Futures contracts of silver have been on a bull run lately, largely on the back of supply concerns, along with investment demand.
Silver prices have rallied sharply during the year and have added over 35 per cent gains.
Further upward momentum could push the prices higher towards life-time highs of above Rs 74,000 per kg, said Navneet Damani, VP-Commodities Research, Motilal Oswal Financial Services.
On Monday, the September contract of silver on the Multi-Commodity Exchange (MCX) jumped Rs 4,277 or 6.99 per cent to Rs 65,500 per kg.
Analysts are of the view that with the current uncertain economic scenario fuelling the surge in gold futures, the same buying sentiment has also spilled over to silver trade.
Anuj Gupta, DVP-Commodities and Currencies Research, Angel Broking, said that physical demand and Silver ETF demand have supported the prices. He also said that silver prices move in tandem with gold prices.
Damani of Motilal Oswal Financial Services said: “After being a laggard for the last few years, silver has seen massive buying interest. Surge in iShare holding, falling mine supply and high physical and industrial demand has been supportive of the prices.”
He noted that iShares Silver holdings have been stagnant over the last five years, and have witnessed a sudden rise over the last one year.
“Major thrust has come in over the last two months, setting fresh record levels every week and is currently at 16,051 tonnes. The CFTC net position in Comex futures swung from being short in 2018 to consistently positive in the second half of 2019. Silver backed ETPs have now expanded by over 25 per cent in 2020 to record high levels,” he added.
Damani added that both demand hopes and supply side concerns have lifted the futures off late.
Investment demand increased by 10 per cent in the first half of 2020, as per the Silver Institute. Industrial demand declined initially, but started to pick up from May 2020 as economies began to reopen.
While physical investment is growing, other demand areas are looking stable, he said, adding that long-term demand for silver looks promising given the use in solar power technology.
Silver has a critical role in EV production, and other industrial uses.
Further, the total supply has seen a significant downfall, although recycling has shown stability amid the rise in prices. Peru, the world’s second-largest silver producer, saw its mine supply fall by one-third due to the Covid-induced lockdowns.
Silver Institute predicts mine supply will drop by 7 per cent in 2020, which is bullish especially if industrial demand gets closer to normal levels.
On the other hand, backed by the largely uncertain global economic scenario, gold has been hitting new record levels on the MCX.
On Monday, the August contract of gold crossed the Rs 52,000 per 10 gm mark for the first time and touched an all-time high of Rs 52,220 on the MCX.
It is currently trading at Rs 52,050 per 10 gm, higher by Rs 1,015 or 1.99 per cent from its previous close.