Although not as bad as the recent declines seen by their gold counterparts, the iShares Silver Trust (NYSEArca: SLV) and ETFS Physical Silver Shares (NYSEArca: SIVR) are each off more than 9% over the past month.
Silver ETFs have recently been sliding as some market participants started pricing in a rate hike from the Federal Reserve later this year and its potential impact on precious metals.
Silver and other precious metals enjoyed safe-haven demand as the equities market plunged into a correction. The metal also maintained its momentum as the Federal Reserve lowered its interest rate outlook to only one or two hikes this year from a previously expected four rate hikes.
However, some silver market observers see the potential for some upside for the white metal courtesy of an interesting party: India, a country known in precious metals circles for its voracious appetite for gold.
“If the Indian government decides to crack down on gold holdings — as some believe they will — silver could begin to take gold’s place. In fact, a trend toward silver has already begun taking hold,” reports ETF Daily News.
India, one of the world’s largest gold consumers, looms large for gold ETFs.
“Three years ago; India’s previous government began radically curbing gold imports, culminating in a near-total ban in gold imports to the world’s greatest gold-lovers, and second-largest population. As was explained at the time , the ban on gold was for no reason in terms of economic fundamentals,” according to ETF Daily News.
Gold trading volumes have already surged in Asia. For instance, in China, SGE volumes jumped to 330 metric tons, or 102% higher than the level seen around the Brexit vote, according to the World Gold Council. Moreover, anecdotal evidence suggests that institutional investors and hedge funds have yet to jump in, which indicates that gold demand has more room to run.
India has previously looked to curb gold imports to support the rupee and lower account deficits. Some market observers believe even small substitutions by Indian citizens from gold to silver could lead to significant upside for the white metal.
For more information on the silver market, visit our silver category.