personal finance

Why it makes sense to invest in silver now


Despite a period of uncertainty— US-China trade war concerns, sanctions on Iran, fall in the rupee, etc.—silver, unlike gold, has not seen a rally. The market not recognising the dual status of silver—bullion and industrial commodity—is the prime reason for the metal’s underperformance. “The market is treating silver only as an industrial commodity,” says Manoj Kumar Jain, Director, India Nivesh Commodities. Experts feel silver’s underperformance may continue in the short term as, unlike gold, it is not being treated as a precious metal. “As long as the trade war and the resultant global economic slowdown fears remain, silver (along with other industrial commodities) will underperform gold,” says Praveen Singh, AVP, Sharekhan Comtrade.

Despite the expected short-term underperformance, silver is likely to be a good long-term bet. The gold-silver ratio is placed at a multi decade high, which means that silver is under-priced compared to gold. More importantly, as silver is now trading at close to half its all-time high of Rs 75,020 per kg (reached in 2011), it has substantial upside potential. This is why investors have started considering it once again as a promising asset. “The interest in silver has improved during the last 1-2 months and the number of people buying silver bars has increased,” says Hasmukh Bafna, President, Wholesale Jewellery Welfare Association.

Besides silver’s undervaluation, there are other factors favouring the metal in the medium term. “Due to its low prices, silver production is coming down now and this augurs well for the next 2-3 years. Compared to the current price of $14.82 (Rs 1,061) per troy ounce, silver is expected to move up to $17 (Rs 1,218) in 2019 and $21 (Rs 1,504) in 2021,” says Singh of Sharekhan Comtrade. Jain of India Nivesh Commodities concurs with the medium-term prospects of silver: “Since silver is moving in a narrow band for the past few years, there is a possibility of a breakout in the next 1-2 years and this may take it to the 2016 high of Rs 48,500 per kg.” Compared to the current price of Rs 38,200 per kg, this works out to be a decent gain of around 27%.

Trading at half its all-time high price

Silver’s undervaluation will force a cut in production and push up prices.

insil


Before you buy silver…


Unlike gold, silver is not available in paper form (there are no silver ETFs) and therefore, investors have no option but to buy the metal in its physical form or in the futures market from the commodity exchanges. Buying silver bars or coins is the first option. Silver bars are now available from 100 gm onwards making it easier for investors to purchase and store the metal. Earlier, retail investors often stayed away from buying silver bars as they were not available in less than 1 kg, which demanded a significantly higher investment and also posed storage-related challenges.

There are also purity-related issues with buying physical silver. To allay purity-related concerns, investors must ensure that the jeweller selling them the metal is willing to buy it back at a later date from them. Even if the jeweller agrees to buying the silver bars or coins back, he may not buy it at the same price as he sold it to you. It is best to confirm from them the terms and conditions at which they will buyback the metal at a later date. Most jewellers buy it only at 1-2% discount to the prevailing market rate. Also, the jeweller won’t return the tax that you paid on purchasing silver. “While selling back, most investor will lose the entire 3% GST paid at the time of buying silver bars,” says Bafna. Even if a jeweller considers the cost inclusive of GST for buying back the metal, the maximum he can do is to offer you GST credit, which is practically of no use if you are not a GST assessee—most people are outside the GST network.

You can overcome most of the above mentioned problems by buying silver through a commodity such as MCX. “One option is to buy silver bars in long-dated contracts, usually available up to six months and then roll them over. Though there will be brokerage charges at the time of rollover, there won’t be any purity or storage issues,” says Singh of Sharekhan Comtrade. “Another option is to take delivery and then store it in an exchange accredited vault itself (you don’t have to take the delivery in your hands). In this case, you can easily sell it back at market rates and there won’t be any loss due to purity or GST issues,” says Jain of India Nivesh Commodities. In this case, however, investors will have to bear warehousing costs. It is best to find out the cost of the storage facility nearest to your residence before you opt to store you silver at an exchange accredited vault.





READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.