Silver Hits a New High Crosses 70000

Silver may have broken a new barrier breaching the Rs 70,000 a kg mark for the first time on Friday, but analysts appear more bullish on gold saying that the yellow metal still has steam left to rise faster.

On Friday, silver rose by Rs 1,400 a kg to Rs 70,810 in the Mumbai market, while gold price rose marginally to Rs 21,825.

The price of the two precious metals - seen as safe havens during uncertain times - have seen a sharp surge over the last 12 months as the American and the European economies remain wobbly. In recent months, the tension in West Asia and the tsunami in Japan have only added to the gloom, prompting a rush for safer investment options. The latest spurt has been fuelled by rating agency Standard & Poor's downgrade of US debt, which rattled global investor confidence and weakened the dollar further.

"Prices will remain firm till the dollar stays weak. The dollar may remain weak this year," says Jayant Manglik, president, Religare Commodities, a brokerage firm.

In its latest report, global metals consulting firm GFMS says inflation and improved income levels are also pulling investors to the yellow metal. "Overall, we would not be surprised, therefore, to see gold break through $1,600 (an ounce) before the end of the year," last week's Gold Survey 2011 said. Within days, the metal went past the $1,500 mark.

At Thursday's international price of $1,507, gold has given a 30% return over the last 12 months, and 143% over five years. But it is no match for silver where returns have soared 155% in the past one year and nearly 300% in five years. In rupee terms, the returns are a little lower owing to the Indian currency's appreciation against the dollar.

With silver prices rising faster than gold on industrial demand and investment rush by high networth individuals, the traditional gold-silver price ratio of 55:1 has been altered. Based on Thursday's international price, the ratio is now at 32:1.

In fact the dramatic change in the ratio is one of the reasons why analysts predict a moderation in silver prices. "A correction in silver is expected faster, though it will not go back to historical levels," says Tarang Bhanushali of brokerage firm IIFL.

But analysts say that given the possibility of a further rise in prices, you must have both the metals in your portfolio. "If you have a risk appetite, go for silver. Gold is a safer option at this point of time," says Religare's Manglik.

While it is difficult to time the market, especially if you are a retail investor, the best way is to buy in small lots instead of one large outgo. And, instead of buying gold and silver in physical form that will only sit idle in your bank locker, systematic investment plans (SIPs) are a better option.