You see, when things go awry, governments have a tendency to pin the blame away from the government and on a convenient scapegoat.
Take India, for example. It faces a record current account deficit and its currency, the rupee, continues tumbling to record lows against the U.S. dollar.
But it’s not government policies that are the culprit here, says the Indian government and central bank. They say the blame lies squarely on Indians’ centuries-long love affair with gold.
Gold imports into India hit a record 162 tons in May.
The government says that if only the populace would quit buying so much gold, all the problems would be solved. That is laughable, but the Indian government has implemented measures to curb imports of gold into the country.
It has raised the tax on gold imports to 8% from just 2%. India also put measures into place like stopping banks from making loans against gold jewelry and coins weighing more than 50 grams.
The government has also roped in private entities to help it wage its ‘war’ on gold. A major financial institution, Reliance Capital, has suspended sales of its gold-backed funds. In addition, India’s largest jewelers’ association – the All India Gems and Jewelry Trade Federation – has asked its members to stop selling gold bars and coins. This accounts for about 35% of Federation members’ sales.
It remains an open question as to whether these measures can curb, in more than a very temporary fashion, India’s cultural affinity for gold.
Investing in Silver is the Winning Move
But it does seem that another shiny metal will emerge a winner here. . .silver.
This precious metal also has been a part of Indian culture for centuries. And like gold, many Indians use silver as means of saving. Not a bad idea either with the rupee plunging.
Wealthy Indians may have moved their gold buying offshore to places in the Middle East like Dubai. But for average Indian citizens being shut out of the gold market by the government, they have quickly turned their attention to the silver market.
Just look at these astonishing numbers…
In 2012, India imported about 1,900 tons of silver. But through May of this year, imports have already surpassed last year’s total at 2,400 tons.
India’s record annual imports of silver occurred in 2008 with imports of 5,048 tons. But that record may be broken this year.
What is really impressive are the import totals after some of the government restrictions on gold started to bite. In April, imports were 720 tons. That was nearly the first quarter’s entire total of 760 tons. And in May, silver imports surged to 920 tons.
One can only imagine what the demand for silver and the imports will be now that the government has really clamped down on sales of gold in the country. Especially when one considers that Indians in May spent more than 10 times as much on gold as silver.
A report from Sprott, using figures from the Silver Institute, gives us some idea of the magnitude of these numbers.
In 2012, there were 24,478 tons of silver mined globally. That means India so far this year imported roughly 10% of world production. If the country continues on its current pace of silver imports, over the next 12 months, it will import nearly 50% of global silver production.
That would be a titanic change in the supply/demand equation for silver.
Silver Investing in 2013
This would bode well for silver-based investments.
Investors could opt for purchasing exchange traded vehicles backed by physical silver bullion.
One such exchange traded fund is the ETFS Physical Silver Shares (NYSEARCA:SIVR). It is backed by silver bullion held in a London vault. The annual management expense ratio is only 0.30%.
Another exchange-traded vehicle is from Sprott, the Sprott Physical Silver Trust (NYSEARCA:PSLV). The silver bullion is held in vaults in Canada. Total annual expenses are 0.66%. The difference here is that
Sprott allows shareholders to exchange for actual physical bullion on a monthly basis with a minimum usually of 1,000 troy ounces.
Investors with a higher risk tolerance may even consider an ETF that invests in silver mining companies. One ETF example is the beaten down silver miners sector is the Global X Silver Miners ETF (NYSEARCA:SIL). Its portfolio consists of 32 mining companies. Total annual expenses are 0.65%.
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