Silver is possibly the most sought-after metal in the market right now. It is trading between `91,000-95,000 per kg. In fact, it has outperformed both gold and the BSE Sensex in May. This surge can be attributed to several factors, including the ripple effect of high gold prices leading to an increased demand for silver.
“Comex silver prices have gained more than 30% this year, while MCX silver prices are not trading far from an all-time high of `95,950 per kg notched during this month,” says Kaynat Chainwala, Senior Manager-Commodity Research of broking firm Kotak Securities.
Silver plays a crucial role as an industrial metal and its use in electric vehicles, hybrid cars, and solar panels is driving up demand.
“Industrial demand for silver is expected to rise 9% to 710.9 million ounces in 2024, driven by an expected 20% rise in photovoltaic cells (solar panels),” says Chainwala.
She is of the view that the markets are anticipating a soft landing, with the US Fed coming in to save the global economy in the event of an economic slowdown. According to her, with the broader economy in a relatively better position and a constructive outlook in the medium- to long term, any pullback in prices could be a favourable opportunity to accumulate the precious metal.
Why silver ETFs?
Considering the potential of silver as an investment, one can strategically add silver exchange-traded funds (ETFs) to one’s portfolio. They offer a unique opportunity to diversify one’s investment in the precious metals segment.
“Unlike silver bar or coins, silver ETFs can be purchased in smaller denominations of as low as 1 unit through the stock exchange, that too at a very low transactional cost. The price of one unit of silver ETF, in case of ICICI Prudential Silver ETF, is `91 (as of May 24), making it accessible to all. Also, one need not worry about aspects such as storage, insurance etc. as these units are held in a demat account,” says Chintan Haria, Principal-Investment Strategy, ICICI Prudential AMC.
When investing in physical forms of silver, one has to find a safe storage device, and insurance, thus adding to the cost.
Vikram Dhawan, Head of Commodities and Fund Manager at Nippon India Mutual Fund, says, “Approximately 40% of silver consumption is for non-industrial use globally.
Notwithstanding silver’s fundamentals or price momentum, a portion of physical investment flows seems to be shifting towards ETFs in India, as in developed markets. Silver, being bulkier than gold, can be cumbersome to hold and trade.”
He, however, adds that silver ETFs are secure, convenient, and efficient and, additionally, liquidity in silver ETF units tends to be superior to that in the underlying physical markets.
Silver ETFs invest in high-purity silver, ensuring transparency and authenticity in the underlying assets. It closely tracks the price, allowing investors to benefit from its price movements and potential upside. ETFs typically have a low expense ratio, ensuring cost-efficient investment management.
Furthermore, silver ETF units are held digitally in a demat account. So, one need not worry about theft, storage or insurance.
In case if the investor does not have a demat account, investment can be carried out through a silver ETF Fund of Fund (FoF).
A FoF is just like any other mutual fund wherein one can initiate lump sum or SIP investment, as per one’s portfolio requirement.
Should you bet?
Silver typically exhibits a strong correlation with gold prices. In 2024, silver prices have outperformed gold by a significant margin. Dhawan says, “Due to silver’s strong fundamentals, its outperformance may persist throughout the year. Silver’s usage in green tech is propelling its industrial demand, especially from solar and electric vehicle segments.”
Haria expects the demand for silver to remain buoyant due to its wide-ranging industrial application and investment demand. He, however, says that the finite supply of the metal, along with challenges in mining and refining could be constraints. “The delicate balance between demand and supply dynamics influences silver prices, making it an attractive investment option for savvy investors,” he says.
Global silver ETFs are currently at 696 million troy ounce, compared with 887 million troy ounce seen at the start of 2022, a 22% decline in holdings in a span of 2.5 years. Chainwala says that inflows were recorded in March 2024 through mid-April, which once again declined as markets priced in fewer rate cuts this year.
“Having said that, investment activity is expected to pick up once the Fed starts cutting rates,” she adds.