Advantage India, Silver investment options!
India’s enduring affection for silver underscores the country’s importance to the global silver marketplace. As the world’s sixth-largest economy and foremost silver fabricator, India also plays an essential role in silver and gold investment demand, historically recognized in that market as savings and investment assets, a reflection of the low penetration of banking and other financial products.
Today, with new investment products available to Indian investors, India’s role in silver investment has the potential to grow even further. A new Silver Institute Market Trend Report, Trends in Indian Investment Demand, explores the main components across this market, including physical silver investment, exchange-traded products, digital silver, the futures market in India, and silver’s prospects for being listed on the India International Bullion Exchange.
The report, commissioned by the Silver Institute, was authored by Metals Focus, a leading precious metals consultancy based in London, England, with offices in key markets, including India. Since 2010, India’s physical silver investment (bars and coins) has accounted for one-third of overall Indian silver demand.
During this time, Indian retail investors bought around 730 million ounces (Moz) of silver, representing 90 percent of 2022’s global silver mine production. Following two years of depressed buying, 2022 saw a healthy recovery in physical investment, jumping to 79.4 Moz last year, the highest total since 2015.
This growth has contributed to a record high for Indian silver imports, which surged last year to 304 Moz, comfortably surpassing the 2015 record of 260 Moz. A recent investment opportunity in India is silver exchange-traded products (ETPs), launched in September 2021. Currently, there are seven ETPs and five silver ETP Fund-of-Funds (FoFs, which invest in ETPs).
As of end 2022, silver ETP holdings in India stood at an estimated 8 Moz, a good start given the fact that these products were only released in late 2021. In keeping with silver ETPs, digital silver products have also been newly launched in India, although to date, they have failed to gain traction among retail investors. Digital silver allows investors to buy silver for a low price point, depending on the platform.
The silver is then stored in insured vaults by the seller on behalf of the customer, who can either sell it back on the same platform or take physical delivery in the form of coins or bullion (after paying delivery and minting charges). Digital silver represents another new chapter of silver investment in India, and already nine companies offer these products in India.
On the Indian commodity exchange, overall volumes in Indian futures market trading have slumped since 2011, undermined by the introduction of a commodity transaction tax and the fall in the rupee silver price. However, since the pandemic’s beginning, exchange volumes have recovered but remain almost 40% below their peak of 118 million contracts in 2011.
Another new potential arena for silver investment is the India International Bullion Exchange (IIBX), which launched in August 2022. The IIBX allows Indian jewelers and bullion dealers to import gold directly from foreign suppliers through the exchange by trading Bullion Depository Receipts (BDRs).
While the exchange only permits gold imports and trading of gold through spot contracts, officials expect the importation and trading of silver to eventually be allowed. The report notes that since 2014, some notable policy and regulatory changes in India have structurally altered investment in precious metals, potentially limiting physical investment.
These changes have included the government’s push to provide banking services to the entire population and the crackdown on tax evasion and cash transactions.