With Silver rising faster than gold, here're four ways to invest and why

Topics Silver | Investments | Silver Prices

“Silver is very demand-supply driven rather than value-driven. I would be a little wary,” says Azeez.
With silver prices rising faster than gold since the beginning of the financial year, investors are left wondering if it prudent to invest in the precious metal.

On Thursday, silver touched a seven-year high — at Rs 53,010 — in the Indian spot market. The MCX Silver September futures is trading above Rs 53,058 per kilogram (kilo).

Indians are traditionally fixated on gold. But does silver warrant a place in the portfolio as well? For one, it is not for the cautious investor.

Feroze Azeez, deputy chief executive officer, Anand Rathi Private Wealth, says: “Silver has been one of the most volatile metals. Its price volatility in rupee terms is twice gold’s. The three years’ volatility (or the standard deviation) is close to 27-28, whereas gold is at 12.”

Standard deviation is the measure of risk of price movement.

“With silver, the swings on either side are going to be amplified. Anything with larger volatility means that when it rises, it rises swiftly. When it falls, it falls just as swiftly. Whenever there is momentum in buying silver, you will see a larger swing because there is risk aversion,” adds Azeez.

In India, the price of silver touched its peak at Rs 75,000 per kilo in April 2011. There is still headroom, unlike gold which is at its peak value. But how does on participate in it? 

Physical: Pankaj Mathpal, founder and managing director, Optima Money Managers, says, “Unlike gold, silver exchange-traded funds (ETFs) are not available. Hence, investors end up buying physical silver.” For average investors, the physical route is the easiest. Due to lockdown, many jewellers now offer online purchases.

MCX Silver in futures market: Ajay Kedia, director, Kedia Advisory, says: “You can open a commodity trading and invest in silver for the long term. You can buy it in the electronic form. The Securities and Exchange Board of India is now focusing more on the delivery mechanism. So, the silver futures which are being traded need to be backed up by physical metal.”

Remember, you can only buy futures and options contracts in metals. These have one-month validity. There are minimum and a maximum lot size. For instance, trading units are 30 kilos, 5 kilos, and 1 kilo for silver, silver-mini, and silver-micro for MCX Silver futures contract. Experts recommend a rollover.

Structured products related to silver: Just as you have market-linked debentures, an issuer can issue structured products with silver. The product would imply you have a certain degree of protection on your capital and on return in the capital if silver moves up instead of the Nifty. But this option is for a high networth individual who understands the intricacies of the product.

Global investments: There are several platforms that facilitate global investments under the liberalised remittance scheme. It’s not as complex as it used to be a decade ago.

“Silver is very demand-supply driven rather than value-driven. I would be a little wary,” says Azeez.

Others like Mathpal feel that till an ETF is introduced in India, it does not make sense for retail investors to participate in the white metal. For the long-term investor, since silver has strong negative correlation to rupee depreciation, it will rise as the rupee depreciates. Given that the rupee fall is a common feature, investors with a long-term horizon can look at it in small parts.


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