Analysis: Demand shifts from gold to Silver

One of the two most important precious metals, the Silver becomes dearer recently and is attracting investors who are seeking wide opportunities in commodity markets.

Being an alternative to expensive gold, analyst expects silver to touch $43 per 10 gram in second half of the year. It is an excellent investment for people who want to invest in commodities, but cannot afford the Gold prices which have climbed in last two years or so.

According to the World Silver Survey 2010 and GFMS's 2010 Silver summary report, the total fabricated silver demand grew by 12.8 percent to 878.8 Moz in 2010 mainly due to rising industrial demand.

Global primary silver supply recorded a 5 percent increase to account for 30 percent of total mine production in 2010. Gains arise from primary silver mines and as a by-product of lead/zinc mining activity, whereas silver volumes produced as a by-product of gold fell 4 percent last year. Mexico was the world's largest silver producing nation in 2010, followed by Peru, China, Australia and Chile.

However, net government silver sales climbed to 44.8 Moz, mainly due to increased sales from Russia, China and India.

Swinging fears of a sovereign debt crisis in US and Europe, inflationary pressures and a slowdown in the recovery continue to drive investors to look for a safer investment and hedge against uncertainty. Therefore, whenever gold hits a record high, investors look for a cheaper alternative to gold and silver may be the best candidate.

Phillip Futures expects silver prices to reach $43 in the second half of the year, while Barclays Capital expects prices to reach $40.2 in the third quarter. Phillip analysis seems to be the accurate one as silver has already reached $40.50 on July 26, 2011.

Though, silver is famous for its notorious nature for its price volatility, stung many investors with a drop of 33 percent over six sessions in early May from a record of $49.51 an ounce on April 28.

However, Asian preference for the physical metal and increasing demand for exchange traded funds underlined silver growth. Among Asian nations, in China people prefer to physically hold silver; therefore, physical silver bar hoarding in China continues to gain momentum.

The gold-silver ratio or the number of ounces of silver needed to buy one ounce of gold is 1:40 which is always going to be a trigger for small investors that increases demand of silver.

Silver prices in the second half would hinge on a pickup in demand from India, the world's largest bullion consumer and fourth biggest silver consumer in terms of fabrication demand.

On July 23, 2011 silver hit $41.05, its highest since May 4 when prices were tumbling from a record high of $49.51 set on April 28, 2011. Analyst expects silver to touch $43 if gold strengthens further as silver is the best substitute to gold.

In India, silver demand is more than 60 percent as people use silver for their consumption in the form of silver coins, mostly in rural areas. But, in monsoon season, the silver consumption is expected to decline as farmers are focusing on their crops, as soon as they harvest the crop, they prefer to have silver bars and coins. In India, mostly people prefer to give silver and gold coins as a gift during religious festivals.

In Pakistan also, silver jewels are in high demand, increasing gold prices have forced small investors to shift from gold jewels to silver jewels. Even, fashion designers are launching new silver jewel designs to increase awareness among people for silver consumption.

http://www.halaltamweel.com/634/PAKISTAN-COMMODITIES-SILVER-Update.aspx