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Investing in precious metals
According to a research concluded earlier this year, precious metals
were the best performing assets for the second consecutive year and also
for the fourth time in the last five years. Investors enjoyed a 42%
return by investing in precious metals in 2010. Silver performed much
better than other precious metals in the market in 2010 with prices
rising by an astounding 80% which is two and half times the rise in
price of gold (29%). Along with being deemed a safe investment, the
relatively low supply of the metal as compared to the high demand has
also contributed to the steady increase in price. In the first two
months of 2011, silver's price has increased at a steady 9.3%. Judging by the present market scenario, investing in precious metals
will be a very wise decision. And it will make more sense to invest in silver than in gold.
Silver outshines gold
Silver sparkled more than the yellow metal, as well as the stock market benchmark Sensex, in 2010 in terms
of returns for investors. The year saw silver shining more than the stock markets as the shiny metal
soared to a 30-year high, with prices registering a whopping 65 per cent growth
in domestic markets and a 75 per cent jump in the US. In the process, it surpassed the Sensex, which saw a modest growth of a little
over 15 per cent in the year gone by. Gold didn't glitter much as well, rising by just about 25 per cent during the year.
Analysts attributed the smart growth in prices of silver to the risky nature of
equities, which prompted investors to shift their funds to safer havens such as
precious metals, thereby enhancing investment demand.
"Amidst the ongoing European debt crisis and the Federal Reserve and other
central banks pumping in money into economies to shore up the recovery,
investors turned cautious toward the stock markets," said an expert.
"In normal circumstances gold is preferred as a safe bet for hedge against
inflation, but looking at the historical highs of the yellow metal, investors
turned their focus toward the 'poor man's gold (silver)' which was still on the
sidelines," Unicon Securities Vice-President (Research) Madhumita Ghosh said.
A weaker greenback also boosted prices of silver, as commodities denominated in
dollars became cheaper for holders of other currencies. Apart from investment demand, the major factor which played a significant role
in the rally in silver prices was inflationary expectations in the US, which
triggered buying of the precious metal as a safe and alternate investment.
Investment
in Silver makes you more richer than gold
An analysis of prices for the year suggests that those having bought 1 kg of
silver at Rs 27,200 per kg on December 31, 2009, have become richer by Rs 17,800
in 12 months, as prices rose to Rs 45,000 a kg by the end of 2010. |
Gold
and Silver prices
On August 4,
2011 Gold rises to the record prices as Rs. 24200 per 10 grams and
Ornament as Rs. 22700 per 10gms.
Silver also rises to Rs. 61000 per Kg.
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An analysis of returns of the investment of
Rs.1,00,000 in Silver, Gold, NSE and FD in Banks during 6
years (from year 2004 to 2010) are:
|
Investment |
In 2004 (Rs.) |
In 2010 (Rs.) |
Return (Rs.) |
|
Silver |
1,00,000 |
8,30,000 |
7,30,000 |
|
Gold |
1,00,000 |
3,88,000 |
2,88,576 |
|
NSE |
1,00,000 |
1,60,000 |
60,000 |
|
FD |
1,00,000 |
1,56,180 |
56,180 |
Silver resources are depleting at a faster
rate
According to the US, geographical silver resources are depleting at a faster
rate than other precious metals, including gold.
"Silver is a diminishing resource. At current consumption levels, all of the
silver in the earth's crust will be depleted in the next 25 years. Above-ground
silver supplies dropped 86 per cent last year," Globe Capital PMS Head K K Mittal said.
Demand
for silver
In addition, demand for silver peaks in the domestic market during Diwali and
the wedding season, as purchasing the white metal is considered auspicious by
Indians. Notably, about half of the silver produced globally is consumed by manufacturers and other industrial users.
On the demand side, investment in silver has skyrocketed by over 500 per cent
since 2007 and industrial demand for the metal has also increased over the past
decade, despite a 236 per cent rise in prices, Mittal added.
Silver has also become an investment vehicle with ETFs (Exchange Traded Funds).
Analysts, however, cautioned that silver prices might undergo a 10-15 per cent
correction in the short-run. Nevertheless, they are optimistic that it will
touch a level of Rs 70,000 per kg in the next 4-5 years on ever-increasing demand from industry and investors.
A traditional way of investing in silver is by buying actual bullion bars. In some countries, like Switzerland and
Liechtenstein, bullion bars can be bought or sold over the counter at major banks.
Physical silver, such as bars or coins, may be stored in a home safe, a safe
deposit box at a bank, or placed in allocated (also known as non-fungible) or
unallocated (fungible or pooled) storage with a bank or dealer. In
India most silver is used in wedding session in the form of
jewllery. Buying silver coins is another popular method of physically holding silver.
The price of silver coins as on July 7, 2011 is 83,000 per 100 pices. |
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The parameters
before investing in gold or silver
The main reasons investors prefer investing in these two metals
is the stability witnessed in the market. Liquefaction is also an easy
process for gold or silver bars and coins. But purity of the
metals is most important factor before investment. Another important factor
to invest in gold or silver is the price. If you are investing a large sum of money then this can make a lot of difference.
Hence, one should study the market carefully and invest when the price is relatively low.
Choosing the right vendor is also very important. If carefully observed
then the price variations with wholesalers, retailers and commercial
banks can be clearly observed. So one should watch out for the purest
gold available at a comparatively low price. For a regular investor, it
makes sense to invest at regular intervals. This way one can take advantage of the market volatility. Investing in both gold and silver
makes sense for a regular investor as he can diversify and can have a
steady return irrespective of market fluctuations.
Different ways of investing in gold and silver
There are a number of ways in which one can invest in gold or silver as -
* Bar: One of the most traditional ways, dealing with bars is very simple too.
* Coins: This sort of investment depends on the weight of the gold or silver coins.
* Accounts: Swiss banks provide a Gold-account option which aids in transactions involving the precious metal.
* Gold Exchange Trade Funds: This method helps gold transactions through the stock exchange.
The right time to sell gold or
silver
With the current financial slump, people are selling their gold and
silver as a means to make some extra cash. But with the price of the two
precious metals having reached an all-time high, it would probably be
wise to hold on to it and see how far the prices soar and then cash in
at the opportune moment. There are two factors that govern the decision of
selling gold or silver - the value of the US Dollar at that
moment and the investor's financial situation. |
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