SILVER

Fundamental & Technical Analysis

For

Commodities Fundamentals

Report by

Name Roll No.

Nishid Lath 117

Ankit Mehta 122

Saiprasad Prabhu 133

Chintan Shah 141

 SILVER

FUNDAMENTAL ANALYSIS

• Silver is found in native form, as an alloy with gold (see also: electrum), and in ores
containing sulphur, arsenic, antimony or chlorine. Ores include argentite (Ag2S),
chlorargyrite (AgCl) which includes horn silver, and pyrargyrite (Ag3SbS3). The principal
sources of silver are the ores of copper, copper-nickel, lead, and lead-zinc obtained from
Peru, Mexico, China, Australia, Chile, Poland and Serbia. Peru and Mexico have been
mining silver since 1546 and are still major world producers. Top silver-producing mines
are Proaño / Fresnillo (Mexico), Cannington (Queensland, Australia), Dukat (Russia),
Uchucchacua (Peru) and Greens Creek mine (Alaska).

• The metal is primarily produced through electrolytic copper refining, gold, nickel
and zinc refining, and by application of the Parkes process on lead metal obtained from lead
ores that contain small amounts of silver. Commercial-grade fine silver is at least 99.9%
pure, and purities greater than 99.999% (five 9s) are available. In 2007, Peru was the world's
top producer of silver, closely followed by Mexico, according to the British Geological
Survey

• Silver is a metallic chemical element with the chemical symbol Ag A soft, white,
lustrous transition metal, it has the highest electrical conductivity of any element and the
highest thermal conductivity of any metal. The metal occurs naturally in its pure, free form
(native silver), as an alloy with gold and other metals, and in minerals such as argentite and
chlorargyrite. Most silver is produced as a by-product of copper, gold, lead, and zinc
refining.

• Silver is a very ductile and malleable (slightly harder than gold) monovalent coinage
metal with a brilliant white metallic luster that can take a high degree of polish. It has the
highest electrical conductivity of all metals, even higher than copper, but its greater cost and
tendency to tarnish have prevented it from being widely used in place of copper for
electrical purposes.

• Among metals, pure silver has the highest thermal conductivity and one of the
highest optical reflectivity (Aluminium slightly outdoes silver in parts of the visible
spectrum, and silver is a poor reflector of ultraviolet light). Silver also has the lowest contact
resistance of any metal. Silver halides are photosensitive and are remarkable for their ability
to record a latent image that can later be developed chemically. Silver is stable in pure air
and water, but tarnishes when it is exposed to air or water containing ozone or hydrogen
sulphide to form a black layer of silver sulphide which can be cleaned off with dilute
hydrochloric acid.

• Silver that is found with some percentage of other elements in it is called impure
silver. That is why it is graded upon its fineness. According to the Indian standards, silver is
graded into six categories

Grade 9999 9995 999 970 925 916

Fineness 999.9 999.5 999 970 925 916
 GLOBAL SILVER

Demand

The bulk of the 11.9 percent decrease in 2009’s total fabrication demand was primarily
driven by the global financial crises, reflected mostly in a sharp drop in industrial offtake, to
its lowest level since 2003. Total fabrication demand totaled 729.8 Moz and industrial
demand posted 352.2 Moz in consumption.

World Silver Demand

Significant inventory cuts in the industrial supply pipeline, combined with a protracted
decline in end-user orders, for example from a far weaker automotive industry, were the
primary reason for lower industrial demand last year. While demand was noticeably weaker
in the first quarter of 2009, it gradually improved as the year progressed. Overall, the losses
were concentrated in East Asia, North America and Europe.

Implied net silver investment increased by a staggering 184 percent to 136.9 Moz last year,
recording its highest level in the past 20 years. While overall jewellery demand dipped
slightly by only 1.1 percent in 2009 to 156.6 Moz, India and China posted increases in
jewellery demand last year, offsetting losses in most other markets. Silverware demand
reversed the trend of the last decade rising by a respectable 4.6 percent to 59.5 Moz, largely
due to a surge in Indian fabrication.

Supply

Silver mine production rose by 4 percent to 709.6 Moz in 2009. Gains came both from
primary silver mines and as a by-product of gold mining. Regionally, the strongest growth
stemmed from Latin America, where silver output increased by 8 percent, with the most
visible gains recorded in Argentina and Bolivia. Peru was the world’s largest silver
producing country in 2009, followed by Mexico, China, Australia and Bolivia. All of these
countries saw increases last year except for Australia, where output from the lead/zinc sector
declined markedly. Global primary silver supply recorded a 7 percent increase to account
for 30 percent of total mine production in 2009.

Top Silver Producing Countries in 2009

(millions of ounces)
1. Peru 123.9
2. Mexico 104.7
3. China 89.1
4. Australia 52.6
5. Bolivia 42.6
6. Russia 42.2
7. Chile 41.8
8. United States 39.8
9. Poland 39.2
10. Kazakhstan 21.7
11. Canada 19.6
 12. Argentina 17.1
13. Turkey 14.0
14. Sweden 8.7
15. Morocco 8.3
16. Indonesia 7.7
17. India 7.3

Primary silver mine cash costs remained relatively stable year-on-year, rising by less than 1
percent to $5.23/oz.

