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Dhirendra Kumar
(CEO, Value Research)
Readers of the investment press may have noticed
in recent weeks a sharp increase in the number of
articles that use the phrase ' silver lining'. However,
most of these articles are not saying the obvious
thing - that every cloud has a silver lining. Instead,
they are saying that every silver lining has a cloud;
or that silver has a cloudy lining. Or something along
those lines. It's quite amazing the way interest in
silver investing has increased. Or, maybe, it's not so
amazing after all.
The last few years have seen one commodity after
another going through a similar cycle, and, perhaps,
it's just silver's turn now. However, what is different is
the ordinary investor's reaction to silver prices
shooting up. When copper prices shot up, hardly any mutual fund investor clamoured for a copper ETF .
No one tried to buy physical copper and stash copper at home. Basically, copper was of concern only
to copper users and those who were already investing in commodity futures. But silver is different.
Silver is one half of the gold and silver duo, so many of us feel that we should have bought or could
have bought it and made awesome gains of many times our investments. However, silver is not gold
either. Despite the phrase 'gold and silver' , investing in silver is a very different matter than gold. Unlike
the deeply-ingrained centuries-old culture of buying gold, Indians don't actually buy silver traditionally in
any quantity.
For one, silver is not a dense enough store of wealth. You can't store, hide or transport a lot of wealth
in any reasonable physical volume. Also, silver has traditionally been a status symbol (as jewellery ,
etc) only among the relatively less well-off . In a manner of speaking, silver is the poor man's gold.
From the middle-class upwards, silver jewellery is not part of any trousseau and no one's family has a
horde of silver that is handed down from generation to generation. The fact that silver is not gold is true
on a wider scale, too. Silver is not the ultimate reserve currency like gold, nor has it ever had the same
role in the world economy.
There never was a silver standard. All of this makes silver a purely financial investment. Unless you are
into commodity futures, there is no way to invest in silver in India. Sure, you can buy chunks of physical
silver but you'll be paying sales tax and VAT. You can't really invest in something in which the
transaction is costing 15% or so. And of course, there are no silver-based mutual funds, so that route
is closed, too. Don't think that I'm pointing these out as problems - I'm not. This is all good news.
Silver's price rise is a bubble, and as usual, by the time the news is disseminated widely enough for the
non-investor to consider becoming an investor , the fun is over and the dangerous part is looming large.
You can come across any number of ideas as to why silver's shock rise is justifiable. The favourite is
that silver has industrial uses and so its demand will shoot up.
While silver has many uses, nothing in its usage justifies the way its price has shot up and in the short
timeframe in which it has shot up. Basically, this amounts to the fact that in today's world you can point
to anything and scream 'Chinese Demand ! Emerging Economies! Buy!', and its price will shoot up.
We've seen this trick many times in the past five years and we will doubtlessly see it many more times
in the coming years. Would you like to make money off this phenomenon? Then you will have to be a
2 MAY, 2011, 07.01AM IST,
'Silver's price rise is a bubble'
silver | ETF | Copper
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'Silver's price rise is a bubble' - The Economic Times http://economictimes.indiatimes.com/markets/commodities/silvers-price...
1 of 3 5/6/2011 3:47 PM
bit smarter about recognising the next silver - this particular boat has already sailed.
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vkjain (Mumbai)
While I would agree with the broad thoughts behind the article, it is factually incorrect
to say that there never was a silver standard. Right from the fall of the Byzantine
Empire, the silver standard was widespread right upto the 19th century as most
countries had their silver coins as the legal tender. An international silver standard
came into existence in the 16th century when Spain discovered large deposits of
silver and started minting the 'Spanish pieces of eight' (commonly called silver dollar
coins). These coins minted in Spanish colonies played the role of an international
trading currency for nearly four hundred years. Around the same time, Sher Shah
Suri introduced the silver coin names 'Rupayya' (or 'rupee') in India also and
effectively India too came on the silver standard internationally. Great Britain's early
use of silver standard is still reflected in the name of its currency 'pound sterling'.
Britain first moved to the gold standard officially only in 1816. Even though other
British colonies gradually moved to the gold standard thereafter, India was not
allowed by its British masters to move to the gold standard since that would be
harmful to British interests in their trade with India. India moved to the gold exchange
standard only as late as 1898, when value of the Indian Rupee was fixed at one
shilling four pence in relation to the sterling which by then was on gold standard.
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Bharat (Kanpur)
Hey isnt silver and gold prices plummeted down due to death of Osama, the global
trouble. At the time of war the prices of these precious metals go up, as people start
investing more in form of gold and silver for the safety of their investments. Now that
killing of Osama signifies peace, the investment in these metals has gone down and
hence the prices...what say
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MD (MD)
it appearsthe author is not aware of NSEL
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cb (Vizag)
The suden fall in the last two days is an opportunity for those who missed the bus.
The gains may not be phenominal compared to those who bought during Sept 2010
to April 2011 but it can beat any other earnings. Precious metals become dearer and
as the technolgy especially electronic industry grows, the demand & so the prices go
up. Buy with your own cash that will allow you to face the vagories on the short term
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Devarajan (Deva)
Dhirendra seems to think that the silver prices are rising only in India and no where
else, that is why you are giving such an explanation, but the indian market is
miniscule compared to the global one, the silver prices are rising globally and that
too for a reason, if you study the global trend then may be you can come up with a
different set of reasons, GOLD and SILVER are no bubble they are the real money i
guess there is still upside in both metals
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'Silver's price rise is a bubble' - The Economic Times http://economictimes.indiatimes.com/markets/commodities/silvers-price...
3 of 3 5/6/2011 3:47 PM