According to economists, there is still potential for gold and silver to rise in the near to medium term due to factors such the declining value of the dollar, limited supply, the anticipation of additional rate reductions, and consistent investment and industrial demand.
Silver prices: Investors were taken aback by the increase in silver prices this year. With a staggering 125% increase, the white metal is expected to record its highest yearly returns in 46 years. The silver prices on MCX reached a new milestone last week when it first exceeded ₹2 lakh per kilogram.
The gains provided by gold, which is up almost 65% year-to-date (YTD), have also been surpassed by the silver price surge.
Silver is increasingly acting like a leveraged play on both global growth and the energy revolution, even though gold is still the major hedge for Indian investors. It is especially susceptible to changes in interest rates, the dollar, and manufacturing demand because of its dual function as a monetary and industrial metal, according to Rajkumar Subramanian, Head of Product & Family Office at PL Wealth.
Reasons for the increase in silver prices
The imbalance between supply and demand as well as the compression on inventory are the main causes of the silver surge.
Global mine output has plateaued at about 810 Moz, levels that are essentially unchanged or lower than they were five years ago, failing to react to rising prices. The whole supply is essentially limited to less than 1 billion ounces since secondary supply (scrap) has not increased enough to cover the shortfall.
Demand has increased while supply has remained same. Refinitiv data indicates that silver supply shortages, estimated at 112 Moz, will continue through 2026.
Silver's strength is increasingly being driven by its industrial significance in addition to its status as a precious metal. According to Subramanian, India's drive for clean energy and manufacturing is significantly increasing the demand for silver in a variety of industries, including electronics, solar, and electric vehicles.
In addition to the stock tightening, talk about possible import duties has increased after silver was added to the US Geological Survey's list of essential minerals.
Given its increasing demand in electronics, alternative energy applications, electric vehicles, artificial intelligence, and data centers, silver is set to play a crucial "next generation metal" role across industries crucial to the green energy transition and digital transformation over the next ten years, according to NS Ramaswamy, Head of Commodity & CRM, Ventura.
How can one identify a silver price peak?
According to economists, there is still potential for gold and silver to rise in the near to medium term due to factors such the declining value of the dollar, limited supply, the anticipation of additional rate reductions, and consistent investment and industrial demand.
However, analysts advise investors to keep an eye out for certain signals in order to identify a top in the silver price movement.
1. Supply meeting demand
According to Ramaswamy, silver might reach $100 an ounce (about ₹3 lakhs per kilogram), but history also shows that spectacular rallies can be followed by catastrophic collapses.
He claims that a peak in silver prices would be indicated when supply and demand are equal.
2. The ratio of gold to silver
The gold-silver ratio might also indicate when silver's outperformance has gotten strained, according to Satish Dondapati, Fund Manager-ETF at Kotak Mutual Fund. Silver is more volatile than gold and is susceptible to sudden declines.
The gold-silver ratio (GSR) is currently at its lowest point since May 2021, at roughly 67.40. According to Dondapati, a declining GSR indicates that silver is outperforming gold, which often occurs in the latter phases of a precious metals bull market. The GSR has historically been between 60 and 62.
As a result, he advised investors to keep a close eye on the GSR since it can give an early indication of when this surge might slow down.
"The gold–silver ratio is close to its long-term average, which supports further upside, but if it falls toward the historical 60–62 range, it may trigger sharper price swings and higher volatility as silver’s outperformance becomes stretched," warned him.
MCX silver prices were down 0.4% at ₹197,114 per kilogram during trading today.
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