Silver at 4 year low! Should you buy the metal now?

Investment

oi-Sunil

By Sunil Fernandes

Updated: Wednesday, September 24, 2014, 8:21 [IST]

Silver has hit a 4 year low in the domestic markets in Mumbai and also in the international markets. Silver is now well below the Rs 40,000 mark in Mumbai per KG. This level has not been since November of 2010. which means we the metal is now at a near 4 year low.

Along with domestic markets, the international markets also saw a drop in silver prices to around $17.74.

In the futures market in India Silver for October delivery was trading at around the Rs 39,000 mark.

Should you buy silver at a 4-year low in India?

To understand whether you would make money buying silver in India, there are a few factors that you should know that influence silver prices in India. Silver prices in India are influenced by international prices of the metal and the rupee rate against the dollar. The rupee is expected to remain steady against the dollar at around the 61 levels, so let us study the international factors that could affect silver prices in India.

1) Economic growth means investors will shift from silver to equity shares

Economic growth across the globe has already resulted in investors selling gold and silver and buying shares. If economic growth continues to gain momentum across the globe, be rest assured that the metal prices would continue to fall.

2) Fabrication demand

A bulk of the demand for silver comes from fabrication. Silver demand for fabrication has fallen considerably over the last 5-6 years. This has pushed demand for the metal lower.

3) Winding down of QE3

The US Federal Reserve is expected to completely wind-down its QE3 programme in October. What this means is that there would be less liquidity in the global financial system. The QE3 programme has for the last two years driven prices of gold ans silver higher. That may no longer happen now.

4) Selling pressure from ETFs

There has been some selling pressure from Exchange Traded Funds globally, which has put some pressure on silver. This is because there may have been some redemption pressure from investors.

Conclusion

With global economic recovery gathering pace, it's unlikely that silver prices would rally soon. Investors are clearly moving from gold and silver to equities. The trend is likely to continue. Experts say if the rupee strengthens further it's possible that we would get silver at Rs 36,000 per kg. Maybe at that levels it would make sense to invest and not now.

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