Gold may have grabbed the spotlight last year, but 2005 could possibly be the year of silver.
According to the UK-based Gold Fields Mineral Services Ltd, silver prices have hovered around an average of $7 per ounce with strong fund buying on price corrections. It is, however, expected to be vulnerable given its relatively smaller investor following.
GFMS is an independent consultancy and research company, focused on international gold and silver markets.
Silver prices, which at any given point of time faces a daily volatility of at least 2 per cent, was highly volatile in 2004, bouncing between its 16-year high of $8.43 and low of $5.43.
In the current year, prices have been oscillating between $6.70 and $7.20, thus attracting investors giving the high speculative returns.
Based on the prices over six years from 1997 to 2003, if your portfolio investments contained only silver your absolute cumulative returns would have been 22.9 per cent. In comparison, gold would have fetched you slightly lower returns of 21.8 per cent.
All this withstanding, if you are considering taking the plunge into silver investments now, you should curtail your appetite a bit.
According to Krishna Nathani, head of research, Indiabullion.com, going by the present fundamentals, the levels to watch out for are $7.10 - $7.15. This would prove good for investors to liquidate in the short term.
With the announcement of the interest rate hike in the US by 25 basis points, prices have bounced back after touching a low of $6.78 in the spot market and $6.80.5 in the July contract on the Comex.
After touching $7.10, silver is expected to correct once again further to $6.20-$6.00 levels a month down. This is seen as a good level to invest in silver for the long-term once prices stabilise. Currently, the silver market continues to remain choppy following the Fed rate hike.
Vineet Rai, assistant vice-president, commodities, Angel Broking says, "Regular fluctuations, small contract, and low margins makes silver lucrative for the small investor."
On the futures exchanges, the silver contract size is of 5 kg for a value of Rs 55,000. The small investor has to pay the margin of 5 per cent on this, and with an average daily fluctuation of Rs 50 per lot, he can reap a benefit of at least Rs 500. The other contract is of 30 kg, which would entail a payment of Rs 15,000 as the margin.
Sunil Ramrakhiani, head, commodity, IL&FS, says silver being an important industrial metal, also tracks copper (besides gold with which it enjoys a correlation of 0.86), which is expected to remain higher during the year owing to fresh demand drive from China.
The physical fundamentals for silver look challenging, which indicate a further scope for market correction.
The demand from India is, however, likely to keep the prices from crashing with the marriage season and the festival of Akshaya Tritiya round the corner when a lot of gold and silver is purchased.