With gold prices too hot for many in India, silver has regained its sheen. Sales of silver coins are soaring in India, with most consumers buying silver coins which herald good luck and prosperity. Gold, on the other hand, has hit several highs in the last couple of days, deterring buyers from the precious metal.

Delayed monsoons in India have all but grounded sale of gold too. In rural India, sales of the yellow metal are closely linked to monsoon, since good rains that bring on a rich harvest will boost gold purchases by farmers.

So far, in June, rain deficit has already reached 41%. Rural India still accounts for 60% to 70% of gold sales in the country and if the monsoon is below normal this year, gold purchases will struggle to cross the 600 tonne mark this year, say bullion dealers.

The high price of gold, however, has many investors betting on silver. “People’s appetite for investing in the white metal has sky-rocketed lately, with most consumers coming in and picking up silver coins in double digits,” said Sonamull Shah, bullion trader.

An official at Nakoda Bullion added, “Coin sales are picking up here. Compared to the last two months, sales are showing good recovery, since all those who cannot afford gold are now buying silver.”

Small-sized silver bars and coins are dominating most retail counters now, with consumers choosing the cheaper white metal in hopes of future price gains. Demand from industries and domestic coin makers is also keeping spot prices firm. 

India is the largest importer as well as consumer of silver, with the average domestic consumption of the metal around 3,600 tonne per annum. 

In Mumbai, the commercial capital of the country, spot silver prices had hit a low of $909.67 (Rs 52,100) on May 17 this year,  but had hit a high of $989.61 (Rs 56,680) per kilo on June 5, 2012. On Friday, silver was quoting at $944.33 (Rs 54,055) per kilo.

Analysts are of the opinion that the return from silver this year is expected to be around 6% as compared to a negative return last year. Gold is set to do better. Gold is expected to give a 20% return in 2012, as against a 10% return of the previous year, say analysts. 

According to a report of the Indian government’s Working Group on Mineral Exploration and Development, “Indian import of silver for 2012 is expected to decline to a range of 3,500 tonnes to 4,000 tonnes owing to a weak rupee and high import duty as compared to 4,800 tonnes imported last year”.

A weak rupee is creating chaos in the futures market. At the Multi Commodity Exchange, silver for delivery in July was down at $923.66 (Rs 52850) a kilo. Prices for September 5 delivery were also lower at $946.68 (Rs 54,150) per kilo, while those for December 5 delivery, were down at $974.17 (Rs 55,680). 

On June 21, silver futures prices fell 1.04%, to $942.67 (Rs 54,003) per kilo as speculators booked profits amid a weak trend overseas. Analysts said the weak trend continued after Federal Reserve extended stimulus measures for six months to boost the flagging economy, but this put pressure on the silver futures prices here.

Despite this, investment demand is picking up in India. Analysts said silver coins had fetched a return of 25.8% since November 2010 in India, and 7% since January 3, 2011.

From end-2006 to date, silver has jumped by 165%, rallying from $349.68 (Rs 20,000) to $926.65 (Rs 53,000). Silver prices had hit a high of around $1,276.60 (Rs 73,000) per kilo in April 2011, but later witnessed a sharp correction.

PRECIOUS GOLD

Monsoons ensure a good harvest, that contributes to more than half of India’s gold demand.

The June to September rains are crucial for India with 60% of its arable land dependent on them. Rains in the country impact demand for gold. Rural purchases rise in tandem with a rise in farming incomes, as a result of high crop output.

Though India’s annual monsoon rains had covered almost half of the country at the start of June, there has been a palpable slowdown, with no signs of a pick-up this week with a forecast of bright, sunny days. The delayed monsoons have brought to the fore several concerns about the planting of crops.

About 72% of India’s billion-plus people live in rural areas. The country’s rural destiny still depends on good monsoon rains and robust agricultural production. In 2009, poor monsoons led to the worst drought in nearly four decades, and India had to import foodstuffs, raising global prices to record highs.

However, four years of bumper crops and heavy government investment in rural infrastructure have given birth to what some analysts call an `emerging economy’ within India.

This year, with the entire country waiting for the monsoon season to take off, analysts are talking about another dark cloud that may not bear rain. High import duties and high domestic prices have severely pulled down demand for the yellow metal.

India’s demand for gold has reportedly fallen far more drastically than that of the world. In the first quarter of 2012, domestic demand for the yellow metal witnessed a 30% crash year on year, even as global demand for gold dwindled 11%.

Imports too have crashed. India’s gold and silver imports have fallen 52% in May.

April too witnessed a decline, with gold and silver down by 33% to $3.1 billion.

Imports of the yellow metal had already shrunk to 95 tonnes in the January to March 2012 period, against 283 tonnes in the same period last year. Gold prices zoomed to fresh highs on Tuesday (June 19) of $548.36 (Rs 30,750) per 10 gram, though it slipped by Rs 150 the next day, but was still high at 545.89 (Rs 30,600) for ten grams. Analysts are of the opinion that rural demand for the precious metal could be restrained this year.