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Not only gold, but also silver can overshadow your portfolio. here’s why


Two weeks ago I wrote about add gold to your portfolio. This week it reached new all-time highs. Gold is not alone in his rally, he will probably be joined by moneyAlso.

Silver presents an attractive investment option in today’s macroeconomic environment, a volatile and vastly overvalued stock market.

This white-gray metal provides strong protection against inflation as well as downside risks due to its high utility and store of value. Although its price often moves in tandem with gold, silver tends to be more volatile. With the current upward trend in the price of silver, it is also expected to reach an all-time high soon.

India is a net importer of silver, ranking among the top five silver consuming countries in the world. While the country’s silver imports reached a record high of 9,450 tonnes in 2022, they declined to 3,475 tonnes in 2023 due to a higher base effect and post-lockdown stockpiling. However, trader optimism in 2024 suggests a potential rebound in demand leading to higher imports.

In February, India imported a record 2,200 metric tons (70.7 million ounces) of physical silver. More than half of the demand for silver comes from industry, as it has the highest electrical and thermal conductivity of all metals. The dynamism of sectors such as solar energy, semiconductor chips and the development of electric vehicles, which use lithium-ion batteries, will stimulate industrial demand and lead to an appreciation of the price of silver.

Apart from this, at the recently concluded Federal Open Market Committee (FOMC), March interest rates remained unchanged between 5.25 and 5.50%, but the Fed Dot Plot suggests the possibility of three rate cuts later in 2024. This has led to a sharp increase in demand safe haven assets around the world. Many central banks have also started accumulating precious metals in their portfolios.

Silver has historically demonstrated a negative correlation with interest rates: a fall in rates could cause the price of silver to increase. The market is forward-looking. He has already started to anticipate future rate cuts, leading to a surge in silver prices.

The chart illustrating the historical evolution of silver CFDs and the US Fed interest rate is shown below:

If we compare the absolute returns of money in INR with the NIFTY50 the index prices return over 1 year, 2 years and 3 years after the rate cut, we obtain the following position:

We can recognize that in each case, silver outperformed the NIFTY 50 Index returns.

Silver prices also demonstrate an inverse relationship with the US dollar. A strengthening dollar is often correlated with a decline in silver prices, and vice versa. With US interest rates already at an all-time high, the dollar is unlikely to strengthen from here. Applying the logic of purchasing power parity, if the value of the US dollar decreases, then to buy the same amount of silver, more money must be spent, which causes the price of silver to rise.

Last but not least, the price of silver itself. Silver is trading more than 50% below its all-time high of US$49.8/ounce reached in 2011. In rupee terms, silver is trading near its all-time highs simply due to the depreciation of the rupee. You can imagine what would happen if silver exploded in international markets.

Considering all the points above, it seems like it’s time to add some money to your wallet.

The Nifty recovered from lower levels, ending with a 0.33 per cent gain at 22,096.75 last week.

All sectors participated in the upward movement except Nifty IT which fell by almost 6%. This recovery was largely fueled by the US market hitting record levels, boosting confidence in the domestic market.

Technically, Nifty bounced from the lower Bollinger band and managed to close above the 50-day moving average (DMA) and a close well above the crucial 22,000 level further strengthened the bullish sentiment. The Relative Strength Index (RSI) has also recovered from lower levels and is now holding at around 50 levels, indicating balanced market sentiment.

The decline in India’s VIX, a measure of market volatility, reinforced the rallies, resulting in a positive market outlook.

Looking ahead, major support for the Nifty is expected around the 21,800 level while resistance is seen around 22,350 for the coming week. Specific stock performance will play a crucial role in shaping the direction of the market in the coming days.


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