What’s in the cards for silver?

In January myself and other commentators felt confident enough about silver that we all wrote about how 2013 would be silver’s year. It was a hard sell even then, the price had climbed to $33 at the beginning of December 2012 to then just above $29. But that drop seems like nothing compared to the fall to $18.61/oz we saw at the end of June.

Why is it down by so much? At the beginning of the year top analysts were predicting the price to climb 29% in 2013. Their optimism was not surprising, and it is even less so today. Compared to gold the environment appears pretty welcoming to the precious metal.

Silver has climbed to $23.23 this week and is expected to climb higher, but the precious metal is still down by nearly 23% on last year. In contrast gold is down by 17%.

In the short-term many analysts expect the silver price to fall given the sentiment surrounding tapering and how it will affect the gold price. However, in the long-run a reduction in bond-purchases indicates that economic recovery is on its way (so the FOMC likes to think) thanks to a pick-up in industrial activity. Which, in turn, means increased silver demand.

Whilst the paper silver trade may work to push the price lower, supply/demand fundamentals are likely to kick in and provide support to the price.

We take a quick look at some of these key fundamentals and notice that they’re looking even healthier than gold’s.

India isn’t loyal to gold just real money

In the world’s largest gold consuming nation the government has waged a war on gold. Silver, in response, has stepped up to the plate and taken its place as an alternative savings vehicle and jewelry material.

Whilst Indians have struggled to take advantage of the low gold price (thanks to strict restrictions on imports and new export rules) the low silver price and lesser sanctions mean investors and jewelers are turning their favor toward the metal.

Experts on the industry discuss how erratic India’s silver imports have been in the past. Whilst gold imports have (until recently) been relatively stable, silver imports have occasionally been zero. But it seems the tables are turning.

Between April and July this year, silver imports increased by 258.65% from the same period last year. Gold imports have grown by 104.27% and in the last couple of months by very little.

It’s not just imports that are booming but the whole silver trade. India’s Gems and Jewellery Export Promotion Council released data this week that shows silver jewelry exports increased by a whopping 184% in July compared to the same period last year.

This pick up in silver’s popularity in silver may not just be thanks to the government’s war on gold. A leaning towards silver jewelry has been coming for some time as high gold prices and Western fashion begin to influence exports. Mineweb report that ‘during 2011-12, silver jewelry exports grew to 44% compared with gold jewelry export growth of 30%. India jewelers said they had found a new class of buyers in the West who were keen to invest less than $100 in jewelry.’

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