- Indian silver demand surged in May to 711 gross tonnes of silver.
- Indian silver demand is strong but it was similarly strong in 2013 and thus is only keeping a floor under the price of silver.
- The true catalyst for the silver price is Chinese demand which remains relatively low, but if it rises then we could see silver move up significantly.
India recently reported its May silver import numbers and they showed a surge in imports of 713 tonnes (711 gross tonnes) or around 22.9 million ounces of silver. Based on Koos Jansen's excellent work, we can see that compared to historical Indian silver imports this total is high but not the highest which we saw in May of 2011.
Source: Bullion Star
Interestingly enough, the all-time high in Indian silver imports occurred in May 2011, when silver hit its all-time highs - which is proof enough that when silver rises there are plenty of buyers. To put that number in perspective, if we had the same dollar amount of demand at current silver prices (approximately half of what they were then) that would correspond to 2500 tonnes or more of monthly demand - or about 80 million ounces of silver … in one month!
What can investors take from the large May Indian silver import numbers?
The answer in our opinion is not much. While the May numbers were large and Indian silver imports year-to-date are more than 2254 tonnes, we saw similar strength in 2013 - so this is not a unique occurrence. Now, we don't want to ignore these YTD numbers because they are still very strong as they extrapolate to around 4500 annual tonnes (or 145 million ounces) which is 15% of the estimated total world silver demand of 1 billion ounces per year - not too shabby.
But we believe that strong Indian silver demand isn't going to be what drives silver to new highs because it (coupled with the current high investment demand), is only going to be enough to maintain current silver prices - which is what we're seeing now.
What would ignite silver?
One of the things that we're looking for to really ignite silver can be found a little further East than India - Chinese silver demand.
As investors can see above in the YTD Chinese silver deliveries graph, silver deliveries from the SGE are around 397 tonnes (a little under 13 million ounces) - much lower than demand from India or the US. In fact, that 397 tonnes of YTD Chinese silver deliveries is less than 20% of comparable Indian deliveries - there are only a few commodities that China is not the world's largest importer, but silver certainly is one of them.
But this is one of the main silver markets that we are monitoring because if we start to see a pickup in Chinese demand, then that could really ignite the silver market. We haven't seen that yet but with the Chinese financial markets extremely unpredictable, we can't count that type of move to silver out - especially if we start seeing Chinese financial market trust evaporate. That is something we're keeping our eyes on and if you're interested, you can subscribe to our free Weekly Gold & Silver Newsletter and we'll keep you updated on this and any other important things we believe are relevant to the gold and silver markets.
Conclusion for Investors
There are certainly many other drivers in the silver market, but what we like to look for are major catalysts that could lead to a sustainable move in the silver price. We don't think current Indian demand will do anything more than maintain the silver price at current levels, but any increase in Chinese demand from its currently low levels would certainly provide a significant boost in the silver price, and that's one of the major catalysts investors should be watching.
Regardless, we do believe it is wise to maintain exposure to the silver price for other reasons which we've discussed in an earlier piece. Thus investors should consider positions in physical silver and the silver ETFs (iShares Silver Trust (NYSEARCA:SLV), PSLV, CEF). Additionally, the miners would provide even more leverage to the silver price but they have risen a large amount since the beginning of the year, so we wouldn't be establishing full positions in them yet, but investors should consider at least initial positions in companies like First Majestic Silver (NYSE:AG), Pan American Silver (NASDAQ:PAAS), Hecla Mining (NYSE:HL), or Endeavour Silver (NYSE:EXK) (we're not suggesting these companies specifically - only suggesting them for further investor research).
While large Indian silver demand is encouraging, it is Chinese silver demand that investors should truly keep their eyes upon because that would truly be a game-changer for silver and the silver miners.