining—no pun intended—for India's future silver demand is the growth of the solar industry. (Silver is a key ingredient in photovoltaic cells used in solar panels.) Along with China, India has locked in a massive amount of orders for solar panels over the next four or five years in an attempt to shift toward more renewable energy resources. India is consistently one of the world's top five consumers of oil each year.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.