Despite stock market rally and Nifty 50 reclaiming the psychological 20,000 levels, silver price rally outshined 50-stock index in the month of November. In November till date, silver price has rallied to the tune of 6 per cent in domestic market whereas in international market, the precious white metal has risen more than 9 per cent, a return which is much higher than public providend fund (PPF) or bank fixed deposit (FD) returns.
The rise in silver prices in India in November 2023 was driven by a combination of global and domestic factors.
Global factors
- Easing interest rates: The US Federal Reserve’s signal to slow down its interest rate hike cycle in November 2023 boosted the demand for precious metals, including silver. When interest rates rise, the opportunity cost of holding non-yielding assets like silver increases, making them less attractive to investors. However, easing interest rates make silver more appealing as an investment option.
- Weaker US dollar: The weakening of the US dollar in November 2023 further supported silver prices. Silver is often seen as a hedge against a weak dollar, as investors tend to turn to precious metals as a store of value when the dollar’s purchasing power is declining.
- Industrial demand: Silver has both industrial and monetary applications. In November, there were indications of growing industrial demand for silver, particularly from China. This increased demand contributed to the rise in silver prices.
- Geopolitical tensions: Geopolitical tensions around the world also played a role in the surge of silver prices in November 2023. During times of uncertainty, investors often seek safe haven assets like silver.
Domestic factors
- Festival season: The Diwali season in India, which falls in November, typically sees increased demand for silver due to its traditional significance in Indian culture. Jewelry purchases and gifting silver during this period drive up silver prices.
- Inflation concerns: Rising inflation in India also contributed to the increase in silver prices. Silver is often considered an inflation hedge, as its value tends to rise when the purchasing power of currency declines.
- Import duty: The Indian government’s decision to reduce the import duty on silver in November 2023 also played a role in the price increase. The lower import duty made silver imports cheaper, increasing the supply of silver in the domestic market and pushing up prices.
Way Forward
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