Indians eye silver in face of pricey gold.

India, the world's No 1 silver buyer, is on track to show sharply higher imports this year of the metal near 30-year peaks, as consumers normally fond of more expensive gold seek to lower cash outlays.

"Certainly there has been an increased interest in silver, and it's drawing interest from people who cannot afford gold, even return-wise the metal has done well," said Haresh Acharya, head of the bullion desk at Ahmedabad-based gold wholesaler Parker Agrochem.


India's silver demand averages 2,500 tonne per year and the country, which produces around 7.3 million ounces a year (206.95 tonnes) according to the Silver Institute, could import 20% more this year or 1,200 tonne, the Bombay Bullion Association (BBA) says.

Around 50% of imports come from China while recycling makes up some of the supply of the metal. Silver is used in jewellery, coins and bars for investors, while industry uses the metal for products from light switches to cars.

Silver prices globally and domestically are currently running near record highs partly hauled up by gains in gold, but the poorer cousin is performing more brilliantly.

"Compared with gold, the price of silver still has a long way to go," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

Spot silver traded just under USD 29 an ounce on Friday, just off 30-year highs above USD 30, while gold was at USD 1,391 per ounce, off a record high above USD 1,430 hit this month.

Domestic silver prices on India's Multi Commodity Exchange are currently close to records at Rs 43,899 per ounce and the metal is offering better returns than gold.

"There is demand for silver as the sentiment in the market is that prices may go to Rs 50,000 or Rs 60,000 now," said Shekar Jog, partner at Sangli-based Vs Bullion.

The BBA's president, Prithviraj Kothari, also thinks silver on the domestic market could hit the Rs 50,000 mark by the end of this year and industry players say it can still outpace gold.

Indian appetite for silver is coming partly from rural buyers as a normal monsoon in 2010 has boosted crop production with a consequent benefit to incomes, after last year's severe drought shrivelled spending by farmers.

Indians traditionally invest in gold and silver jewellery, especially during the busy festival season towards the end of the calendar year, and for weddings.

Jewellers and wholesalers said interest for silver was on the increase, especially given its returns and cheaper initial cost.

"The most important benefit for consumers is it's much more affordable than gold," said Babu Alapatt, managing director at retailer, Alapatt Gold Pvt Ltd, which also sells silver.

Some retailers are seeing more interest from buyers in silver bars or coins than jewellery, however.

"They prefer buying coins and bars than buying silver jewellery," said Shekar Jog, partner at Sangli-based Vs Bullion.

HDFC Bank, which introduced silver coins for sale earlier this year, said interest had risen.

"In May this year when we started selling silver coins for the first time, we became the first bank in India to do so. We are extremely pleased with the progress so far. Today, we are selling silver coins through almost five times the number of branches than when we started," an HDFC Bank spokesperson said.


Source : moneycontrol.com