The price of silver futures on India's Multi Commodity Exchange (MCX) soared to a historic peak on Monday, closing near the Rs 1.8 lakh per kilogram mark. This surge mirrored a global rally where silver prices reached an unprecedented $58.5 per ounce earlier in the day. The domestic rally was further amplified by the Indian rupee weakening close to the Rs 90 per US dollar level.
Supply-Demand Mismatch Fuels the Rally
According to market experts, this is not a temporary spike but a trend driven by deep-rooted structural factors. Satish Dondapati, a fund manager at Kotak Mutual Fund, highlighted that a persistent demand-supply mismatch is the core driver. He noted that the price of the precious metal has skyrocketed by approximately two-and-a-half times over the last two years.
Dondapati explained that industrial consumption from sectors like electronics, solar panels, and automotive is rising steadily. Concurrently, investment demand for silver has also increased, tightening the available supply. On the production side, the market faces several constraints:
- Mining activity has slowed due to lower ore quality and higher operational costs.
- New mining projects are facing significant delays.
- There has been limited exploration to discover new silver reserves.
Silver as a Safe Haven and Technical Outlook
Beyond industrial use, silver is increasingly viewed as a safe-haven asset during periods of economic uncertainty. Investors turn to it as a hedge against inflation, currency fluctuations, and volatility in broader financial markets. This dual demand from both industry and investors is creating scarcity, pushing prices to record highs and raising concerns about the market's ability to meet future needs.
The technical analysis also supports the case for a sustained upward trend. Apurva Sheth, Head of Market Perspectives & Research at Samco Securities, informed investors in a note on Friday that silver was showing consolidation signs before a potential breakout. He projected that based on the pattern's height on technical charts, silver has the potential to rise by an additional $8 to $9 from the breakout point, potentially targeting levels of $63-64 per ounce.
Spot Prices Yet to Match Previous High
While futures prices set a new record, physical or spot silver prices in India have not yet crossed the Rs 2 lakh per kg threshold. This level was last witnessed in mid-October, driven by a global supply crunch and intense retail buying during the festive season. The current rally, however, appears to be built on a more foundational shift in market dynamics, suggesting that the record-breaking trend may have room to continue.
