Silver may be the next gold

Silver may be the next gold
PHOTO: Silver may be the next gold

Gold has long been the darling of Asian investors. But its lesser cousin silver may now be coming into its own as an investment asset.

Demand for physical silver has rocketed in the past few months, propelled by repeated "quantitative easing" (QE) in the US, the waiver of goods and services tax (GST) on precious metals here last October, and the belief that it is undervalued relative to gold.

Silver Bullion, one of the oldest physical silver dealers in Singapore, said its sales have tripled since last October to about $6 million a month. The firm launched trading through a website in April 2009 and has seen revenue grow from $7.6 million in 2010 to $31.5 million last year.

Another dealer, GoldSilver Central, said it has seen more demand for silver than gold - surprising even the founding partners themselves. About 60 per cent of GoldSilver's sales is from silver. "Initially, when we first started (last March), a lot of my partners were sceptical; we had only one or two believers in silver. Most of them were actually gold buffs," said MD Brian Lan. "They were quite surprised that silver did well, and that there were a lot of people looking for silver as an investment tool."

The most popular silver products are the Mapleleaf coins of the Royal Canadian Mint, the American Eagles coins, as well as 100-ounce bars, the dealers said.

The GST waiver announcement catalysed interest in investing in physical precious metals, with more new investors buying after last October, when the waiver took effect.

Besides kicking up more demand, the GST waiver has also drawn new players into the physical silver market here. Swedish dealer Liberty Silver set up an outfit called Bullionstar in Singapore last August. Even though it has not started trading, enquiries have been "overwhelming", said regional manager of operations Zane Lim.

Some 70 per cent of the enquiries he has received centre on silver.

In contrast to the practices of gold-trading companies such as Genneva and The Gold Guarantee that have recently fallen into disrepute, these dealers do not offer a regular payout to customers for buying bullion; ownership of physical silver is fully transferred to the customer upon the sale. Buyback of the precious metal, if any, is also done at market prices and not a pre-fixed rate.

Though silver is often regarded as a poor man's gold, those investing in it are mainly professionals in their 20s to 40s, who are well educated and looking for alternative ways of investment, dealers said.

Said Gregor Gregersen, founder of Silver Bullion: "We don't need to sell. Most of our customers, when they come, would have already read through the Internet."

It would be difficult to sell silver to the man in the street, he added.

"For a person to buy physical (metal), they probably have to go and understand the monetary policy and business cycles. They probably have to read and think to themselves about a lot of things. It's only once they start getting immersed in such issues that they start to get a little scared."

These investors are usually concerned with how central banks are seeking to boost growth through printing money, leading to the debasement of currencies and inflation.

The US Federal Reserve in December announced treasury purchases of US$45 billion a month, adding to its US$40 billion a month purchases of mortgage debt launched under the third round of quantitative easing (QE3) last September. The new bond buying followed two earlier rounds of quantitative easing in which the central bank bought US$2.3 trillion in securities, according to Bloomberg.

The excessive printing of money will lead to a global financial collapse, rendering money worthless, some believe.

When that happens, precious metals such as gold and silver will be the main means of trade, and hence they act more as an insurance than investment, according to this view.

The price of silver has tripled since the end of 2008, when QE1 was launched. Analysts expect it to rise from its current US$29 an ounce to US$32-40 next year.

Advocates of silver also point to its low value relative to gold (1:50) as compared to the 16:1 ratio of natural occurrence underground - an indication of its potential to rise more than gold, they say.

Silver is also more widely used for industrial applications, from solar panels to medical devices. Demand for these will also increase as economic growth picks up, they reason.

It is not only Singaporeans who are clamouring for a piece of the precious metal. Foreigners - from Malaysia to the US alike - are also buying silver.

Half of Silver Bullion's customers come from overseas.

Similarly, GoldSilver Central - for whom foreigners now make up one-fifth of its customer base - sees huge demand in the region.

The young firm, which expanded its office just last October to take over a neighbouring unit, has further growth plans on the cards.

"At the moment, we're expanding our team. We're looking to do more business outside Singapore . . . and to ship metals to our clients overseas," said Mr Lan.

The interest in the silver market has only just started, and the metal has much more potential to grow in Singapore, dealers said.

"When people see a $50 note and a silver coin, most likely people will go for the $50 note," said Mr Lan. "We can actually educate the market a little more . . . I believe there's still much more to come."

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