Gold and Silver Snips

Author: Lewa Pardomuan (Reuters)
Posted:  Thursday , 22 Oct 2009


HONG KONG (Reuters) - 
 Record high gold prices above $1,000 an ounce may encourage more Indian buyers to turn to much cheaper silver, a senior trade official from the world's top bullion consuming country said on Thursday.
"Even today the rural Indian invests more into silver than gold. Higher prices of gold imply even the lower middle class population shifting to silver more compared to gold," said Anjani Sinha, president of the Indian Bullion Market Association, which represents about 10,000 jewellers.
While silver has seen a much sharper price rise in the last 12 months, gaining 86% versus a 45% gain for gold, at $17.67 an ounce it is still nearly a fifth below its record high of March last year.
In contrast gold's latest rally has driven it well past the March 2008 high to a record just above $1,070 an ounce.


The fall from the March high to the October 2008 low was much steeper for silver than gold - 60% versus 34% -- leaving silver still playing catch up with its more lustrous peer.
Investment demand is already picking up. HDFC Bank, one of India's large gold sellers, is looking at offering silver bars for sale in some cities because of interest from investors, a bank executive said earlier this month.
This would reverse a trend of declining interest in silver, with trade in India's silver market falling to around 2,000-2,500 tonnes from 4,000-4,500 tonnes during 1994-1997, according to traders.
Sinha reiterated his view that Indian gold demand would fall by two-thirds to 250 tonnes this year because of high prices.
The country, which accounted for more than 20% of global demand for gold in 2008, has seen a drop in purchases since bullion first regained $1,000 early this year, with a poor monsoon also curbing demand, said dealers.
"In all probability, prices at the current level will not be sustainable as actual demand in the physical market is still on the lower side," Sinha told Reuters on the sidelines of a conference in Hong Kong, a centre for bullion trading in East Asia.
Although dealers saw buying during the festive season, which peaked with the Diwali festival of lights on Saturday, they complained about low off-take from jewellers. Weddings take place during the festive season and jewellery forms an essential part of the dowry basket.
"It is a fact that festival season is over but demand emanating out of marriages will continue until the middle of December," Sinha said.
"However, demand for gold in India is of late being driven by investment sentiment, which is in turn linked with price levels. The higher the prices are, the lower the demand for gold in India is."
Although investment demand has sparked gold's rally, jewellery still accounts for more than half of global demand for bullion.
Demand for gold in India also hinges on a good monsoon, which boosts farm output and rural incomes. But India suffered from its worst monsoon since 1972 this year, followed by floods in parts of the country, damaging crops and pushing up prices of food.
"If gold continues to be in the range of $1,020 and above, total import will not be more than 250 metric tonnes," said Sinha.
"Import will go up to around 400 metric tonnes only if the price falls to the level of $900 to $950 per ounce," said Sinha, referring to levels last seen in September.
"The only solace would be rupee appreciation against the dollar, which will make gold cheaper in rupee terms, even if it continues to be in the range of $1,050 internationally," he said.
India imported 131 tonnes of gold in January to September this year, down 58 percent from 315 tonnes in the same period in 2008, according to the Bombay Bullion Association, which represents about 460 traders and jewellers, mostly in Mumbai.