Silver is the new gold in rural India
Surge in demand for precious metal
WOMEN’S feet in rural India show why more people than ever think silver is a better deal than gold in a country that is one of the world’s biggest jewellery buyers.
For his wife’s birthday last month, sugarcane grower Sandeep Chakane gave her two ankle bracelets of silver, a metal used mostly in India to adorn feet, including toe rings that designate a woman is married.
The chains, weighing 12g, cost 1 100 rupees (about R215), or 20% of what was left of his monthly income after loan payments on two tractors and a car.
“Silver is cheaper than gold and a much better alternative as it doesn’t put a strain on my finances,” said Chakane, 36, who farms 2ha in Bhigvan village in the state of Maharashtra. “We can afford to buy silver ornaments almost every year, but we haven’t bought gold in the past two, three years.”
While India remains the world’s secondlargest gold buyer after China, demand for silver has surged. Imports jumped 18% in the year through March to a record 7 708 metric tons, government data shows. The metal’s appeal was enhanced by limitations on foreign gold purchases, as well as prices that were half the record reached in 2011.
Long considered the poor man’s gold, because about 75g is equal in value to 1g of gold, silver is so ingrained in the Indian psyche that the rupee is named after “Rup”, the Sanskrit word for silver. Women prefer silver on their feet and more valuable gold jewellery for hands, neck and face.
Jewellery fabricators in India boosted silver use by 47% last year to a record 1 936 tons, overtaking China as the top consumer in that category, the industry-funded Silver Institute estimated. By comparison, global jewellery fabrication rose just 1.5%.
The metal is also used to make utensils and gifts for festivals and weddings.
The bulk of purchases were by farmers who did not have access to banks and preferred the metal as a store of value, said Suresh Hundia, a former president of the India Bullion and Jewellers Association. Because so much buying was linked to agriculture, demand could be influenced by monsoon rains from June to September that determined crop health, he said.
The rise in silver demand may be slowed by India’s decision in November to withdraw limits on gold imports, which had cut demand by 17% last year and spurred purchases of silver as an alternative.
The government had been discouraging gold imports since 2013 to narrow its record current account deficit and halt a plunge in the rupee.
“Some bit of demand did come into silver because gold was a restricted item,” said Ranjeeth Rathod, MD at importer MNC Enterprises in Chennai. “This year, we don’t see that kind of restriction any more. The market will see some kind of saturation.”
Improved demand in India has not been enough to prevent prices falling.
Silver’s value is linked with gold, which has been plunging amid prospects for higher US interest rates, Goldman Sachs reported in May. At the same time, slowing economic growth eroded industrial demand.
Silver futures on the Multi Commodity Exchange of India have slumped 21% in the past year to 35 328 rupees a kilogram, compared with a record of 73 600 rupees in April 2011. The metal for immediate delivery in London slid 27% to $15.4582 an ounce in the past 12 months.
Even if demand this year fell short of last year’s record, silver buying would probably pick up again next year as growth accelerated in India, said Chirag Sheth, an analyst at the London-based Metals Focus.
Jewellers are not concerned. Some, like Kanti Mehta, expect growing demand for low-cost silver to help drive sales.
Mehta, chairman of The Silver Emporium in Mumbai’s Zaveri Bazaar, said he made the move into retail after 24 years as a wholesaler. He has four shops and will open two more by year-end. “Once prices drop, more Indians will come to buy jewellery and prayer items as we cannot do without them during our weddings and festivals,” he said. — Bloomberg