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| Silver Price In India |
A rush to buy physical silver this week, as prices came within cents of a record fix of $49.48 an ounce seen in 1980, shows that the metal's bright outlook could offset fears about a possible surplus this year.
With industrial use rising and investment demand showing no signs of slowing down, silver may avoid a repeat of a brutal correction in the 1980s that happened not long after the Hunt brothers tried to corner the market.
A lack of substitutes means the industrial sector has to rely on the metal, prices of which have risen more than 60 percent this year after a gain of more than 80 percent in 2010. Gold, which often sets the tone for silver prices, has only gained around 8 percent to a record above $1,518 an ounce.
"Silver has always had quite a big chunk of demand which is price-insensitive in the short to medium term," said Philip Klapwijk, executive chairman of metals research and consultancy GFMS, which is expecting industrial demand for silver to hit a record this year.
"It is a net clear winner from new technology in the last 10 to 15 years. It obviously lost ground in photography, but more than made it up in industrial uses," he told Reuters.
A versatile metal, silver is used in jewellery, water purification, photography as well as solar panels, flat-screen television sets, computers and mobile phones.
Although investment has played a key role in pushing prices to the current levels, silver is also riding high on growing demand from the industrial sector, which accounts for more than half of global silver fabrication demand.
Industrial applications demand rose over 20 percent year-on-year to 487.4 million ounces in 2010 after a miserable performance in 2009, when the global manufacturing sector suffered from the worst economic crisis since the Great Depression, according to GFMS.
This year the consultancy expects industrial demand to rise by 8 percent.
As investors pour money into silver on uncertainty in the global economy, holdings in the iShares Silver Trust, the world's largest silver-backed exchange-traded fund, rose to a lifetime high of 11,390.06 tonnes by April 25.
"While silver may face resistance at its 1980 peak in the short term, it could eventually head above $50 if gold holds firm," said Ong Yi Ling, investment analyst at Phillip Futures in Singapore.
Silver traded around $46 an ounce on Tuesday as speculators booked profits after sending prices to a 31-year peak at $49.31 in the previous session.
Premiums for silver bars were steady at $1 an ounce over spot London prices in Hong Kong and at 50 cents in Singapore, with dealers noting steady purchases from India, the Middle East and China, the world's second-largest silver consumer after the United States.
"This is different from what happened in 1980s. The whole world is buying, it's not only one or two guys buying," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.
The Hunt brothers, two Texan oil tycoons, bet their family fortune trying to corner the silver market between September 1979 and March 1980, driving U.S. silver futures to a record high $50.35 an ounce in January 1980. When their attempt collapsed silver prices fell back to below $11 by the end of March.
India, the world largest gold consumer, has also seen a surge in silver demand as an alternative investment to bullion, leading to tightness in the physical market.
"Investors have found a new fascination for silver other than as an asset. I may have sold 5 tonnes in 2-4 days," said Pankaj Kumar Agarwal, director of wholesaler Brijwasi Bullion and Jewellers Ltd, which supplies the metal to India's northern states of Uttar Pradesh and Bihar, and usually sells 4 to 5 tonnes a month.
"Silver sales have been quick and fast compared to gold."
A dearth of supplies in the physical market in India is keeping premiums steady at 40 cents an ounce.
Fundamentals could help the metal resist pressure from mine supply, which rose 2.5 percent to 22,889 tonnes in 2010 -- a record high.
"If you look at the traditional fundamentals, the silver market is absolutely awful. We estimate the surplus equivalent to a fifth of the market, at about 5,000 tonnes in the past a couple of years," said Giles Lloyd, a metals analyst at CRU.
"But investment demand is clearly greater than that. The surplus is not big enough for investors to hoard and prices are going up."
Implied net investment, which includes silver exchange traded funds, jumped to 178 million ounces (5,536 tonnes) in 2010 from 120.7 ounces in 2009, according to GFMS.
