Silver has seen a 13% increase since January, despite a recent correction from its record highs in mid-April. This surge in interest for the white metal is evident in silver ETFs, which now hold over ₹5,000 crore in assets under management (AUM).
Silver prices often follow those of gold, as both are considered precious metals, although silver is often viewed as less precious. However, there are distinct differences between the two. Silver’s market is less developed compared to gold, and it is not typically seen as a strong hedge against inflation. Nonetheless, silver is widely used in industrial applications, setting it apart from gold.
India ranks among the top importers of silver globally, similar to its status with gold. Both metals are commonly used as inflation hedges. Futures for both gold and silver can be traded on commodity exchanges, with prices linked to international dollar-denominated rates (plus tax). However, there are fewer silver ETFs available compared to gold ETFs. Securing loans against silver is more complex and less transparent than against gold, and there is no interest-bearing silver equivalent to sovereign gold bonds.
The key factor that makes silver an appealing investment is its industrial demand. While only around 15% of gold is utilized for industrial purposes, over 50% of silver production caters to various high-tech industries. This rising industrial demand for silver, coupled with constraints in production, can lead to price hikes.
Industrial Applications of Silver
At room temperature, silver boasts the highest electrical and thermal conductivity of any element, making it a favored choice across diverse industries such as electronics and healthcare. Its usage extends to solar energy equipment, semiconductors, RFID chips, LEDs, batteries, cell phone touchscreens, and water purification systems, among other areas. Notably, silver consumption in the solar industry is increasing at approximately 12% annually, with demand from semiconductor and water purification sectors also on the rise.
Investors should view silver as an industrial commodity that serves as both a dependable store of value and a hedge against inflation. Unlike gold, silver’s utility surpasses being solely a store of value.
Like gold, silver prices are dollar-denominated, leading them to rise when the US dollar weakens. The strength of the greenback tends to diminish during periods when the US Federal Reserve implements an accommodative monetary policy and reduces policy interest rates. The recent market correction occurred as speculators anticipated that the Federal Reserve would maintain a tough stance in combatting inflation, thus keeping interest rates and the dollar strong.
Despite recent fluctuations, the outlook for silver in industrial applications remains positive, especially as global economic activity rebounds.
While an old saying assigns gold to the mistress and silver to the maid, emphasizing their value hierarchy, the evolving role of silver now positions it as an industrial metal rather than just a precious metal serving as a store of value.
Additional Insight:
– The increasing demand for silver in various industrial sectors, such as solar energy and electronics, highlights the metal’s importance beyond its traditional role as a store of value.
– As global economic activity picks up, the industrial outlook for silver is expected to remain positive, indicating potential growth opportunities for investors interested in this versatile metal.
