As for the investment portion of the demand equation, CPM Group reported that Chinese investment in silver picked up last year and should again in 2011.
Through much of the 1990s and early 2000s, interest in gold dwarfed interest in silver, the report said. However, Chinese investors grew increasingly interested in silver as a lower-cost alternative to gold. Further, increasing amounts of silver bullion, coins and jewelry became available on a retail level.
"During 2010, stronger investor buying interest was spurred by rising inflation and the need for asset diversification," CPM Group said. "In response to government policies and measures that restricted speculative investment in the real-estate market, some investors have shifted their attention to precious metals, including silver. Many investors bought more silver as its price rose throughout 2010.
"Growth in Chinese investment demand for silver is expected to continue in 2011, driven by the extended rise in inflation and expectations for strong price increases in silver."
Meanwhile, CPM Group noted that Indian investors had been tending to look toward gold jewelry and bullion over the last decade and that interest in silver had been on a declining trend.
"This trend may be reversing; over the past year or so there seems to be a slow move to increase investment in silver in India," CPM Group said.
One of the problems for the Indian market has been lower-purity silver bullion within the retail network, the report said.
"Investment in silver in India may begin to rise over the next few years, especially if silver bullion begins to be sold by more reliable established entities," CPM Group said. "Confidence on the part of consumers over what they are buying most likely would spur stronger demand for silver. Investors also would have the ability to sell their silver bullion with less concern over the price they could receive due to varying purity levels."
The consultancy reported that silver has been an important source of investment demand for silver in India, plus the metal is used for gift-giving on religious and other occasions. "Indian investors are well supplied with silver, although they continue to be large net buyers of silver for investment purposes," CPM Group said.
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