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India's Investors Sell Gold to Buy Silver

Written by Roman Baudzus

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An increasing number of Indian investors are buying silver. In spite of the strong silver price rally over the last eight months in which the price of the white metal has more than doubled, a majority of India’s investors favour silver over gold at the moment.

The gold/silver-ratio – the number of ounces of silver needed to buy once ounce of gold – has narrowed further, and stood at 36.09 on Wednesday. Reports from traders state that many Indians are selling gold jewellery in order to put their capital into the silver sector, and are counting on silver continuing to outperform gold. Asians are on the hunt for inflation hedges. The inflation rate in China is now running at 5.4%, while in India the inflation stood at 8.82% in February.

(Spot Price on Silver)

melting-goldFor this reason, precious metals are proving very popular among Asia’s private investors, who have been shifting large parts of their savings into silver and gold in order to hedge against rising prices. India’s investors favour gold and silver as traditional value investments anyhow, and like to give away precious metals to friends and relatives during different seasonal festivities. As Suresh Hundia, president emeritus of Mumbai’s bullion association, told Dow Jones Newswire, Indians are buying silver at the moment “as if there was no tomorrow".

In Mumbai alone, silver purchases fluctuated between 400 to 500 kilograms per day, which traders think could lead to a reduction in gold demand. According to Hundia, India’s silver demand was at such a high level that some cities are facing supply shortages. One of these cities was India´s gold and silver trading hub, Ahmedabad. In spite of the enormous domestic demand, the import quota for silver – which had recently been at 30 to 50 tons monthly – has not been increased recently. A major part of the supply comes from the stocks of wholesalers who offered the white metal for recycling.

Asian demand for gold and silver was on display at the 30th edition of the MidEast Watch & Jewellery Show, which took place from April 5-9 in the United Arab Emirates (UAE) and turned out to be a great success. According to the organisers, the trade fair attracted 53,340 visitors in five days – a 6% increase on last year. 450 exhibitors from the entire world participated in the fair, including many jewellers. Many exhibitors reported that their gold and silver sales were significantly up on last year. Many buyers are no longer bothering to wait for a correction in precious metals anymore, since they urgently want to be engaged in this sector.

These investors fear further losses of their purchasing power through a continuing depreciation of paper currencies. When governments are keen to debase their currencies, gold and silver are perceived as safe havens that help to hedge capital assets against loss of paper-money purchasing power.

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