Net silver supply from above-ground stocks dropped by 86 percent to 20.2 Moz in 2009,
driven mostly by the surge in net investment, higher de-hedging, lower government sales
and a drop in scrap supply. With respect to scrap supply, 2009 saw a 6 percent decrease over
2008’s figure to a 13-year low of 165.7 Moz. This represented the third consecutive year of
losses in the scrap category.

Government stocks of silver are estimated to have fallen by 13.7 Moz over the course of last
year, to reach their lowest levels in more than a decade. Russia again accounted for the bulk
of government sales, with China and India essentially absent from the market in 2009.
Regarding China, GFMS states that after years of heavy sales, its silver stocks have been
reduced significantly.

Supply from Above-Ground Stocks

(Million ounces) 2008 2009
Bullion
Implied Net Disinvestment -48.2 -136.9
Net Producer Hedging -11.6 -22.3
Net Government Sales 27.6 13.7
Sub-total Bullion -32.1 -145.5
Old Silver Scrap 176.0 165.7
Total 143.9 20.2
 Silver deficits now run between 50-100 million ounces per year. The only way to bring the
supply and demand for silver into balance is higher prices. This is where the dynamics of
the silver market become very exciting for investors.

World Silver Supply and Demand

To document these and other market fundamentals, each year the Silver Institute works with
GFMS Limited, of London, a leading research company, to prepare and publish an annual
report of worldwide silver supply and demand trends, with special emphasis on key markets
and regions. This annual survey also includes current information on prices and leasing
rates, mine production, investment and fabrication.

World Silver Supply and Demand

(in millions of ounces)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Supply

Mine Production 591.0 606.2 593.9 596.6 613.0 636.8 640.9 664.4 684.7 709.6

Net Government Sales 60.3 63.0 59.2 88.7 61.9 65.9 78.2 42.5 27.6 13.7

Old Silver Scrap 180.7 182.7 187.5 183.9 183.7 186.0 188.0 181.8 176.0 165.7

Producer Hedging -- 18.9 -- -- 9.6 27.6 -- -- -- --

Implied Net Disinvestment 87.1 -- 12.6 -- -- -- -- -- -- --

Total Supply 919.1 870.9 853.1 869.3 868.2 916.3 907.2 888.7 888.3 889.0

Demand

Fabrication

Industrial Applications 374.2 335.6 340.1 350.8 367.6 407.0 427.0 456.1 443.4 352.2

Photography 218.3 213.1 204.3 192.9 178.8 160.3 142.4 124.8 104.9 82.9

Jewellery 170.6 174.3 168.9 179.2 174.8 173.8 166.3 163.5 158.3 156.6

Silverware 96.4 106.1 83.5 83.9 67.2 67.5 61.0 58.4 56.9 59.5

Coins & Medals 32.1 30.5 31.6 35.7 42.4 40.0 39.8 39.7 65.2 78.7
Total Fabrication 891.7 859.4 828.3 842.4 830.8 848.7 836.4 842.5 828.6 729.8

Producer De-Hedging 27.4 -- 24.8 20.9 -- -- 6.8 24.2 11.6 22.3

Implied Net Investment -- 11.4 -- 6.0 37.4 67.6 64.0 22.0 48.2 136.9

Total Demand 919.1 870.9 853.1 869.3 868.2 916.3 907.2 888.7 888.3 889.0

Silver Price
(London US$/oz) 4.953 4.370 4.599 4.879 6.658 7.312 11.549 13.384 14.989 14.674

SOURCE: World Silver Survey 2010

The Silver Supply Deficit

Silver is misunderstood, as is any rare, strategic natural resource. For many years, the world
has used more silver than it has produced, yet most people assume that silver is abundant.

This was certainly the case before the industrial revolution. Since then, we've had a dramatic
shift in perception, just as the mainstream investor begins to catch on and yet before the
inevitable price explosion.

Over the last two generations, major government stockpiles of silver have been sold off for
use by industry. Currently, though, the amount of silver mined each year is far less than the
amount used. Industrial users will soon begin to feel the pinch of longer delivery times.
When this happens, silver prices will skyrocket
Silver vs. Gold

Silver is rare compared to gold. Even long-time silver investors often overlook this fact.
Even though gold is a highly desired item, it is NOT an industrial commodity. Whereas gold
is desired, silver is needed. This makes it even more critical to take action quickly.

Consider that the world’s investors get their main clue from price. Because gold has traded
at more than 50 times the price of silver, investors assume that gold is more rare than silver.
Yet there is 200 times more gold available than silver in dollar value.

Only 35% of silver supply comes from pure silver mines. The rest is the by-product of gold,
copper, zinc, and lead mining. In the wake of digital imaging, the recycling of photographic
scrap for silver has flattened out. Return of silver jewellery dropped by 20% in 2007, and is
expected to remain at similar levels for some time.

