After a 20% rally in two months, is silver headed towards Rs 1 lakh?

Among precious metals, silver staged a quick recovery in the last two and a half months as the white metal has surged Rs 10,000 per kilogram (kg) from Rs 52,000 to Rs 62,000 during the given period.

Compared to its peak for the year, silver topped Rs 73,000/ kg mark during March on the back of safe-haven demand due to the Russia-Ukraine crisis.

However, the white metal took a beating as the global central banks, led by the US Federal Reserve, started increasing interest rates to tame the inflationary pressure, which was staring aloud at multi-decade high levels.

Renisha Chainani, Head of research at Augmont, said that a weaker rupee, on the other hand, helped boost the local silver price, as they currently have a higher premium than global silver prices.

"After seeing many fluctuations in 2022, silver prices are again trading steadily near Rs 62,000/kg levels after the series of rate hikes by the central banks," she added.

Silver staged a quick recovery during the domestic festive season, fueled by the strong demand of the metal, which is considered auspicious in India. This propelled the import of physical silver in India to pre-Covid levels.

The recovery in demand, coupled with apparent peaked out inflation, is pushing silver higher. Along with this, limited room for the Fed to push the interest rates higher is another factor.

Sugandha Sachdeva, Vice President - Commodity and Currency Research, Religare Broking, said that silver showcased a stellar rally, surging around 20% after testing 2-year lows in September following a steep decline in the dollar index.

"On the back of softening greenback and eased annual inflation in October, investors are now pinning hopes that the US Fed will likely adopt a dovish pivot, favouring the demand outlook for the white metal," she said.

Akin to the yellow metal, Silver is also a safe-haven and is used for portfolio diversification. However, the white metal is not just a precious metal, but is also used in number of industries, which is likely to push its demand higher.

NS Ramaswamy, Head of Commodities, Ventura Securities, said that as an industrial metal, silver has its presence in various sectors, including solar panels, cell towers, EVs, and circuit boards connecting electronic components, among others.

"Silver-based sensors are manufactured in health segments like infection detection. Many such technological advances are proving more utility for silver," he said.

The road ahead?
Market participants suggest that Silver prices are likely to be supported by continued decline in the dollar index, upbeat Chinese demand and lesser aggressive US Fed.

In the coming days, prices look to spiral higher to Rs 73,500-73,700 per kg range from a medium-term, said Sachdeva from Religare.

"Only a convincing breach of the mentioned levels would fuel further gains in the metal in the long run as concerns about a global slowdown and the rising interest rates globally are likely to cap prices at higher levels," she adds.

Silver, after being an underperformer for the major portion of the year, is likely to witness strong gains in the medium term, said the analysts, tracking the markets.

Silver prices seem to be heading towards Rs 70,000-75,000/Kg in 2023, and maybe in the next 2-3 years, we might see Silver at a 1 lakh target, said Chainani from Augmont.

She said that the best way to stay invested in this market is through digital Silver, which is a quick and easy way with minimum transaction costs involved with complete safety and security.

"To get into the action with silver, it could be a physical holding such as bullion or through the ETF route, '' said Ramaswamy from Ventura. "As a trading opportunity, derivatives offer products like Futures and Options," he added.