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CONTRARIAN Why you should hate white as much as yellow. By Anil Gajaria
Even amidst the wise, few would have foreseen the turning of the speculative fervour in favour of the white metal even as the prices of the yellow metal plunged, with central banks worldwide planning to soon offload much of their bullion holdings. But the fact remains--and the wise would agree--that silver prices are being fuelled, primarily, by speculation. I, therefore, do not believe that it is wise to invest in silver. Silver prices rose to a global nine-and-a-half year high after Warren Buffett's Berkshire Hathaway proclaimed that it had purchased 129.70 million ounces of the white metal between July, 1997, and January, 1998. With the world's annual production of silver estimated at 500 million ounces, Buffett's holdings amounted to more than 20 per cent of a year's global output. Therefore, the silver boom is just a reaction to one individual's purchase of silver. And speculation at such levels might just backfire on you. The second reason why I am against investing in silver is that the global scenario is all gloom. Asia is passing through a crisis. Relations between the US and Iraq couldn't be worse. If war is declared, the world economy will be the casualty. And if the US dollar weakens, it would make better sense to invest in gold. So far, domestic silver prices have moved in tandem with global ones. They were quoting at Rs 6,600 a kg in October, 1997, and in February, 1998, they touched Rs 9,350 a kg. However, the downtrend has already begun. Which is natural. Given the slowdown in the industrial economy, prices have just one way to go. Silver has a lot of industrial uses. It is a key ingredient in the manufacture of films--photographic film, motion picture film, X-ray film--and is used in a host of other sectors, like electricals, electronics, and bearings. If, because of political instability, the economic recovery is delayed, this will only add to the downward pull on the price of silver. True, large quantities of silver are used in the making of jewellery, and other products, in the country. But this market, especially in North India, is highly price-sensitive. According to traders, Indians virtually stopped buying silver when the price rose above $5 (Rs 200) an ounce. If it stays at $7 (Rs 280) an ounce, demand is likely to fall to just 2,000 tonnes in 1998 against a past average of 4,000 tonnes a year. In fact, when, on February 14, 1998, silver quoted at $7.13-$7.18 (Rs 285.20-Rs 290.80) an ounce in the Dubai market, the demand here virtually evaporated. With India being the world's largest consumer of silver, that isn't good news for those expecting prices to stay high. It makes better sense to sell, rather than buy, silver when the rates are as high as they are now. In fact, large sales took place recently, with people trying to cash in on the silver surge. Let me reinforce my point with some figures. On February 1, 1998, silver quoted at Rs 8,530 a kg., and on February 5, 1998, the price rose to Rs 9,260. But, by February 13, 1998, the price of silver had dropped to Rs 8,690 a kg. So, for the buyer of silver, I see no silver lining in his investment. |
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Does the silver on their heads speak of
wisdom? 