Silver prices slide below Rs 2 lakh/kg, down nearly 55% from Jan peak. What’s behind the rapid selloff?

ETMarkets.com

Silver prices slide below Rs 2 lakh per kg as global pressures weigh on bullion and fresh import permits reshape domestic supply prospects.

From its record high of Rs 4.27 lakh per kg earlier this year, the white metal has dropped nearly 55%, marking an absolute decline of around Rs 2.34 lakh.

Nirpendra Yadav, senior research analyst at Bonanza, said silver ETFs were declining sharply in line with international prices amid profit-booking, rising inflation concerns and expectations of higher-for-longer US interest rates. A stronger US dollar and elevated bond yields have weighed on investment demand, while concerns over industrial demand have added to the pressure. In the domestic market, easing supply constraints and narrowing premiums could also be contributing to the correction.

Sentiment has weakened further as rising oil prices have reinforced expectations that interest rates will remain elevated for longer. Investors are also positioning ahead of next week's US Federal Reserve policy meeting.

Amid the price decline, the Indian government has issued permits for 6,500 metric tonnes of silver imports over the next six months as the world's largest consumer of the precious metal prepares to meet festive-season demand, Reuters reported.

India relies on international purchases to meet more than 80% of its silver demand. The additional imports could support global prices while easing the hefty domestic premiums that have risen amid tight supplies.

The government had restricted imports of silver in nearly all forms with immediate effect in mid-May. In June, it tightened the rules further by adding silver grain and powder to the restricted category and requiring prior import authorisation.

Bullion dealers who received the permits told Reuters that the approvals would help India meet demand during the anticipated surge in the upcoming sale season. However, Chirag Thakkar, chief executive of leading silver importer Amrapali Group Gujarat, said the permitted volume appeared substantially higher than India's likely requirements over the next six months. He expects the additional supply to help bring down domestic premiums.

The scale of the latest import allocation surprised market participants, dealers said, given the weakness in demand for silver jewellery and investment amid falling prices.

Investors are increasingly anticipating a hawkish Federal Reserve stance next week, with higher bond yields and a steady dollar raising the opportunity cost of holding non-yielding bullion, said Rajeev Sharan, head of research at Brickwork Ratings.

"Gold is now caught between global conflict fears and high interest rates, while silver is taking a bigger hit as elevated borrowing costs also weigh on industrial demand," he said.

Silver outlook: Volatility likely to persist

Yadav expects silver to remain volatile in the near term, with global price movements, the dollar, US interest-rate expectations and domestic premiums likely to determine its direction. While the recent decline could offer opportunities for long-term investors, he favours staggered buying over aggressive accumulation until prices show signs of stabilisation.

On fundamentals, silver continues to draw support from demand across sectors such as solar energy, electric vehicles and electronics, while supply-side constraints underpin its medium- to long-term outlook. Given the metal's higher volatility, experts recommend a staggered accumulation strategy.

Manoj Kumar Jain of Prithvi Finmart also expects silver prices to remain volatile during Friday's session, driven by fluctuations in crude oil prices, the dollar index and geopolitical tensions.

In the international market, silver has support at $54.00-52.40 per troy ounce, while resistance is placed at $56.10-57.20. On the MCX, support levels stand at Rs 1,96,000-Rs 1,93,300, with resistance at Rs 2,01,400-Rs 2,03,800.

Jain said long-term investors could accumulate gold and silver through systematic investment plans (SIPs) during the market decline. However, he advised traders to remain cautious about taking fresh positions until the US midterm elections.