With global market getting squeezed with unrest in Middle East and earthquake in Japan, the Gold prices have zoomed past USD 1400 per ounce and Silver exploded above USD 35 per ounce.
Silver gained nearly 2% and hovered near USD 35 an ounce ever since crisis crippled world’s third largest economy, Japan. During the same time Nikkei had tanked almost 10% and most other countries indices were affected.
Fundamentally, there are three main reasons which has been the price driver for silver: higher industrial demand, safe heaven for investment and supply dynamics. The industrial demand for previous year for silver was 48%. Peru, Mexico and China are the three main producers of silver. The total mine production has increased by 4% or 709.6 Moz (Million ounces) this year. On the other hand the gold demand has risen by 3% this year.
The return of gold for a 4 year average period is 22.00% while that of silver is 25.44%. This has made silver more attractive as an investment than the gold. The retail investment in silver is increasing at a faster rate than the retail investment in gold. The truth is silver has certainly out shined gold.
Inflation in China as well as in India, who are the major consumers of precious metal, has been high. With such inflationary pressure, investor find their solace in Gold and Silver. Importantly, investment in silver has been high for the simple reason that silver is affordable as compared to gold.
According to the World Gold Council report, Chinese retail demand for gold increased by 70% from October 2009 to September 2010, representing a total of 153.20 tonnes of gold imports. Yet, over the same period, the demand for gold jewelry rose by 8%. China is buying so much gold for investment purposes that it now threatens to super cede India as the world’s largest gold consumer. No doubt, both the countries are on a buying spree for the precious metals at an un-heard rate which definitely is changing the demand supply dynamics on a global fore-front.
Most certainly, the only certainty is uncertainty on what the real future will be in terms of prices of the precious metals in such a global turbulent time. However, for the time being, precious metals may be a safer bet than the stock market.
This is a Guest Post by Mr. Mitesh Agarwal, MBA (Finance) from IBS – Hyderabad.
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