Silver outshines gold with 46% YTD gains. What lies ahead for white metal after this stellar run?

Silver prices have been making significant strides in recent sessions, driven by rising tensions in the Middle East, interest rate cuts by the European Central Bank (ECB), and uncertainty surrounding the upcoming US election, which has spurred increased demand for safe-haven assets.

On Tuesday, silver prices surpassed the ₹1 lakh mark in the physical market. The December futures contract on the MCX reached a new all-time high of ₹99,475 per kilogram in the previous session.

In the global markets, Comex silver prices have remained above $34.50 per ounce, hovering at their highest levels in 12 years.

Analysts indicate that the breach of the $34 mark has sparked renewed buying interest in silver. Domestically, analysts expect the rally to persist as Diwali approaches.

So far this month, Comex silver has jumped 11%, marking its largest monthly gain since May 2024. Additionally, prices have increased by 46% year-to-date. In contrast, gold prices have risen by 33.3% compared to their closing price at the end of 2023. 

In India, the primary demand for silver is driven by its use in jewellery, with a significant portion of this demand occurring during festivals such as Diwali and Akshay Tritiya. In contrast, global silver consumption is heavily influenced by the industrial sector, where demand is considerably higher than in India.

However, with the expansion of 5G and advancements in new technologies, such as electric vehicles (EVs), industrial demand for silver in India is anticipated to surge sharply. According to Metal Focus, India's silver demand in calendar year 2023 (CY 2023) was approximately 6,800 tonnes and is projected to increase to around 7,400 tonnes in calendar year 2024 (CY 2024).

In calendar year 2023 (CY 2023), industrial demand for silver reached a new high, primarily fueled by growth in the electrical and electronics industry, which expanded by 20% to 445.1 million ounces (Moz), as per the recent estimates. 

The growing demand from the industrial segment is creating a deficit for silver, pushing prices higher. Projections indicate that in calendar year 2024 (CY 2024), the market is expected to experience another significant silver deficit, with a forecast of 215.3 million ounces (Moz), marking the second-largest market shortfall in over two decades.

Meanwhile, the rise in silver prices also benefits companies like Hindustan Zinc, a subsidiary of the Vedanta Group, which is ranked as the third-largest silver producer in the world.

The company sold 746 metric tonnes (MT) of silver in FY 2023-24, marking a 4% increase compared to FY 2022-23. This represents the highest silver sales ever achieved by the company. The ongoing increase in metal prices is expected to enhance the company's margins, as stable production costs combined with rising selling prices lead to higher profits per unit sold.

Silver prices could reach ₹1.10 lakh

Jateen Trivedi, VP Research Analyst, Commodity and Currency, LKP Securities, said "Silver prices have continued their rapid upward momentum, surging past ₹100,000 in the physical Indian markets, with the fast-paced rally suggesting that prices could reach ₹110,000 before Diwali. As retail investors rush to buy silver, spurred by the heavy rise in gold prices, silver appears relatively more affordable at ₹100,000 per kilogram, while gold is now trading at ₹78,000 for 10 grams."

Trivedi further explained that global demand for silver, particularly fueled by the electric vehicle (EV) industry and the increasing use of photovoltaic technologies in renewable energy, is contributing to a sustainable increase in silver's value. He highlighted that this strong demand outlook, combined with macroeconomic uncertainty and geopolitical tensions, has provided additional support for silver's rally.

In the short term, Trivedi noted that silver faces resistance in the ₹100,000- ₹101,000 range, with the next target set at ₹110,000. Meanwhile, support for silver is observed in the ₹96,000- ₹96,500 range. With Diwali approaching and sustained demand for precious metals, Jateen Trivedi expects silver to continue its strong performance, making it an attractive investment option in the current market environment.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.