Silver outshines gold, but pace lags in India

MUMBAI: Silver has outperformed gold in domestic and international markets by a margin of around 10 percentage points over a year. However, returns from silver in the domestic market are lagging the international ones even as the rupee has weakened, while returns on gold are nearly identical in domestic and international markets.
Silver prices rose nearly 33 per cent in a year, while gold rates increased by 21 per cent in international markets.In India, silver returns stood at just over 29 per cent against gold’s nearly 20 per cent.
The difference in returns in silver emerged as Indian importers are using the Comprehensive Economic Partnership Agreement route – a bilateral trade channel between India and the UAE that allows lower duties. Compared to the standard 15 per cent import duty on gold and silver, CEPA allows 6-8 per cent lower duty on silver, analysts said.

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Lower landing costs and the expectation of a strong rally in silver prices had led to huge imports of the metal in the last 4-5 months. This had caused some supply overhang, resulting in lower price of silver in India compared to the international market. This has opened an arbitrage opportunity in silver between Indian and international prices, market players said.
Taking advantage of the CEPA, “in the last four months, silver imports to India were in abundance… about 2,000 tones”, said Navneet Damani, senior VP (commodity research), Motilal Oswal Financial Services. “The market was flooded with imported silver.”
The stronger rally in silver was due to two reasons: its industrial use as well as in the jewellery segments. “Silver is used in the solar industry, EV, hydropower and also in the 5G telecom towers and equipment,” Damani said. All these use-cases are leading to higher demand for the white metal, while global production is still in deficit mode, he said.
Damani expects silver to outperform gold over the next couple of years. He anticipates that its price could breach the Rs 1-lakh-per-kg mark by year-end from about Rs 90,000 level now.


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