Sterling returns

Investors may not be drawn to silver as they are to gold, but the former has proved more profitable in the past few months. The trend is likely to continue.

Priya Kapoor & Sameer Bhardwaj        Print Edition: October 2009

When it comes to precious metals, silver is always the ‘also ran’, and gold, the winner. This time around, silver is glittering more. The white metal has delivered returns of 29.7% since the beginning of this year, while gold has managed just 11.3%. Similarly, between August 2006 and May 2007, silver delivered 116.5% returns, while gold managed a far less impressive 68.7%. Little wonder then that commodities traders are making a beeline for the metal.

“The long-term fundamentals also favour stronger silver prices compared with those of gold. Silver has the same monetary properties as gold. It’s a good time to buy this metal as other assets are not doing so well. A price target of Rs 30,000 per kg in less than a year is achievable,” says Jayant Manglik, president, Religare Commodities.

The recovery in industrial demand could also spur buying. “Almost 95% of demand comes from industrial applications such as photography, jewellery, etc. Given the current economic upturn, silver is more likely to behave as an industrial metal and outperform,” says Lakshmi Iyer, head, fixed products, Kotak Mahindra Asset Management.

How to Buy

Silver is not a metal that retail investors can buy or sell easily, whereas gold can be bought from banks and there are gold funds as well. “Silver bars or bricks are the best and cheapest to own as they do not involve any making or fabrication charges. The more complicated a metal, in terms of the work done on it, the more it will eat into the profit due to wastage and fabrication charges,” says Iyer.

However, bars are not easily available in the open market. You can buy silver bars in the wholesale bullion market in lots ranging from 5 gm to 30 kg. “We sell bars as small as 5 gm to 250 gm,” says Anil Arora, director, National Indian Bullion Refinery.

You can also buy silver in the futures market—the Multi Commodity Exchange of India (MCX) or the National Commodity and Derivatives Exchange (NCDEX). “Buying through an exchange is the best because there is no problem of storage and making charges as they are kept like shares in a demat form,” says Manglik. However, this is not the ideal option for retail investors as the minimum trading lot at the MCX is 30 kg.

Signs of Purity
The Bureau of Indian Standards (BIS) has instituted a Hallmark scheme for silver jewellery. Ensure that the silver bars or products you buy have the following marks, which guarantee purity.
The BIS logo.
Purity or fineness grade (999.9 for the purest, 800 for the least pure).
Logo of the hallmarking centre.
Logo of the jeweller or manufacturer.

Another option open to small investors is buying silver medallions and coins. Even solid silver utensils will do at a pinch as they usually involve little fabrication. Fabrication costs can increase the price of silver goods while reducing value. For instance, the making charges for a 100 gm silver coin may be around Rs 6, but a 2 gm ring comes with a fabrication cost of Rs 200. “It varies depending on the design but, in general, there is more wastage in jewellery,” says Neeraj Khanna, a Delhi-based jeweller. Silver idols are not considered an investment. “Since they have religious significance, as an industry practice, they are not melted and bought back,” says Mayank Goyal, a Delhi-based silver dealer.

Ideally, one should buy medallions from a government body like MMTC, which guarantees purity. Some jewellers also offer branded coins and medallions with a high purity level.

Where to Sell

The market for silver is not as deep as that for gold. Banks and organisations such as MMTC do not buy back silver. The jewellers who are willing to do so prefer the crude form. “Though we accept silver ornaments and utensils, we give preference to bars or bricks as they are easily tradeable,” says Khanna.

Once its retail plan gets off the ground, you can trade on the National Spot Exchange. The Indian Bullion Market Association is working on artefacts and contracts of silver, which will let you sell the metal at the prevailing spot price.

“The problem with investing in silver is that you have to buy in bulk and it becomes difficult to store it,” says Veer Sardesai, Pune-based financial planner. Silver is not easily available in the demat form, nor are there any silver funds. All this is set to change. The Benchmark AMC recently sought approval from the Securities and Exchange Board of India to launch the country’s first silver exchange traded fund, which will let investors take advantage of the volatility in silver prices without the fuss of physical ownership.

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