Silver is widely considered to be a safe haven in times of economic turmoil and a good hedge against dollar (just like gold). In addition to these factors, silver price has found support from its growing use in industrial settings, which now accounts for roughly half of the silver annual demand. Physical silver demand climbed to a record high in 2022, led by an all-time high usage in industrial applications.
In Industries, there are several trends driving up silver demand, including consumer electronics growth, investment in 5G infrastructure and rising silver use in the green economy – especially in solar photovoltaic (PV) panels. The green economy related industrial demand is forecast to rise yet again, by 4% to a new record high this year in 2023. Additionally, Chinese demand is forecasted to recover as the impact of COVID wanes, but economic uncertainty still weighs on consumer spending.
The banking crisis in the US has provided a boost to gold and silver. Moreover, there remains much uncertainty regarding what the ripple effects of recent events will be on global financial conditions. All this naturally has consequences for US monetary policy and markets are pricing in rate cuts over the second half of the year which is one of the factors providing support to silver prices, also the run up in gold also made silver more attractive relatively.
As of April 30, 2023, in the last five years, silver has given returns of 13.1% v/s 12.3% by Nifty 50 and 13.0% by gold. In Last three years, silver has given returns of 20.8% v/s 23.8% by Nifty 50 and 8% by gold. In the last seven calendar years, silver has outperformed gold & Nifty 50 in four calendar years but underperformed in three calendar years. Though it should be noted that typically silver is more volatile than gold and has exhibited periods of underperformance.
SEBI greenlit silver ETFs on November 2021 and the first silver ETF was launched soon after in February 2022. This segment is seen reasonable inflows. Currently, there are eight silver ETFs in India so far, with assets under management of around Rs 1,750 Crore (As on April 30, 2023). Additionally, there are five Fund of Funds also, which invest in Silver ETFs. Investors can buy or sell ETFs on the exchange or can invest in Fund of Funds either in lumpsum or staggered manner. Investments in ETFs are cost effective as the expense ratio is relatively low (average TER is around 0.45%). Additionally, there is no risk pertaining to purity and storage attached to it.
From an investment point of view, due to its lower correlation with equities and gold-like behaviour when it comes to robustness during times of economic turmoil, silver becomes a very compelling asset to be included in an investor portfolio. Investment in silver can be viewed from a long-term point of view, where an investor can add silver in addition to gold in his or her overall portfolio, whereas more informed investors can also take tactical calls for the short-term using technical indicators like gold to silver ratio, moving averages etc. The availability of silver ETFs has provided opportunity to investors of various needs to invest in silver in a cost-effective manner with lower or higher denominations without the worry of purity, storage or theft.(Siddharth Shrivastava is head- ETF Products at Mirae Asset Mutual Fund)
