Silver's Sudden Drop
On Thursday, silver prices saw a noticeable decrease as stock markets reached new heights, spurred by a nearly 40% increase earlier in the year. This movement
caused investors to take profits, reallocating their capital to better performing asset classes that were affected by recent market uncertainties. The price of silver fell to ₹3.03 lakh per kg that day, after reaching a record high of ₹3.20 lakh per kilogram. The MCX silver market corrected by 9% from its all-time high on Thursday. Simultaneously, gold also experienced a drop, settling at ₹1.51 lakh per 10 gm, down from ₹1.54 lakh the previous day. Aamir Makda, a commodity and currency analyst from Choice Broking, noted that silver's decline, representing nearly 8% from its peak, reflects its role as a key indicator of global risk. He attributed the decline to the easing of geopolitical tensions, specifically the removal of tariff threats against European allies and the creation of a new NATO framework for the Arctic, which deflated the market's risk premium.
Profit Taking and Shift
Makda indicated that the recent decrease in silver prices was mainly due to profit-taking by investors who had previously benefited from the increasing prices of precious metals. The rise in these metals had been linked to perceived risks in global trade. The immediate decline of the "trade war premium" prompted a considerable wave of profit-taking. Investors then moved their funds back into the surging equity market. Makda also added that while industrial demand for AI and green technology is still a factor in the long-term market, the immediate impact of changing geopolitical and economic conditions triggered this significant market adjustment. According to data from the India Bullion & Jewellers Association (IBJA), the price of silver on January 1 was ₹2.29 lakh per kg for retail buyers before a 3% Goods & Services Tax (GST) was applied. This price then rose to a record high of ₹3.2 lakh per kg by January 21.
Consumer Behavior Changes
Jewellers have reported that the price volatility is affecting consumer behavior. Suvankar Sen, the managing director of Secco Gold & Diamond, said that consumers are adopting a wait-and-see approach. Those with upcoming weddings are opting for lightweight gold jewelry. He also noted a rise in the purchase of silver coins of 5 gm and 10 gm denominations. Sen believes that every price drop is an opportunity to buy gold and silver, expecting their prices to increase in the coming year. Varghese Alukkas, managing director of Jos Alukkas, also observed a decrease in customer footfall due to the drop in prices, leading many to wait for a more favorable moment. Navneet Damani, head of Research (Commodities) at Motilal Oswal Financial Services, pointed out that silver has shown significant outperformance within a short period, and with the gold–silver ratio close to lower levels, the near-term risk-reward dynamics are improving for gold. Damani remains optimistic about both metals. He acknowledges silver's long-term potential, supported by industrial demand and limited market availability, but also notes the increased volatility in the recent rally, suggesting that a larger allocation to gold could help manage market fluctuations.
