As silver touched an all-time high of Rs 1,77,000 per kg earlier this week, Value Research CEO Dhirendra Kumar warned that the white metal’s sharp rally is veering into speculative territory.
“Silver has proved to be a dark horse. Everybody talks about gold. Gold has an unusual demand and relevance in our context and traditions. But this time round, silver is stealing the show,” Kumar said in a podcast conversation released on Friday.
He noted that the rally is not merely driven by sentiment but by industrial demand. “It’s just not a precious metal, it’s an industrial metal. What we have seen is that EVs, solar panels — everything in the modern economy, 5G equipment, the semiconductors — the electric cars consume about 50 gram of silver. That has led to this (rally). This is where we see that the world is really growing. And understandably so, and it is unlikely to be a trend that is going to decelerate,” he explained.
Kumar added that the demand is now coming from sectors that actively consume silver, unlike gold that sits pretty in central banks’ lockers.” He said, “Silver is getting consumed in what we are going to use. That has turned out to be a very substantial thing. It has turned out to be a utility. So in that sense, silver looks more sustainable.”
However, the production side tells a different story. “The demand for silver is rising anywhere between 4 and 5%. Indian demand is rising even higher, and Indian production is slipping. Global production is lower,” he pointed out. “If you have a situation when something is produced less and it is in higher demand—twice as much of what we produce—then it’s bound to go up.”
The Value Research CEO added that Indian production has fallen dramatically, nearly 20-22% and that scarcity has pushed both investor demand and speculative trading. “A few days back, one silver ETF had to stop its activity simply because the traded price in the stock market for those silver ETFs is nearly 10-15% more than the landed import parity price,” he said.
Explaining the anomaly, he noted, “If the import parity price is Rs 100 and you are paying 15% over and above that, that is why it had to be halted because people are paying 15% more than the underlying value of the silver that you can buy. That is not fair. And it feels like silver is getting into a speculative frenzy.”
On whether investors should be worried, Kumar said, “It should be worrisome because any investor should not buy any asset simply because the price is going up. That is not a good enough reason. If you understand the reason why it is going up and you think that the reason will prevail, then by all means buy it.”
He cautioned against blind optimism: “Something is worth 100 rupee, you are paying 115 rupee and you anticipate that given the circumstances it’ll become 150 rupee or 180 rupee because of this demand-supply mismatch, then buy it. But if you are not sure of that, if you’re buying simply because the price is going up, you should not.”
On choosing between gold and silver this Diwali, Kumar said, “Both are considered auspicious. Buy a little bit both of it, in the paper form, in the ETF form or in the fund of fund, so that it is you can liquify it. It can get you unusual dimension to your portfolio. It can derisk you—consider no more than one or 2%.”
He concluded with a word of caution on physical purchases: “Now Indians are becoming affluent, they are buying things like small Ganesh, Laxmi Ganesh or some such thing. It’s an asset but I’m also wary of that as an investment because you never sell your family silver and more so if there is Laxmi Ganesh.”