Why Investing in Silver is Essential for Portfolio Diversification

The role of precious metals such as silver (apart from gold) is gaining a steady ground when it comes to portfolio diversification. 

The price of silver has witnessed a consistent rise backed by demand in various industrial applications. As per a rough estimate, this accounts for half of the annual demand for silver. In fact, demand for physical silver clocked a record high in 2022, buoyed by an all-time high usage for industrial purposes. 

Generally, gold has applications primarily in conductors and electronics industries, silver finds usage in a plethora of industries, including automobiles, manufacturing and medicine.

Similar to gold, silver displays sensitivity to interest rates, inflation, and energy prices. The sensitivity is likely to vary compared to gold, though.

Until April 30, 2023, in the last five years, silver had offered returns of 13.1% while Nifty 50 and gold have provided 12.3% and 13.0%, respectively. 

Silver has provided returns to the tune of 20.8% as compared to 23.8% by Nifty 50 and 8% by gold In the last three years. 

Furthermore, out of the last seven financial years, silver has managed to outperform gold and Nifty 50 in four calendar years. However, silver underperformed in three calendar years. It is important to note that silver is comparatively more volatile than gold and has highlighted phases of underperformance.

Silver exchange-traded funds (ETFs) have gained popularity among investors in a short span of its introduction by the markets regulator the Securities and Exchange Board of India (SEBI). As on March 2023, silver ETF gained an asset base of about Rs 1,800 crore.

Similarly, digital silver is a way to purchase silver at a low price point. This allows silver to be stored in insured values by a seller on behalf of an investor, who can look forward to either selling it back on the same platform or accepting physical delivery in the form of coins or bars. 

In addition, a new relatively area for investment that has emerged in silver is futures on the India International Bullion Exchange (IIBX), which introduced the trade in August 2022.