Pay Attention to Indian Silver Buying Spree

The massive correction in silver brings back Indian buyers. According to a Reuters story, Indians also shift to silver as the high silver/gold ratio of 80:1 makes the white metal appear cheaper to its competitor gold. Imports have jumped to 250 tons every month since August after a dull first half 2008 when record prices repelled buyers.

Silver dramatically undershot my worst case scenario of a low at $14, trading briefly below $9 before it recovered to the current level around $10. The silver miners got knifed accordingly, playing out the bad side of beta with losses of up to 90% this year. But the Indian buying spree and losses in production because base metals mines are closing due to the price slump may be a solid base for the next upleg on fundamentals.

From Reuters

By Ruchira Singh
MUMBAI, Oct 20 (Reuters) - Indian traders may not be buying much gold with prices close to all-time highs, but are scrambling to stock up on silver that fell to its lowest in a little more than a year, dealers said.
"There is already a shift from gold to silver... people are very comfortable with silver prices," said Ajay Singh of Kiran Jewellers, a wholesaler in Jaipur.
Singh said his silver sales had risen five-fold from the same period last year, ahead of key festivals, Dhanteras and Diwali, next week. On the continuation charts of the Multi Commodity Exchange of India Ltd [MCX], silver futures MSVc1 were at 17,541 rupees per kg, close to a 13-month low struck late on Friday at 16,857 rupees.
The current price is down 36 percent from its record high at 27,500 rupees on March 17.

Sudden Jump in Demand
Suresh Hundia, president of Bombay Bullion Association, said silver imports had accelerated since August, and demand was heavy early this month, when prices were in the range of 19,000 rupees and 20,000 rupees.
"Earlier in the year, there was hardly any demand but now since August, about 250 tonnes is being imported every month," Hundia said.
Yet, imports stood around 800 tonnes so far this year as against around 2,280 tonnes in all of last year, he added.

Supplies "Starting to Get Tough"
Many traders said silver imports hit bottlenecks even at high premiums, with a global demand resurgence, difficult credit market and logistical woes. "Many banks are unable to get silver even if we tell them we will give them the full sum of money for the consignment," said Daman Prakash, director of MNC Bullion Pvt Ltd, a wholesaler in Chennai.
"There is shortage of space in flights and that is curbing the supplies," said Prithviraj Kothari, director at Riddisiddhi Bullions Ltd.
A prominent Geneva-based supplier, Afshin Nabavi, senior vice president at MKS Finance S.A., said supplies were "starting to get tough."
"There is a huge demand for silver... it has not been this cheap for a while now," Nabavi said.
Banks are ill prepared for the resurgence in demand and at least one large bank has chosen not to sell silver this year, traders said.
"Earlier this year banks were stuck with stocks and some had to think about re-exporting it," said Kiran Jewellers' Singh.
"Now they are not being able to arrange supplies.. whoever reaches them first or those who have good contacts are getting the little silver that is coming in."
Silver was being imported at a premium of 35 cents as against 10 cents in normal times, dealers said.
Demand for the white metal could intensify if prices fell further, said Nayan Pansare, an analyst.
"At 15,000-16,000 rupees we could see a bigger rush for silver and more switches from gold to silver," Pansare said.

I would say this is another sign that the dichotomy between COMEX silver prices and prices paid is more then questionable. This may be a once in a lifetime opportunity at current price levels that are destined to change dramatically, only to catch up with inflation. The inflation adjusted all time high of silver is in excess of $135 per ounce and there are so many signs of a physical shortage when silver sold short on the COMEX now exceeeds one year of global production.

Comments

[GeoMark:]

Silver is likely being forced off the market. This causes a very high premium for small buyers and so reduces their demand. The latter causes a drop in wholesale prices. The net result is that average person, at least in the West, does not buy silver, which is the desired outcome. The powers that be want the average person to stay in dollars. Meanwhile, cheap silver can be slowly accumulated by the wealthy. Nice trick isn't it?

2008 Oct 22 06:59 PM

[moonbat1775:]

I thought the Indians liked gold and the Chinese liked silver. Anyway, it's nice to know that there are a lot of "barbarians" who like that "barbarous relic". Take that, John Maynard!

2008 Oct 22 08:20 PM

[anarchist:]

Just wait a month or two and Gold will be priced as to where India will buy it instead of Silver. There are few "once in a lifetime deal" and this isn't one of them.

