At this level, importers say, demand has almost dried. Viraj Didwania, director, Foresight Bullion India, said: “Domestic silver demand depends upon customers’ perception of the future price.
“Even at a time like now when prices have increased significantly over the past few weeks (35 per cent rise in three months, in rupee terms), if customers start to believe that prices are going to continue to increase or remain at current levels, demand will return. However, a large percentage of silver demand in India is deferrable and customers (at present) are willing to wait a few months to purchase, until they believe they are getting a fair price.”
India’s annual import of silver is 5,000 to 7,000 tonnes. Internationally, the gold
to silver price ratio had been bearish on silver because of industrial slowdown. As a result, silver was underperforming gold’s price and the ratio went up to a 25-year high of around 93 a month before. Since then, the ratio has been correcting.
Kedia states: “The long-term average for the silver-gold
ratio is around 55:1. Silver has just begun to show signs of bullish life and has been slowly playing catch-up with gold. Yesterday, the ratio breached the 78:1 level and has been trending lower as silver has been making higher highs.” Currently, the ratio is around 79.5.
How long this rally in silver will continue is an issue. Didwania says: “Given the recent increase in the price of silver, plus the increase relative to gold, I believe the bulk of the increase in silver is done and from here, there are chances of silver staying stable or going down in price.”