India has a population of 1.3 billion people, and it is estimated that just a 10% move, away from gold to silver, would double the demand for silver worldwide!
Back in 2009, a film called Slumdog Millionaire was nominated for 10 Academy Awards at the Oscars.
It won 8 of them. It was an unexpected hit, and a fabulous film.
It tells the story of Jamal, an 18-year-old boy, from the worst slums in India. Jamal enters as a contestant in the television quiz program “Who Wants To Be A Millionaire.” Because he does so well, the Indian authorities believe he is cheating. Their reasoning is, anyone from the slums could not possibly know the answers to the questions posed – they would not have the education.
They take him away after the last-but-one question, and torture him, to find out if he can truthfully answer the questions.
He convinces them he is able, and is allowed to finish the contest – he wins the grand prize – and becomes a multi-millionaire.
India itself, may be going through a similar situation now…
Life Imitates Art As India Bans Currency
A month ago, completely out of the blue, the Indian government withdrew 500 and 1,000 rupee banknotes from general circulation – banning their use as currency!
The whole point of the exercise is to have a way of tracking money and to stop it escaping the system of taxation. By pushing Indians into using plastic, bank deposits, and other traceable means of finance The Reserve Bank of India, together with the government, is trying its best to clamp down on money-laundering and illicit funds.
The theory is, by taking out these banknotes, at a stroke, the ill-gotten gains of the underground markets will be completely wiped out, and India can start again. It is not just the criminals who get dragged into the net – ordinary people suffer badly through this decision.
India has a massive cash economy. Electronic payments are a far-off dream for most working people. The general population are now hoarding the hundred rupee note – the largest common note to still be legal tender. Traders are refusing to deal with 2,000 rupee notes at all.
Chaos And More Chaos
The impact of the withdrawal of these notes, has been swift and damaging. Most businesses are experiencing a huge decline in customers. Wholesalers and delivery firms who have historically worked with cash only, are unable to function. 20 to 40% less produce is reaching the food markets from the farms.
Desperate Indians are burning sacks of illegal money and many people have not had the cash to pay for cremations and hospital admissions. India is awash with fake currency, and this move has stopped those who were using, or hoarding fakes, in their tracks.
The greatest casualty though, is the trust of the Indian population in their government. This was always low, but has now taken a tumble.
Prime Minister Narendra Modi has promised Indians will have until 30 December to exchange their existing banknotes. Withdrawing 86% of the cash in circulation would never make any government popular. Keeping power, by moving to a cashless society, is an idea lots of governments are looking at, and they are watching the Indian situation very carefully.
It is reckoned 78% of the average family’s wealth in India is held in gold. Indians have always been shrewd enough to recognize gold as something over which they have a degree of control. Physical gold can be with them at all times, as jewelry or coinage.
Gold and silver are not without their risks – but governments cannot make them valueless in the same way as fiat money.
Mostly a poor nation, India’s general population cannot all afford to invest in gold.
Step Up To The (Silver) Plate
India consumes a large amount of the world’s gold – purely as jewelry. It is estimated 700 tons of gold was used, in the Indian jewelry business, in 2015. This would not be a problem, but because India mines less than two tons of gold a year, every ounce of the 698 extra tons is imported. This means, each year, India imports, a staggering, US$25 billion worth of gold.
This has a huge impact on the value of the rupee.
In seeking to curb, what they see as, this ongoing currency problem, the government are constantly interfering, in ways which do not always work.
They introduced the Sovereign Gold Bonds Scheme which tried to tempt Indians into exchanging their gold for interest-bearing bonds. This was a dismal failure.
They then decided it would be a bright idea to introduce an input tax on gold, but gold prices fell, negating any gain they thought they might make. In fact, because gold went down in price, it led to a 12% rise in gold imports in 2015!
The government may well have shot itself in the foot again with the gold import tax, because Indians are now sitting up and taking notice of silver.
Silver is not only cheaper to invest in, but not subject to any of the heavy import taxes applied to gold. This makes it very attractive in the present market.
Silver Surfers Catching The Next Wave
The swell in silver started in 2015, when silver imports rose by 14%. In fact the demand for silver jewelry has risen by 600% during the last 10 years – at a time when demand for gold jewelry is down a full 30%, in just the last year.
It would seem a perfect storm is brewing.
Because silver is used in industrial products and manufacturing, there is an ongoing need for it, over and above the jewelry needs. There is not enough silver being mined to supply the market.
Add all this up and it looks rather good for the short and medium-term silver price.
India produced 12 million ounces of silver, making it the 15th largest silver producer in the world in 2015. Total world production of silver in 2015 was 886.7 million ounces. Silver production in India showed a notable rise. Because silver production is often a byproduct of the manufacturing process of another metal, the costs of producing it are artificially low in comparison with gold, which is mined as an entity in and of itself.
Scrap supplies of silver in India declined in 2015, falling by 14%, to 2.5 million ounces, which is the lowest in more than 15 years. Silver is being used, but it is not being replaced.
The electrical and electronics sectors remain the largest area of silver industry demand. Other applications include anti-microbial, decorative items, medical and dental use, batteries and similar industrial applications, including catalyst units for motor vehicles.
The Indian industrial sector consumed about 14% of silver supplies in 2015. A notable growth area has been the photovoltaic industry which has seen a large-scale adoption of silver for the cells in solar panels.
Indian jewelry fabrication increased by 16% in 2015 the highest level on record. The low price point, coupled with higher price expectations, has led to rampant stock building across the supply chain.
Demand for sterling silver jewelry is estimated to be growing at a rate of over 50% year-on-year, with the growth of e-commerce broadening in the last two years, to bring silver to an even wider market.
A Silver Lining
Where does all this leave the price of Indian silver?
With the turmoil over the banknotes, and the determination of the government to stamp out fake and illegal currency, people are nervous of cash – they are looking for alternatives which allow them to barter, and exchange precious metals for the cash which does stay in circulation.
As we noted above, because of its price, gold is beyond the reach of many people. Silver, with its lower price, is more affordable, and has the potential to realise a greater profit.
Gold would have to reach a price of $2500-$3000 to double in investment value – silver would only have to rise to $30-$50 to double its investment value. Silver achieved this in the aftermath of the 2008 recession and held this value for several months – unlike gold which has never reached the $2500-$3000 level.
Indians, like Jamal, in Slumdog Millionaire, are mostly poor – but they are not stupid. Lots work hard, for a pittance – and are honest. Many are very switched on and do well.
They all know a scam when they see one, and do not trust the government to look after their best interests. The withdrawal of India’s currency is the equivalent of Jamal’s experience in “Who Wants To Be A Millionaire.” The government are now being seen to penalize everybody for just getting by on their merits.
Silver is being seen as an affordable hedge against these factors – it even has a potential upside – just like the quiz, ordinary Indians could win big, despite their government.
Mines and scrap metal recycling could not make up the difference in supply, so a rise in the price of silver is highly likely.
It is something to consider, and to factor into your investment plans for 2017 – perhaps you’d like to “phone a friend?”
To find out more about silver coins, bullion, silver IRAs and silver 401(k) rollovers or advice on any aspect of investing in silver – contact Noble Gold investments.
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One of the easiest ways to get started protecting your future is with a precious metals IRA. At Noble Gold, expert advisers will walk you through the entire process step by step. Visit their website to get your free Gold Investors Guide and learn more about the benefits of investing with precious metals.
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Article courtesy: Noble Gold
