Silver contracts for December delivery dropped 641 rupees (1.15%) to 55,205 rupees per kilo at India's futures markets. Operators at India's Multi Commodity Exchange informed analysts that the silver price was under sales pressure mainly due to developments overseas. The external value of the US dollar has been appreciating against most other important currencies, thus inhibiting the performance of precious metals and discouraging investors who usually turn to silver as an investment alternative to equities and bonds. Not even Europe's escalating sovereign debt crisis is halting this current trend. In today's early Asian trading the silver price dropped 0.1% to $31.73 per ounce.
In recent months many Indian investors have been favouring silver over gold, but now this trend seems to be reverting. Indian investors usually prefer silver to gold mainly because of its lower price and its stronger upward potential. But the developments in the global markets have caused India's silver price to drop, too, since operators and investors at India's local markets follow the developments and trends of the global commodity markets. Nevertheless, demand for physical silver remains very high, mainly due to the festival season that started back in October. During these festivities most Indians purchase gold and silver jewels to offer them as presents to their family and friends. But in recent weeks only the gold price has benefited from this high demand for precious metals, while the silver price has been lagging behind.
Nevertheless, gold for December delivery at the Multi Commodity Exchange dropped 221 rupees (0.77%) to 28,559 rupees per 10 grams. A total of 3,100 contracts changed owners. According to operators, speculative investors sold their contracts after a rising US dollar put the global gold price under sales pressure. Many investors are looking to US Treasuries as a safe-haven from Europe’s debt crisis. In yesterday's session the yield on 10-year US Treasury bonds dropped to its lowest level in months. Since the greenback is performing well in relation to most other paper currencies, investors have temporarily lost their appetite for investment alternatives such as gold and silver. It seems that many fund managers also prefer stocking up their cash reserves as a protection against potential price crashes at the international stock markets. Yesterday a warning by Bank of America generated more angst, as the bank's chief analyst Mary Ann Bartels declared that she expected stocks to keep dropping until the end of the year. In the case of a disorderly default of any of the eurozone members, the S&P 500 could fall as low as 935 points.
Some experts recommend that global investors continue to include gold and other precious metals in their portfolios. Purchasing physical gold and silver is a must, as further developments at the financial and currency markets are completely unpredictable. Investors should protect their portfolios from high volatility through diversification strategies. One of many who defend this view is Robin Cornwell, founder of the Canadian firm Catalyst Equity Research. In the past, investors used to diversify their portfolios with equities, bonds and cash reserves. But nowadays portfolios should include precious metals – especially gold. For thousands of years gold, silver and platinum have proved to be a store of value – a fact markets are still not recognising.
Pension funds are currently only adding gold and gold equities to their holdings at a rate of 0.3% a year. Therefore, according to Cornwell the precious metal markets have enormous upward potential over the coming years. As soon as the systemic risks intensify, the financial markets will probably shift their way of thinking. This should benefit gold and silver prices.
