Indian silver appetite sharpened by record gold

By Lewa Pardomuan

HONG KONG (Reuters) - Record high gold prices above $1,000 an ounce may encourage more Indian buyers to turn to much cheaper silver, a senior trade official from the world's top bullion consuming country said on Thursday.

"Even today the rural Indian invests more into silver than gold. Higher prices of gold imply even the lower middle class population shifting to silver more compared to gold," said Anjani Sinha, president of the Indian Bullion Market Association, which represents about 10,000 jewellers.

While silver has seen a much sharper price rise in the last 12 months, gaining 86 percent versus a 45 percent gain for gold, at $17.67 an ounce it is still nearly a fifth below its record high of March last year.

In contrast gold's latest rally has driven it well past the March 2008 high to a record just above $1,070 an ounce.

The fall from the March high to the October 2008 low was much steeper for silver than gold -- 60 percent versus 34 percent -- leaving silver still playing catch up with its more lustrous peer.

Investment demand is already picking up. HDFC Bank, one of India's large gold sellers, is looking at offering silver bars for sale in some cities because of interest from investors, a bank executive said earlier this month.

This would reverse a trend of declining interest in silver, with trade in India's silver market falling to around 2,000-2,500 tonnes from 4,000-4,500 tonnes during 1994-1997, according to traders.

Sinha reiterated his view that Indian gold demand would fall by two-thirds to 250 tonnes this year because of high prices.