Silver Offers More Chance To Make Money among All Commodities

Silver Offers More Chance To Make Money among All Commodities

Silver Offers More Chance To Make Money among All Commodities

Silver  jewels are very popular among women
Silver jewels are very popular among women | Source

Silver price can move up or down very quickly

Last Year Silver Price Tumbled From Its Peak

Last year, the value of silver tumbled by 44% - the most by any metal in the commodities market. But in the current month, its value has appreciated by one fifth. Many money managers and hedge funds are optimistic of silver price shooting up this year. Many analysts have speculated that silver price will touch $40 per ounce by June this year. Right now it is ruling at a price of $33 per ounce. But at the same time some analysts like Credit Suisse and Morgan Stanley have reduced their expectations of silver price appreciating. Silver is not only a precious metal, but it is an industrial metal also.

Silver as a Hedge Commodity

As the European Union debt crisis is likely to slowdown the growth rate in China and India, World Bank has lowered its growth estimate of the world economy to 2.5% - the lowest in the last three years. Therefore there is every likelihood of general public and fund managers buying silver as a hedge against currency fluctuations, economic slowdown and inflation. One estimate puts it that investors are likely to buy around 2000 tonnes of silver this year.

Silver Finds Uses in Other Applications Also

There is a difference between gold and silver. While gold is used as a hedge against inflation and currency fluctuation, silver, in addition to this purpose, is also employed in production plants for producing many items. Some of these items include electronics (silver is the best conductor of electricity), jewellery (certain jewels can be made only with silver and not with gold), batteries, solar panels, radio frequency tags and high tech clothing (in silk saris in India worn by ladies, silver is laced in the border for added attraction).

Demand Supply Equation nor Favourable For A High Price

The demand for silver from production facilities will depend on the economic growth. As the economic growth is likely to slow down this year, industrial demand for silver may come down. Therefore any appreciation of silver during the current year is likely only from its demand for hedging purposes. On the supply side, there is no problem. Silver is produced abundantly. It is obtained as a by-product during extraction of metals like zinc, lead, gold and copper. As the production of zinc, copper and gold will continue as these metals are needed for varied uses, so also the production of silver along with these metals. Silver is found in free state as well as in combined form. Therefore demand-supply equation of silver in the current year will not favour a higher price for silver. Investors in silver should take note of this point and be careful. They should not burn their fingers or hands in silver. While gold is perfectly safe for investment even now at this high price, silver at lower price may not be an ideal investment. It may crash further.

Take Delivery, Sell Forward And Make Money In Silver

Many investors took delivery of silver from the MCX and sold the same forward. This has provided them an opportunity to earn an interest of around 12.5% p.a. Taking delivery of a commodity like silver in a near month contract and forward selling the same at higher prices is called calendar spread. MCX provides an opportunity to the investors or hedge funds to take or give delivery of any commodity in future at present prices. Investors can open demat accounts with brokers such as Angel, Religare, SMC Commotrade, Karvy among others in order to trade in commodities. Total volume of silver that was delivered in the contract ending December 5th last year was around 92 tonnes worth Rs.511 crore. This was the highest delivery of the commodity in three years duration. The settlement rate of the contract was at Rs.55500 per kg of silver. But in December 2008, the volume of delivery of silver was at 142 tonnes. Buying in December and selling in March offered shrewd investors a chance to make money at 12.5% p.a. This rate of interest is much more than what the banks offer in their fixed deposits (around 10% p.a.) and post offices (around 8.5% p.a.).

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Silver ornaments can be very attractive

Indian silver ornaments are loved by foreigners
Indian silver ornaments are loved by foreigners | Source

Silver Offers More Chance To Make Money among All Commodities

Silver Trading Exceeds Gold Trading

One can make more money in commodities trading than in trading equities. All that is needed is to have a sharp eye to monitor the commodity price movements across global markets and to know about their demand supply position. Among the commodities, silver offers a good chance to make money as its price movement is volatile. Silver price hit a high of Rs.75750 a kg in April last year and is currently ruling at around Rs.56000 a kg. Many investors who bought the metal at high prices in last April and May not only burnt their fingers, but their hands also. During this fiscal year, silver was the most traded commodity in the Futures market. The trading crossed Rs.100 lakh crore mark in the April – October period. It was 72% increase over the previous fiscal year. Silver trading exceeded gold trading, which was at Rs.26 lakh crore in the same period, by 46% in the same period.

Silver Jewellery Exports Increase

During the first half of the current fiscal year, silver jewellery exports increased by 51% to Rs.1528 crore over the corresponding period of the previous year. Jewellery manufacturers from Jaipur increased their production to satisfy the export demand from European Union and USA. Price of the silver jewellery also doubled during the period. As gold price shot up for the last two years, women in USA and European Union have shifted their preferences to plain and studded jewellery from the gold variants. Three years back, Indian jewellery exporters exported almost exclusively gold jewels. But now the product mix has drastically changed in favour of silver. 75% of the jewels exported now comprises of silver ornaments.

Will The Purpose Of Safe-Have Investment Be Served?

When silver price rose by nearly 100% last year, gold price rose by only around 30% in the same period. But silver price started crashing whereas gold price continues to be steady. This is because gold is used only as a hedge against emergency, inflation and currency fluctuation. Unlike silver, gold is not used for industrial purposes. India is the largest consumer of gold and silver in the world. India imports around 3000 to 5000 tonnes of silver every year. Due to economic uncertainties and debt crisis, investors in foreign countries buy silver and gold as a safe-haven investment. But I doubt whether this purpose will really be served in case of an emergency. During a crisis when people need money, where will they sell their silver and gold? Nobody will offer them money as everybody will be a seller or even if somebody offers, it will be only a fraction of their worth. Moreover silver and gold do not fetch any other income like interest or dividend. Capital appreciation is there, of course, but this appreciation is not a real phenomenon unless one sells one’s possessions of gold and silver at peak values and encashes them.

In India, Gold And Silver Are Passed On To The Next Generation

This brings to us an important point. Sell all your accumulations of gold and silver periodically and switch over to stock market or bank fixed deposits. Again buy the precious metals when their prices are low and sell them when their prices once again reach the peak level. This strategy will help one to make lot of money through precious metals. But the reality is that only less than ten per cent of people follow this method. The remaining majority of people preserve their precious metals in safe deposits and are emotionally attached to them. In India, gold and silver are preserved and passed on to the next generation. Grandmother’s jewels to the mother, mother’s jewels go to the daughter and so on.

USA Should Hand Over The Silver Cargo To India

200 tonnes of silver worth over 150 million pound sterling has been discovered in a British ship SS Gairsoppa that was travelling from India in 1941 and which was sunk by a German U-boat in the Atlantic Ocean, around 500 km off Irish coast. The shipwreck was discovered by American exploration company Odyssey Marine. This American company will keep 80% of the value discovered with it. This is really immoral and unethical. In 1941 India was under the British rule and Second World War was fought in the European and Asian theatres in full swing. At that time Britain tried to take away silver that belonged to India but eventually the ship was sank because of the German offensive. This entire cargo of silver should belong to India. Indian government should press its claim against USA to handover this cargo of silver to it. Of course India can pay the American company the exploration cost in full which will be only a fraction of the value of silver unearthed. If necessary, India should take this matter to the International Court of Justice for settlement.

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