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Silver prices in India fell by more than 40 percent from their January peak of over Rs. 4 lakh per kg, but the sharp correction did not bring investors back to the market. Instead, weak investment demand is leaving refiners and bullion dealers with rising inventories ahead of the festive season.
Silver was trading at Rs. 2.35 lakh per kg in Mumbai’s spot market earlier this week. The slowdown in investment demand is visible across silver exchange-traded funds (ETFs), bars and coins, according to traders and analysts.
Investors who purchased silver at much higher prices are now sitting on substantial losses. This made them reluctant to make fresh purchases despite the steep fall in prices.
Chirag Sheth, global business head at Public Gold Bullion (SG) Pte, said investment demand for silver ETFs, bars, and coins declined. He added that international prices are unlikely to exceed USD 100 per troy ounce in the near term unless the US-Iran war ends, while describing silver prices as undervalued.
The US-Iran war also affected industries that use silver, including the solar, semiconductor, and EV sectors.
The fall in demand is creating another problem for Indian dealers and refiners. They reportedly placed orders for around 2,000 tonnes of silver, which is currently in transit.
Also Read: Gold Prices Today: Yellow Metal Nears Rs. 1.45 Lakh, Silver Prices Climb Above Rs. 2.25 Lakh
The additional supplies could further increase inventories. India imports around 7,000 tonnes of silver every year.
James Jose, president of the Precious Metals Refiners Forum, said that with no new investors entering the market and no immediate signs of prices rising, refiners and bullion dealers are facing problems in both international and domestic markets.
Silver prices declined steadily over the past seven months after an extraordinary rally pushed the metal more than 300 percent higher year-on-year. In January, silver crossed Rs. 4 lakh per kg on the Multi Commodity Exchange for the first time.
Carsten Menke, head of Next Generation Research at Julius Baer, said the market is still digesting the aftermath of the speculation-driven frenzy, which may be keeping investors away after significant losses.
Industrial demand is another concern. Consumption is expected to weaken as cheaper alternatives such as aluminum and copper gain ground. At the same time, the growth outlook for Chinese solar module makers, the biggest industrial users of silver, is no longer as strong.
Despite the correction, some long-term investors are considering silver as a way to diversify their portfolios. Nilanjan Dey, partner at Wishlist Capital, said investors with a five-year or longer horizon may consider buying silver ETFs in a staggered manner.
However, investors with shorter investment horizons cautioned against assuming that the recent decline automatically makes silver an attractive buying opportunity.
