Gold vs. Silver for this festive season

With the start of Dhanteras, the Indian festival season officially kicked off this weekand every household is busy drawing up shopping lists brimming with gold, silver, and other auspicious metal items. While traditional choices like a gold coin or some new pots and pans for the kitchen are timeless, read on to know why anything silver, in particular, could lend that extra sparkle to your investment portfolio this festive season.

Silver is often considered a “beta play on gold”. What this means is that the price of silver tends to exhibit price movements that are amplified when mapped to the price of gold. In a market that is likely to favor precious metals like gold and silver owing to factors such as an inflationary hedge, increased demand and reduced mining of silver, and geopolitical tensions, the return on silver is expected to be higher than gold, making it a lucrative investment this festive season.

According to Pankaj Pandey, Head of Research at ICICI Direct, Silver presents a compelling investment opportunity this Dhanteras, particularly because Gold has seen strong consolidation this year. With gold prices stabilizing, silver is emerging as a promising metal for 2024 due to its strong industrial demand, supply limitations, and increasing use in green technologies like solar energy and electric vehicles. If you’re considering diversifying with silver investments this Dhanteras, here are three Silver ETFs to watch:

1. HDFC Silver ETF – Known for its solid performance and reliable backing, this fund offers a steady entry into silver markets.
2. UTI Silver Exchange Traded Fund – Managed by UTI, this ETF is popular among investors for its competitive returns and ease of access.
3. Aditya Birla SL Silver ETF – With a focus on maximizing returns, Aditya Birla’s ETF is a strong contender for those looking to capitalize on Silver’s growth potential.

These funds provide a cost-effective way to gain exposure to silver without the hassle of physical storage, making them ideal for both seasoned investors and newcomers looking to add a bit of sparkle to their portfolios.

As silver prices exceeded the ₹1 lakh mark in the physical market this week, several factors converge to make silver an attractive choice for your Dhanteras shopping spree.

Industrial demand

Gold is largely only used to make jewelry and as an investment, silver is also used as a key component in several industries such as electronics, solar energy (in photovoltaic cells), and as a component for Electric Vehicle (EV) manufacturing. As these industries grow, the demand for silver will also increase, resulting in a potential spike in prices.

Inflationary hedge

As inflation erodes the purchasing power of currencies, precious metals such as silver can act as a hedge. Historically, trends reveal that periods of high inflation have pushed up the demand for silver as investors protect their wealth. With inflation levels touching an all-time high and rising global uncertainties, the value of silver could appreciate significantly making it a good buy this festive season.

Reduced supply

Silver mining companies have not been able to increase the supply of silver over the past decade despite increasing global demand from industries like green energy and technology. This is because mining is a capital-intensive business and the costs are very high. This reduced supply could drive up the prices of silver in the coming months, making it a great avenue for investment.

Tilt in gold to silver ratio.

The current gold-to-silver ratio suggests that silver may be undervalued to gold. Historically, when this ratio is elevated, it often signals an opportunity for silver to outperform gold. As the ratio potentially narrows, silver may offer higher returns compared to gold shortly. So, if you have to choose between the two, silver offers greater potential as of now.

Affordability

Broadly speaking, silver is significantly more affordable than gold, bringing it within reach for a much wider section of investors who may not want to park a large chunk of their funds in one asset class. With gold prices touching all-time highs, silver is still within reach for many and makes for an attractive investment. India reduced the duty on the import of silver in the recent budget from 15 percent to 6 percent, bringing down prices and adding to the affordability factor.

Conclusion

Looking at the above factors, silver is an attractive buy this Dhanteras as it offers a haven in times of market volatility and growing geopolitical tensions, which can create a sense of fear and uncertainty. You can choose to buy silver in solid form – as jewelry, a coin, or even a block, or invest in Silver Exchange Traded Funds (ETFs) or silver futures. These instruments make your investment more liquid and take away the hassle of storing the metal in solid form in your home or bank locker. This Diwali, it is a good idea to add an extra dose of shine to your portfolio by adding some silver to it.