After outperforming gold, does the white metal have another ‘silver lining’?

New Delhi: Amid the rising geopolitical worries, investors are finding refuge in precious metals. However, in the last one month, silver has outperformed gold with a decent margin, thanks to its higher demand.

Silver has gained more than 15 per cent in the last one month, compared to a 11 per cent rise in the yellow metal. Market experts said that the white metal has more steam left in it, but investors should not go all guns blazing.

The prices of the white metal have topped Rs 70,000 per kilogram (kg) in the spot markets, rising as much as Rs 9,000 since February 8, when it settled at Rs 61,618.

The war between Russia and Ukraine is the prime reason, which triggered the really in safe haven bets and precious metals. Other than that rising inflation, signals of monetary tightening and weakness in rupee also contributed to sheen.

NS Ramaswamy, Head of Commodities, Ventura Securities said that Russia-Ukraine war, rising inflationary worries, Fed‘s hawkish policy and falling rupee are the key reasons for the rally in silver.

Ever since the war broke out on February 23, gold has remained a laggard with a 7 per cent rise, whereas Silver has gained more than 10 percent during the same period.

Adding more to it, Pritam Patnaik, Head – Commodities, Axis Securities said that a genuine demand from industrial use, given the focus on green manufacturing and focus on electronics manufacturing has propelled silver prices.

More steam left?

Market players said that supply and demand for the white metal will be key drivers in the near future, with both industrial production and mining rebounding after disruptions of the pandemic.

Silver and gold are seen as the best hedge against geopolitical turmoil. Tensions combined with inflation and supply crunch is bountifully aiding bullion price rise, said the market experts.

Kshitij Purohit, Lead Commodities and Currency, CapitalVia Global Research believes that inflation is quite high and people are looking to hedge against it. “Buying precious metal like silver is one of them,” he adds.

Interest in silver is strong amid rising demand. Silver is often considered a good store of value in inflationary periods and silver’s dual nature as both an industrial metal and precious metal makes it unique.

“Owing to the covid and now the Ukraine issue, there are severe bottlenecks in commodity logistics and supply,” said Patnaik, who believes that there is a massive catch up left in silver. “Silver prices still have a lot of steam left,” he added.

What should investors do?

After the sharp run up in the last few sessions, analysts are suggesting investors to wait for dips for entry in silver. Silver can be volatile and one should be cautious while trading in it.

Ramaswamy suggested that investors should wait for US inflation data and Fed’s interest rate hikes, expected next week. He expects silver to touch lifetime highs of Rs 77,000-78,000, if it successfully passes the next resistance at Rs 74,000.

Market experts said that silver might see some profit booking, if it breaks the major support levels. The white metal is volatility prone as there is already an asymmetry in supply and demand.

“As a result of the large number of people eager to get involved, the market is likely to remain a ‘buy on the dips’ scene, ” said Purohit “If we break down below the $25 level, we might see a significant selloff.”

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