Informist, Friday, Jun 28, 2024

By Kshipra Petkar

MUMBAI – Inflows into silver exchange traded funds may see some moderation in the short-term as prices of silver have eased since May-end and are expected to fall further, fund managers and analysts say. Silver prices have fallen on uncertainty about rate cuts by the US Federal Reserve in 2024, analysts said. Silver prices, which hit a lifetime high of 96,493 rupees on the Multi Commodity Exchange of India on May 29, have since then declined 7.6% and closed at 89,156 rupees on Thursday.

Prices of the white metal are expected to fall further by another 9,000-10,000 rupees per kg, Sriram Iyer, senior research analyst at Reliance Securities said. "The inflows will be moderate, but you have to understand that the people who invest in ETFs (exchange traded funds) will keep investing. People who do it as side-investing, it might slow down," Iyer said. He expects the US Fed to cut rates by 25 basis points in December.

"The expectations have been building up for one or more rate cuts. But, having said that, since the (US) economy overall has been doing good, there is no force or pressure on the Fed to start cutting rates early," Kaynat Chainwala, associate vice president of commodity research at Kotak Securities, said.

Market participants said comments from Fed officials have been that they would like to wait and see more data before actually cutting rates. Since they are looking for more evidence of inflation cooling before the Fed pivots, it's likely that the September rate cut may not happen, which is going to be negative for, both, gold and silver.

The inflows into silver exchange traded funds have been rising since the start of this year, fund managers said. According to the data by the Association of Mutual Funds in India, the average inflows in Jan-Mar were 5.08 bln rupees which have increased to 5.63 bln rupees in Apr-May.

Currently, the mutual fund industry has 12 silver exchange traded funds and 9 silver fund of funds, as per data provided by Value Research. The total assets under management of silver ETFs was at 70.18 bln rupees as on May 31, over twofold from Dec 31 as per the AMFI data.

The figures for the assets under management of SBI Silver ETF have not been added as the new fund offer closed for subscription on Thursday. The fund house did not respond on the amount raised by the NFO period till the time of publishing.

Chainwala said the price of silver would move sideways to lower and even though the domestic infrastructure push might be a little supportive, it won't reverse the trend. "If it goes down in international markets, it won't reverse the trend and keep silver prices positive in Indian markets. That is very unlikely," she said.

The focus will largely be on the key US personal consumption expenditure price index data, which is due today. The Federal Reserve's preferred inflation gauge is likely to drive its outlook on rates.

However, fund managers are optimistic about silver prices and inflows into silver ETFs in the medium to long term as they expect at least one rate cut by the Fed by year-end. "We are bullish following this June/July consolidation phase, as we expect a dovish surprise in July FOMC. As per Citi Research, in medium-term (1-2year), gold will get to $3,000/oz which could push silver to $38-40/oz," Vandna Soni, fund manager of SBI Silver ETF said.

Also, silver is not just a precious metal, but also an industrial metal and is used majorly in solar-panel cells, smartphones, tablets, automobile electrical systems, among others. The industrial demand for silver is forecast to rise by 9% this year to a new record high even as global silver supply is projected to fall 0.7% in 2024 to 1 bln ounces because of a fall in mine output, according to World Silver Survey 2024.

As per the data on Value Research, the one-year average return of silver ETFs and fund of funds is at 23.5% and that of gold funds is 20.8% as on Jun 27.

Silver is also cheaper than gold, which makes it all the more accessible to small retail investors who wish to diversify in the precious metal space. However, the higher volatility in silver in comparison to gold is also something which one must consider before investing in it, fund managers said.

"This (application of silver in so many industries) improves the long-term growth potential of silver and can benefit investors who invest in commodities but currently don’t look beyond gold. Investing through an ETF and Fund of Fund, gives investors a low-cost investment option and the advantage of liquidity," D.P. Singh, deputy managing director and joint chief executive officer of SBI Funds Management said.

The following are the silver exchange traded funds and their assets under management as per the data provided by Value Research:

*Age of the fund is less than one year
**NFO opened on Jun 24, closed on Jun 27
***NFO opened on Jun 27, to close on Jul 5

End

Edited by Maheswaran Parameswaran

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