FACTS ‘N’ FIGURES — Indian silver demand not down

Over the past eight months, the silver market has been awash with rumors that Indian silver demand has declined sharply in the face of higher prices.

According to CPM Group’s recently released white paper, The Truth About Silver in India, these rumors are not true, and have been spread by a handful of market participants trying to keep silver prices from rising.

The rumors were that Indian demand had dried up, that massive amounts of silver were being sold and melted down in the domestic Indian market and that this newly refined silver was being exported out of the country. The report also came to the following conclusions:

q Indian demand did subside briefly as prices penetrated the US$5 to US$6 resistance levels in the second half of 1997, but did not stop completely.

In the Indian market, as in any other, there are no fixed trigger points at which demand appears or disappears. The price levels at which investors and others pull back or re-enter the market are floating levels, which change with market perceptions. Once Indian investors grew accustomed to these higher prices, the buying resumed. Legal import figures into India confirm this pattern.

q There were no large sales of silver by Indian investors in the first quarter of 1998. Rumors of silver dis-hoarding in the first quarter ranged from 10 to 20 million ounces. If, in fact, such large quantities of silver were sold into the domestic Indian market, local Mumbai (Bombay) prices would have fallen sharply, which they did not. The monthly average Mumbai price for silver was roughly US$204.34 per kg in December 1997, increasing to US$209.21 in January, US$215.54 in February and US$216.50 in March. By early April, prices had increased to around US$225.89. Sources in India confirm that in the first quarter of 1998, only between 480,000 and 675,000 oz. of dis-hoarded silver were sold in the domestic market.

q There were no significant exports of silver from India in the past eight months. Domestic Indian silver prices are higher than international prices, so silver sold in India tends to be quickly re-absorbed domestically. It does not make financial sense to export silver, since a higher price can be received locally. Additionally, it has been illegal to export silver from India since 1979.

— The preceding is a summary of The Truth About Silver in India, a report by New York City-based consulting firm CPM Group.