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SIX REASONS FOR YOU TOSIX REASONS FOR YOU TO

PURCHASE SILVER NOW,PURCHASE SILVER NOW,DESPITE HIGH PRICESDESPITE HIGH PRICES

-- Published in DNA: Sunday, Feb 20, 2011,Published in DNA: Sunday, Feb 20, 2011,-- ByBy ChandniChandni BurmanBurman

Group Members:

Megha Kamdar (28)Rajkumar ( )

RupeshVora(90)


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Silver prices have been going up for a while. On 19th feb Silverclosed at an all-time high of Rs 48,700. In the last one year,

silver has given a return of around 100% in dollar terms and84% in rupee terms.

Still, it makes sense to buy silver.

WHY?


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Important factsImportant facts The precious metal has emerged as the best-performing asset

both over the last 12 months as well as over the last 5 years,comfortably outpacing gold, the traditional favourite.

"Silver is the new gold,"

Over the last five years, silver has given a return ofover 240%. Similarly,if you had bought silver worth Rs 100 a year ago, it would now beworth more than Rs 200. In contrast, gold has given a return of 150%over five years and 25% over the last 12 months (see graphic).

Domestic brokers are, however, more upbeat on the metal. Religare'sManglik says it makes sense to increase silver's share in the portfoliofrom around 10% to 15-20%. "Everything today is in favourof gold andsilver going up.


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Six reasons!!!Six reasons!!! To invest money inTo invest money insilversilver

1. China has turned net

importer

2. Supply demand mismatch

3. Norecycling of silver4. Not easy toramp up

production

5. New uses of silver

6. The investment argument


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1.China has turned net1.China has turned net

importerimporter In 2005, China exported 100 million ounces of silver (one troyounce = 31.1 grams).

In 2010, five years down the line, the country has turned a netimporter, importing 122.6 million ounces, which is around 14% of

the glo

bal pro

ductio

n.

India, the biggest consumerof gold and silver in the world,imported 1,200 tonnes of silver in 2010, up 20% from the previousyear.

This increase in imports has largely been attributed to increase inthe price of gold, thus making gold jewellery very expensive. Thishas made people in these countries turn to silver jewellery. In fact,as the price of silver keeps going up, more and more people arelikely to take fancy to silver jewellery.


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2. Supply demand mismatch2. Supply demand mismatch

Silver demand is more than silver supply, and thus the prices

have been on a run.

The Silver Institute, which tracks silver supply, reports that

from 2000 to 2009 ,the supply of silver went up to 709.6million ounces, up from 591 million ounces. This shows an

increase of around 2% per year.

Silver

demand in 2009 stoo

d at aro

und 889 milliono

uncesand the difference between supply and demand was largely

met out of scrap sales.Given this, nearly 19% of silver

demand is being meant out of scrap sale. This is not

sustainable.


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3. No recycling of silver3. No recycling of silver

One way to increase supply is torecycle silver like gold

has been over the years. Silver is largely used as an

industrial metal.

But it is used in very small amounts as an industrial

metal.Given this, it is not easy torecycle silver.

Experts are of the view recycling will become

monetarily feasible only once the price of silver crosses

around $50 perounce (currently it quotes at around

$32-33 perounce).Given these reasons, increasing sale

of silver scrap is not very easy.


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4. Not easy to ramp up production4. Not easy to ramp up production

Experts who closely track silver believes that the world

is running out of silver.

The most vociferous of this lot, Adrian Douglas, the

proprietorof Market Force Analysis and also a director

ofGATA (the Gold Anti-Trust Action Committee), has

gone on record to say the world will run out of silver

in 2020, and thus become the first element of the

periodic table to become extinct.


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ContCont

So, if we were to believe these experts,

there is five times more gold on this earth

than silver. But does that reflect in the

price of these metals ? ? ?

CERTAINLY NOT.


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ContCont

This decreasing inventory cannot be built up through

increase in production. The earths crust has around 17

times more silver than gold. Despite this, silver

production cannot be ramped up quickly.

The primary reason for this is that it is rare to find a

pure silver deposit. Hence, nearly 2/3rd of the silver that

is mined comes as a by-product of mining other metals,

like copper, zinc and lead. So, increased production ofsilver in turn depends on the price of the other metals

it is co-mined with.


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5.New uses of silver5.New uses of silver

Silver has lots of industrial uses. Silver is currentlyused in electrical applications like conductors,switches, fuses etc. It is also used in photography,and silver alloys are used as cathodes in batteries.

Now, silver is also used in water purification andair handling systems. It is also a natural biocideand is very effective against bacterial infections

All this will ensure the demand for silver keepsgrowing.


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6. The investment argument6. The investment argument

Investors are gradually realizing the potential of

silver. This has led to an increased demand for

silver coins as well as exchange traded funds

worldwide.

Data from the Silver Institute shows that the

investment demand for silver went up by a

whopping 184% to 136.9 million ounces in the

year 2009.


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ConclusionConclusion

Economic recovery has pushed demand and prices of

commodities globally. But silver has outperformed

almost all significant metals and has given returns that

are higher than what the Sensex or crude petroleum

would have earned overone year as well as over thelast five years.

Moral of the story: Buy silver.


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