Silver sizzles in a year of stocks, goldPosted on Wednesday, May 16, 2012 - 07:37 am
While Sensex and gold have delivered 20.6% and 24.2% returns, respectively, in Samvat 2066, silver emerged as the clear winner giving 35.6% gains for investors in the year. “Silver has been historically used as a monetary metal along with gold. Silver has now played catch-up with the gold rally and people have woken up to the fact that it is a precious metal,” says Praveen Singh, an analyst with Sharekhan.
After being a laggard initially silver has rallied sharply in the past three months, edging out all other widely available investment options. Unlike gold, the white metal has industrial applications and the consumption of silver for industrial uses has been going up, says Singh, who tracks precious metals. “It (silver) is much cheaper to own compared with gold.” While the previous silver rally was on a low base effect, the current one has been driven by strong investor demand, say observers.
“Most precious metals have done well because of the commodities boom and the dollar depreciation,” says Dhruva Raj Chatterji, senior research analyst, Morningstar India, an independent investment research firm. When precious metals do well the less fancied ones such as silver and palladium usually outperform others, say observers.
The dollar has had a close correlation with precious metals, especially gold. Dollar-denominated gold price rose by 11.7% between June 6 and October this year while the dollar index fell 12.6%. Gold-prices denominated in euro fell 4.2%. The euro gained against the greenback during the same period.
The yellow metal continues to lure retail investors. The number of retail investor folios, which accounted for about 71% of total gold exchange traded fund (ETF) folios in March 2009, has increased to 96% at the end of September 2010. Retail gold ETF assets have risen by a phenomenal 400% over the same period.
The total investment demand for gold has risen by 118% year-on-year (y-o-y ) in the second quarter of 2010 with the demand for gold ETFs rising by a whopping 414% y-o-y. Assets of gold ETFs have surged 182% in the past one year (ended September 2010).
However, market observers say that investors should tread with caution given the huge jump in the prices in these two metals in the past two years. “It makes sense to have them in a small proportion (say 10% of the portfolio ). One should not go overboard and get carried away by the returns,” says an investment consultant. If central banks continue to inject liquidity into the system, big bubbles would build up in precious metals, they caution.