High gold price has a silver lining

Silver is the new gold in India as investors seek alternatives as the yellow metal gets more expensive

Silver jewellery is displayed in Jammu. Silver imports in India rose 25 per cent last year.

MUMBAI // As gold prices have risen, demand for silver has rocketed in India, with investors seeking cheaper alternatives to the yellow metal most of the 1.2 billion Indians adore.

Silver has long been considered the poor man's gold in the country, but analysts say its growing popularity is a sign of how Indian investors are banking on precious metals as a hedge at a time of rising oil prices and inflation.

The precious metals consultancy GFMS, based in the UK, says investment demand for silver rose 40 per cent last year, compared with 2009, to US$5.6 billion (Dh20.56bn).

It was led by a surge in demand for silver exchange-traded fund holdings, which rose 24 per cent from 2009 to 582.6 million ounces, and demand for silver coins, which climbed 28 per cent to 101.3 million ounces. The gold-to-silver ratio - the number of silver ounces needed to buy one ounce of gold - fell to a 28-year low last week of 35.

Silver's value per kilogram crossed the 60,125 rupee (Dh4,961) mark last week, its highest value in 31 years in Mumbai, India's main bullion centre. Its value in April last year hovered around the 28,500 rupee mark.

The Bombay Bullion Association says silver imports rose 25 per cent last year from 2009 to more than 1,200 tonnes. India's growing imports are likely to support global silver prices, says Prithviraj Kothari, the association's president.

India is the world's largest buyer of precious metals. It is customary to present gifts of gold, not just at weddings, but also during festivals such as Diwali.

Indian households possess more than 18,000 tonnes of gold, the world's largest stockpile, according to the World Gold Council.

Gold assets such as jewellery, coins and bars form a large part of savings among Indian families, especially in rural India, which has minimal access to banking services.

But with its growing value, silver is now a popular alternative asset.

"Silver is fast emerging as the new gold," says Bhavesh Chauhan, a mining and metals analyst at Angel Broking in Mumbai. "Investors see it as a very safe investment that promises high returns."

The growing appetite for silver also underscores India's rising demand for commodities as a rapidly accelerating economy prompts the need to pile up inventories of metals for future growth.

India's commodity markets are gathering momentum, with growing interest from both large institutional and retail investors.

Experts say Indian traders are increasingly diversifying their investment portfolios to include commodities that provide better returns, compared with traditional assets such as equities.

While gold is coveted for cultural reasons, silver - which is highly ductile and malleable - is also used for industrial applications. GFMS says the demand for silver in industry rose 21 per cent last year compared with 2009.

Indian investors are also whetting an appetite for exchange-traded funds (ETFs) in precious metals other than gold, for which the government granted regulatory approval four years ago. Investors are awaiting a similar approval for specifically silver ETFs.

"As of today, government rules do not allow us to launch such investment schemes on silver," Sundeep Sikka, the chief executive of Reliance Capital Asset Management, said last week. "But when there is an opportunity, we will definitely try to explore it."