Commodity Trade Mantra: Pay Attention Why India is More Focused on Silver than Gold

Article by Ted Butler in Commodity Trade Mantra

Several recent articles have highlighted a surge of silver imports to India, prompting me to take a closer look. India has always been a big buyer of silver and gold. The population of India, more than 1.3 billion citizens, is now only about 50 million less than that of China. Combined, both countries make up 35% of the total world population (7.7 billion) and have always been large buyers and holders of gold and silver. Together, India and China absorb close to 50% of total world gold and silver mine production.

Indian gold and silver buyers are quite price-sensitive and unlike the typical buyer in the West, Indians tend to buy more when prices are low and less when prices are high. Gold and silver flows into India are one-way affairs – what flows in stays there, never to leave the sub-continent. Gold prices are closer to the highest they have been over the past 5 or 6 years, while silver prices are closer to the lowest they have been over that period, resulting in the silver/gold price ratio widening out to the highest it has been in 25 years.  

Here’s what I found. The people of India, according to the import data, are buying more silver relative to gold than ever before. It’s not that gold imports are down sharply, it’s much more that silver imports are up sharply. I broke the data from the past 15 years into two segments – the 9 years from 2004 to 2012 and the six years from 2013 to 2018.

For the 9 years 2004 to 2012, the silver/gold price ratio averaged 56 to 1 and India imported an average of 26.5 million ounces of gold and 85 million ounces of silver each year – or 3.2 times more ounces of silver than gold.

When JPMorgan decides to let silver prices fly to the upside, it is reasonable to assume that Indian demand would fall off, but as that demand falls off, the higher prices will jumpstart western demand. If the right hand doesn’t get you, then the left hand will.

Should JPM choose to prolong the silver price suppression, the imports to India should continue to surge and with the concurrent decline in world silver mine production, a physical crunch becomes inevitable. Prices do have consequences.

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