Bearishness prevailed in the bullion markets throughout last week. Prices of gold slipped in both the domestic and international markets from their earlier high levels on subdued demand and increased offerings.However, silver prices halted their downward slide towards end of the week as the deluge of silver-sellers pulled back their offerings. This saw silver prices firming up on Friday when it closed at Rs 8,870 per kg, up from Rs 8,815 recorded on February 9.
Early last fortnight (on February 5) silver had touched a nine-and-a-half year high of Rs 9,350 per kg (from Rs 8,950 on February 2) on reports that Warren Buffett had cornered 20 per cent of the available world silver supplies during the past six months. ``The high price has completely halted the import of silver,'' says ML Damani, president of the Bombay Bullion Exchange. ``However, export of any form of silver does not seem to be a viable proposition for local prices are just around 10 per cent lower than the landed cost of around Rs 9,500 perkg.''
Sources from the two silver refining centres (in Mumbai) indicated that the daily flow of silver (from across the country) had almost doubled to around 500 kg from around 250 kg in mid-January this year. It is estimated that around some 15-17 tonnes of silver changed hands and was offered for melting during the last one fortnight. This softened silver prices on the Bombay Bullion Market, after which the flow of sellers seems to have temporarily halted, traders said.
Given the country's large hoard of privately-held silver (over 1,11,000 tonnes), and given the slightly higher-than-expected international prices, there was some possibility of silver being exported earlier. This would have helped private holders to cash in on high international prices and demand since global stocks are said to be depleting fast. For most of the past decade, the situation in silver has been just the reverse--with international silver prices being clearly cheaper than domestic silver. Whether the prices are currently highenough for continued silver dehoarding is not clear. However, the fact is last year's good crop and rise in farm incomes is said to have increased rural and semi-urban demand. Traders said demand for silver was higher from Kolhapur and Jaipur centres where silversmiths were converting raw silver into heavy jewellery and utensils. Exact figures, however, were not available.
The deluge of silver that came in the market last fortnight (after reports of international prices firming up) seemed to be slowing down this week. This inflow initially resulted in a softening of prices mid-week, which later on began firming up on reports of less silver being offered by the sellers. This saw prices firming up once again. Currently, domestic silver, if exported through official channels, is not very profitable at the official exchange rate of Rs 38.60 to the dollar. However, if it is exported through the havala or parallel channels, silver exports and smuggling are marginally attractive for they fetch a margin of Rs100-150 per kg for those engaged in such parallel activity.
Export of raw silver is banned by the government, and it can be officially exported only if there is 33 per cent value addition, which is rather difficult and a costly affair. Despite this, silver is said to be trickling out of the country through the havala route through the conversion of raw silver into utensils, jewellery and presentation articles.
On the gold front, the customs department appeared to be eager to sell large chunks of the metal in phases. Last Thursday, the department is understood to have sold over 400 TT bars (of 10 tolas each), or 48 kg, to traders at rates that were one per cent cheaper than the previous day's closing (Rs 46,800 per biscuit of 10 tola) to domestic jewellers. While this consignment is said to have been picked up, the traders were not in mood to take up yet another offer made on Friday. The customs' offer remained open.Further, the flow of the yellow metal continued unabated even through the NRI route, thedetails of which were not available. These developments resulted in a further easing of the gold prices during the week. Given the developments, easy prices are likely to prevail on the domestic front in the near term.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
