Indian Silver Imports on Record Pace as Demand Surges

Indian silver imports are on pace to triple this year as investors bet the white metal is primed to rebound and outperform gold in the near future.

Silver prices have dropped to 2-year lows, and the silver-gold ratio has risen to nearly 90-1, signaling that the white metal is significantly undervalued compared to gold.

“Investment demand has been boosting imports,” Amrapali Group Gujarat CEO Chirag Thakkar told Reuters. “Investors are anticipating poor man’s gold will beat gold in coming years.”

According to the Reuters report, surging silver demand in India could support global prices.

Investor Umesh Patel recently bought two silver bars. He said he thinks silver prices corrected too much and will rebound soon.

“Silver is underperforming compared to gold. I’m hoping it will rise sharply like 2009 to 2011 period,” he said, adding that he saw 200% returns on his silver investment during that period.

There is reason to believe Patel is correct.

The silver-gold ratio hit a two-year high of just over 90-1 in July and remains close to that level. That means it takes nearly 90 ounces of silver to buy an ounce of gold. To put that into perspective, the average in the modern era has been between 40:1 and 60:1. In simple terms, historically, silver is extremely underpriced compared to gold. At some point, you should expect that gap to close.

The perception that the Fed will continue its war on inflation has created significant headwinds for both silver and gold in recent months. Both metals have seen significant selling pressure despite an extreme inflationary environment and a recession. If the Fed bows out of the inflation fight to rescue the tanking economy, it would likely spark a major rally in gold and silver. Historically, silver has outperformed gold in a gold bull market.

According to provisional data from the Ministry of Commerce and Industry, Indian silver imports surged to 5,100 tons through the first seven months of 2022. That represents a staggering 4536.3% increase from the 110 tons imported through the same period a year ago.

Analysts project silver imports into India could total a record 8,200 tons this year.

Indian silver imports came in at 2,218 tons in 2020 and 2,773 in  2021. That was down from a prepandemic level of 5,969 tons in 2019.

With the rise in demand, banks and bullion dealers are charging premiums of up to 30 cents per ounce over global prices.

Investment demand isn’t the only factor driving Indian silver imports higher. Industrial demand has surged as well. The Indian government offers production-linked incentives to local and foreign companies for manufacturing electronics and solar panels in the country.

The growing green energy movement is also expected to boost silver demand. The metal is an important component in solar panel production.

About 20% of Indian silver demand is industrial, with non-industrial demand for jewelry, silverware and investment making up the other 80%.

Globally, supply and demand dynamics also look good for silver even with a looming recession. Investment demand skyrocketed last year and supply is down. Industrial demand will continue to rise driven by the growth of the green energy sector. Governments are likely to keep that gravy train running even during an economic downturn. Mine output was hit hard by shutdowns due to the coronavirus pandemic, but silver production was already on the decline with mine output dropping for four straight years.