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Silver is mainly used in making jewellery, coins and utensils. It is also used in the electrical and electronics sector.
The Reserve Bank of India’s provisional data show that silver imports dropped by 61 per cent to $1.98 billion in 2012-13 from $5.08 billion in 2011-12. Imports could fall further as the Government has increased the Customs duty for silver to 10 per cent from 6 per cent last month. The Ministry of Mines expects annual silver demand to double and surpass 6,000 tonnes by 2016-17.
Data from the Silver Institute as of 2012 show that Mexico is the world’s largest producer followed by China and Peru. India holds the 13th place. Global production increased by 4 per cent in 2012 to 787 million ounces (Moz) from 757 Moz in 2011.
In this week’s dissector we take a look at the future of global silver spot price and India’s Multi Commodity Exchange (MCX) futures price.
LONG-TERM VIEW
The spot price has closed higher by 1.4 per cent this week at $23.85 a troy ounce and the MCX benchmark contract is at Rs 54,940 a kg , up by 3.25 per cent for the week.
The global spot price of silver is in a strong downtrend since recording its record high of $49.8 in April 2011. Crucial resistances are at $25, $26.2 and $27.5. A decisive break above $27.5 is required for the long-term downtrend to reverse. Below $27.5, one should not be surprised to see another fall to $16-15 levels in the coming months. On the contrary, if $27.5 is broken decisively, then it can rally to $32-35. However, the possibility of a rise to $32-35 levels looks less probable.
MCX futures are currently witnessing a corrective rally after a sharp fall from Rs 73,600 in April 2011 to Rs 38,536 in June 2013. This corrective rally is facing resistance in Rs 59,500-60,500 region and is keeping the overall downtrend intact. If the pull back from this resistance level continues, then there is a danger to see a fall to Rs 41,000-40,000.
An eventual break below Rs 40,000 can test levels of Rs 26,000-25,000 on its way down. If the support at Rs 40,000 manages to hold up, then a broad sideways range between Rs 40,000-60,500 can be seen for some time. On the upside, the chances of an immediate break above Rs 60,500 are less. But a breach above this level, can test new highs surpassing the earlier high of Rs 73,600.
MEDIUM-TERM VIEW
The medium-term outlook is looking weak with a “grave stone” reversal pattern on the MCX contract’s weekly candle chart. Resistance is at Rs 56,100, and then at Rs 60,000-60,500. Having said this, the contract can fall to Rs 45,500-44,000 while it remains below Rs 56,100.
Although an intermediate break above Rs 56,100 cannot be ruled out, chances for the contract to breach Rs 60,500 look bleak.
SHORT-TERM VIEW
The short-term view for the MCX contract is mixed as the current price hovers between the support region of Rs 53,000-52,000 and the resistance zone of Rs 57,300-57,500.We will have to wait for a break either below Rs 52,000 or above Rs 57,500 which would give the direction for the short-term.
A breach below Rs 52,000 can take the contract lower to Rs 49,000-48,000, while a break above Rs 57,500 can take it higher to Rs 60,000-60,500.
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