The recent surge in silver demand in India has propelled its price to unprecedented levels, reaching around ₹97,000 per ounce on October 23, 2023. This spike, while reflecting a broader increase of approximately 35% in dollar terms over the year, challenges the perception that silver is lagging behind gold. Gold has indeed reached record highs in recent months, leading to a sense of silver underperformance. However, from an Indian perspective, the burgeoning demand and price movements suggest a different narrative. The rally in silver prices is notably influenced by a significant reduction in import duties on gold and silver, from 15% to 6%, implemented just before the festive wedding season, which has historically boosted demand for precious metals.
The favorable market conditions have been amplified by a revival in rural consumption in India, which plays a critical role in silver demand, accounting for around two-thirds of the total. Strong rural economic indicators, such as a 13% year-on-year growth in two-wheeler sales and an expected good monsoon season leading to improved crop yields, have rekindled silver demand in the countryside. As rural households gain more financial stability, an increase in spending on silver, particularly for gifting during the wedding season, has become evident. Sales of silverware and jewelry, which traditionally thrive during festive periods, have rebounded from prior stagnation due to elevated prices.
The rising gold prices in India have prompted many consumers, especially in lower-income brackets, to shift their preferences towards silver and gold-plated silver jewelry. This pivot is reflected in the substantial jump in silver imports, which reached 948 tons in September alone, culminating in a total of 2,548 tons for Q3—a dramatic 572% increase year-on-year. Overall imports through the first nine months of 2024 have reached 7,079 tons, exhibiting an eightfold increase compared to the previous year. These statistics underscore the resilience of silver market dynamics in India, specifically in response to the interplay between gold prices and consumer purchasing behaviors.
As the festive season approaches, particularly with Diwali occurring on October 31, there is uncertainty surrounding how the spike in silver prices will affect consumer purchasing decisions. While historical trends suggest that foot traffic at jewelry outlets may remain strong, the high prices might compel consumers to opt for lighter-weight jewelry or smaller silverware pieces. However, the ongoing high prices of gold could potentially bolster sales for silver, especially in the burgeoning gold-plated silver jewelry segment. This duality reflects a complex market environment wherein both consumer behavior and price elasticity play a crucial role in shaping silver demand.
Investment interest in silver has also surged, as evidenced by the accumulation of over 17,500 tons of silver in coins and bars by Indian investors over the past decade. Contrary to expectations that rising prices might lead to significant sell-offs, recent data indicates that selling activity has remained minimal, with investors continuing to accumulate physical silver in anticipation of a long-term bull run. Additionally, silver ETFs in India have seen their holdings increase, surpassing 1,000 tons, echoing a broader trend of sustained investor confidence in the metal despite its soaring prices.
On the supply side, global silver markets continue to face constraints, evidenced by a three-year streak of market deficits. Despite the burgeoning demand fueled by rising industrial applications, lagging mine output presents a challenge. Moreover, there appears to be limited availability of silver scrap, as many consumers are unwilling to part with their existing silver holdings, further constricting supply. Looking forward, while higher silver prices may pose challenges to demand in India, the presence of favorable demand dynamics and strong market sentiment will likely mitigate the effects, indicating a complex but resilient landscape for silver in the coming months.