2008 Oct 22 08:24 PM

[BxCapricorn:]

Much of the silver is mined by companies focused on base metals, with their silver being a byproduct. As base metal prices drop, those mining them scale down operations and silver supplies drop. Thankfully, as you mentioned, there more than enough "paper silver" on Comex to fill in the supply side of the equation. Isn't it a wonderful world we live in where a highly leveraged buyer/seller of commodity futures, can cripple whole economies, create worldwide panics, force governmental policies, bubble and collapse not only the commodity (i.e. oil) itself but alternatives to the commodity (i.e. solar, wind), literally dictating world events in the process? You needn't get elected, pass legislation, or any of that messy democratic "stuff". You can hide behind "free market capitalism" and let the public misguided optimism in the system, protect you from the light of day, as you work your "leveraged" magic.

2008 Oct 22 08:25 PM

[moonbat1775:]

"as you work your "leveraged" magic. " BxCapricorn

Wait, isn't "leverage" based on the banks' ability to create money from nothing via fractional reserve banking? Is so, then make that crime illegal and excessive leverage should also be fixed, n'est pas?

Baby, bathwater, etc.

2008 Oct 22 08:30 PM

[Alex Filonov:]

To anarchist: if you think so, just short gold. And go long gold, short silver couple of months later.

COMEX figures mean nothing. Not long ago, in May, we had similar situation with oil futures, and guess what, oil lost 50% already. Current situation on commodities future markets is crazy, a lot of hot money is going in and out. Futures are separated from physical goods, future markets only show supply/demand balance of future contracts.

There is one bearish fact for silver: film photography is almost dead. If you look at the demand picture here: www.silverinstitute.or..., silver consumption by photography is way down in the last several years and real demand driver was from industrial applications. Now, with recession (depression?), that one might not hold either.

2008 Oct 22 10:49 PM

[silver-bullet:]

In response to "Muddling Investor"

Industrial demand is only half the answer.

The other half lies in Investor Demand. Just like Gold, Silver is rapidly entering investors' portfolio.

And Investors' Demand is rising Fast and Hard.

Mike Maloney says it well in his book:
www.amazon.com/Rich-Da...

Gold and Silver will revalue, as they always have in the last 5,000 years. This time Silver will over take Gold as there is 1 oz of silver for every 5 oz of gold in existence above ground. If gold is $800, then mathematically, silver should be..... you do the math.

2008 Oct 23 01:45 AM

[Bron Suchecki:]

"I would say this is another sign that the dichotomy between COMEX silver prices and prices paid is more then questionable" - because the premium for getting silver into India has moved from 10c to 35c? You have got to be joking. COMEX represents the price for metal in the US, not India. Of course there will be a premium in India, it costs money to ship it there. As the article says "there is shortage of space in flights and that is curbing the supplies". From someone who works in the bullion business to someone who doesn't: 35c premium to get silver into India is not a "dichotomy".

2008 Oct 23 06:55 AM

[Smarty_Pants:]

"35c premium to get silver into India is not a "dichotomy"." Bron

It's not even a first class postage stamp.

Good luck even trying to find bulk silver coins to buy here in the states. I'm sure any premium to the price is related to the shortage of physical coins available and not 'manipulation', but that doesn't explain why there aren't many to be found. Somebody is buying them up.

2008 Oct 23 11:13 AM

[Engineer:]

Closer to home, sales for silver eagles are the highest they've been in 20 years - over 14MM eagles sold year to date. Probably would be higher still, except the US mint is having trouble sourcing blanks. And there's still two months to go.

See for yourself: www.usmint.gov/mint_pr...

Interestingly, the dollar value of silver eagles sold this year is only slightly less than the dollar value of gold products sold by the mint - and both are up sharply this year.

The investment demand is there. Now where is the supply?

2008 Oct 23 03:22 PM

[Alex Filonov:]

To sliver-bullet:

Industrial demand is only a half of total demand, true. Investment demand for silver, however, is below 10% (Just look at the graph I'm referencing in original comment).

2008 Oct 23 03:51 PM

[Marc Courtenay:]

I checked with a group of large precious metals dealers today. None of them had anything smaller than kilograms of gold and 1,000 ounce bars of silver. Supply shortages are world wide. Why is the US dollar soaring now during America's worst financial crisis ever? Check out the following video which is just one of several announcements on this topic which I've been hearing....
video.google.com/video... and even if you have to copy and paste it, hear Roubini's latest speech and you'll know,
www.bloomberg.com/avp/...

2008 Oct 23 05:53 PM