Silver prices slipped below pre-custom duty hike levels, in a day Rs. 17,500 broke. 3 main reasons why

Silver prices fell sharply in Friday’s trade, down 6% on the MCX – or Rs. 17,500 – a decline that was back to levels last seen before the Center hiked import duty on gold and silver to 15% to stabilize the rupee amid a steep fall to its record low.

Before the duty hike, silver futures on May 12 were trading at Rs. Around 2.79 lakhs were settled. On May 13, higher customs duty pushed up prices and silver briefly touched Rs. 3 lakh per kg was withdrawn. But that rally has completely reversed, with silver now erasing all of the post-rise gains.

What is behind the decline?

The main reason behind the sharp correction is demand destruction at elevated price levels. Unlike gold, silver has a large industrial demand component, with uses spanning sectors such as solar panels, semiconductors, electric vehicles, batteries, electronics, AI infrastructure and green energy systems.

“At the same time, geopolitical tensions associated with the Iran conflict initially triggered safe-haven buying of precious metals. However, markets later began to focus on the potential long-term impact of oil prices on global growth momentum. That concern affected industrial metals more than pure defensive assets, leading to an increase in silver trades traditionally traded as silver hedges,” the analyst said.

India, the world’s largest silver importer, may also see weaker domestic demand after a sharp increase in import duties. According to Nirpendra Yadav, senior commodity analyst at Bonanza, a hike in duty of up to 15% could materially increase domestic prices and hurt jewelery demand while slowing down industrial imports.

He added that if the Iran conflict keeps crude oil prices high for a long time, central banks may maintain a hawkish stance due to inflation risks. Higher interest rates generally weigh on precious metals as non-yielding assets become less attractive compared to interest-bearing investments.

According to Ponmudi R, CEO of Enrich Money, the initial surge in prices was largely a “duty shock” reaction. Following the government’s move to increase the import duty on silver from 6% to 15%, MCX silver prices rose sharply as the price of imported silver immediately increased.

However, the market soon recognized that while changes in import duties may distort domestic prices temporarily, they cannot fundamentally change the dynamics of the global silver market in the long term.

More pain on the cards?

From a technical perspective, the current chart structure is starting to show signs of exhaustion after the recent vertical rally.

In silver futures Rs. A sharp blow towards the 2,95,000-3,00,000 zone was seen and it faced strong rejection at higher levels almost immediately. Such price action often signals the emergence of aggressive supply pressure as well as exhaustion by buying near the top. The market is now correcting towards the 50 EMA region, which is acting as immediate dynamic support.

Overall, silver appears to be entering a highly volatile phase in the near term, with profit booking, sharp price increases and consolidation likely after the recent rally. However, the medium-term outlook continues to be supported by strong industrial demand trends and continued supply tightness.

From a longer-term perspective, silver continues to be the strongest structural commodity theme globally, supported by increasing demand for AI infrastructure, green energy transition, solar capacity expansion, electronics manufacturing and electric vehicle growth.

At the same time, Tata Mutual Fund said in a report earlier this month that the deteriorating global economic outlook could limit demand for silver in the medium term. The fund house noted that supply tightness in global markets has eased due to slower solar installations and liquidation of large long positions.

Also Read: Should Titan Shareholders Worry About Recent Gold Import Duty Hike? Let’s explain the 2013 customs move

He added that silver is a developing long-term growth story, but its broader trajectory will depend heavily on a sustained recovery in industrial demand. Given the volatile nature of commodities, the report suggested a confusing investment approach for medium to long-term investors.

(Disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. These do not represent the views of Economic Times)