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Silver Demand in India Pressured by Weak Rupee

Posted on 2012-11-05, By A-Best Staff
By Melissa Pistilli—Exclusive to Silver Investing News

Silver demand down on India Rupee PriceThe price of silver closed out 2011 at a nearly 50 percent retracement from the $50 high it hit in April. Silver has shown rather poor price performance the past several weeks during what has historically been a stellar time for the precious metal. In the past, between November and April, both silver and gold prices tended to track higher with small occasional corrections.

The momentum that sent silver soaring to $50 an ounce earlier this year was fueled by rising investment demand around much of the world, especially in Asia. Whether or not we’ll see silver prices rallying in the next few months could largely depend on demand for physical imports of the white metal from this region, specifically China and India.

Economic growth in China is slowing and the housing market is witnessing sharp declines in nearly 70 percent of the nation’s cities, leaving less means for picking up gold and silver even at lower prices. Recent Chinese trade data shows silver imports down almost 30 percent in the year to November, according to a Reuters report which quotes Commerzbank as stating that November’s silver import total was “the lowest import volume since January 2009” while “at the same time, exports have climbed to a 12-month high of 170 tons, thus increasingly removing an important crutch from the price of silver.”

The approaching Chinese New Year should be price supportive for gold and silver as demand for bars and coins—traditional gifts—heats up.

But higher prices in India are proving price negative for silver as a weakening rupee—the US dollar has gained about 17 percent against the Indian currency since March of 2011—makes the metal much more expensive for Indian buyers and this has major implications for the silver market.

India is the world’s largest consumer and importer of the precious metal and the third largest industrial user behind the US and Japan. In 2008, silver investment demand from India posted a record total of 3,200 tonnes in 2008; however, silver imports to India for 2011 are expected to be slightly lower than last year’s total of 3,030 tonnes.

Despite the recent drop in gold and silver prices in the international markets, prices for precious metals in India still remain at a premium and buyers are holding out for cheaper prices, even during the lead up to the Indian wedding season, stunting demand.

India’s once surging economy is suffering under the weight of the financial crisis afflicting much of the western world, leading to the depreciation of the country’s currency as capital flows out of the Indian equities market. Analysts are pointing to the nation’s growing deficit, rising inflation and slowing economic growth as major factors in the loss of value in the rupee, the worst performing currency in Asia in 2011.

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