Given the large market cap in gold compared to silver, even if all the owners of silver
decided simultaneously sell their silver and buy gold, this would only amount to 0.5% of the
gold market cap.

In contrast, if only one half of one percent of gold owners decided to switch into silver, that
would represent 100% of the silver market cap. This would have an enormous impact on the
price of silver.

The Economy

When it comes to silver supply, the economy simply doesn’t matter. In a strong economic
scenario, surging industrial demand and depleted inventories would propel silver, creating
larger annual deficits and forcing prices significantly higher. In a weak economic scenario,
many base metal producers would slow production, and as a consequence, the world silver
supply would decrease.
Mining is already expensive, but 65% of the world's silver comes as a by-product of other
metal production. As a result, silver production cannot be increased without much disruption
to other mining activities. That would mean substantial overproduction of copper, lead, and
zinc.
 Domestic Silver

Demand

India is generally believed to have a ravenous appetite for gold; it is also a major consumer
of silver. Of the 4,000 tonnes that India used to import annually, around 2,600 tonnes was
used to make jewellery and ornaments.

Traders maintain that the import of silver is poised to recover and may hit a fresh record
next month, given the good monsoon and the resultant boost in rural incomes.

More than 60% of India's silver demand comes from farmers, who stash their savings in
silver bangles and coins but, this dipped last year because income in these regions comes
from agricultural output which is determined largely by the June-to-September monsoon
and, last year, the country experienced one of the worst monsoon seasons in over four
decades.

However, with bountiful rains this year, the situation is set to reverse. And, traders maintain
that India's appetite for silver has also been boosted because gold has become too expensive
at current prices. According to official data, India's silver imports in the first six months of
2010 are up 579%, at $1.69 billion.

As of April this year, India has also started hallmarking of the white precious metal to
ensure purity. With market surveys detecting increasing amounts of impurities in jewellery
being sold across the country, public sector trading major, Minerals and Metals Trading
Corporation (MMTC) is banking on its branded jewellery, silverware gift items and coins to
push up its market share.

MMTC is the largest importer of gold in the country. The firm's silver imports fell by more
than 44% in the fiscal year to end March 2010, as high prices dented demand. Silver
shipments fell to 697 tonnes in 2009-10 from 1,250.39 tonnes in the year-ago period.
Supply

India hardly produces any silver and is basically a silver importing country. It holds the 20th
place in the list of silver producing countries and the total production of silver in India in
2004 was around 2.1 million ounces. The three major silver producing states in India are: -

• Rajasthan

• Gujarat

• Jharkhand
Rajasthan is the leading silver producing state in India with a production of around 32
thousand tons. Gujarat follows on the second place with a production of around 20 thousand
tons.

As mentioned above, India is primarily a silver importing country, as the production of India
is not sufficient to satisfy the ever-growing domestic demand. The production of silver in
India stands out at the figure of around 2.1 million ounces placing it at the 20th position in
the list of major silver producing countries. The import of silver in India hovers over 110
million ounces that shows the huge size of Indian domestic demand.

Imports

However, this import level fell sharply as a result of the decline in demand due to rise in
silver prices and inconsistent monsoon on which the income of the rural sector depends.
But, even this sharp decline could not affect India’s reputation of being one of the largest
consumer countries of silver in the world. India stands third after United States and Japan
among the leading consumers of silver in the world. The countries from which India imports
silver and maintain the flow of silver in the market are: -

China
United Kingdom
European Union
Australia

Over 50% share of import of silver in India is held by Chinese silver. The major importing
centre of silver in India was Mumbai but now it has been shifted to Ahmadabad and Jaipur
due to high sales tax and octroi charges.
 Market influencing factors:

1. Price movements of other metals

2. Income level of the rural sector of the economy

3. Available supply verses Fabrication demand

4. Fluctuation in deficits and interest rates

5. Inflation

Major trading centres of silver

1. London
2. Zurich
3. New York (COMEX)
4. Chicago (CBOT)
5. Hong Kong
6. Tokyo Commodity Exchange (TOCOM)

In India, silver is traded at the following places

1. Delhi

2. Indore

3. Rajasthan

4. Madhya Pradesh

5. Mathura (Uttar Pradesh)

6. Rajkot (Gujarat)

Also, silver is traded in the Indian commodity exchanges like National Commodity &
Derivatives Exchange ltd, Multi Commodity Exchange of India ltd. and National Multi
Commodity Exchange of India ltd
 Uses of Silver

Many well known uses of silver involve its precious metal properties, including currency,
decorative items and mirrors. The contrast between the appearances of its bright white
colour in contrast with other media makes it very useful to the visual arts. It has also long
been used to confer high monetary value as objects (such as silver coins and investment
bars) or make objects symbolic of high social or political rank.

• Currency

Main articles: Silver coin and Silver standard

Silver, in the form of electrum (a gold-silver alloy), was coined to produce money in around
700 BC by the Lydians. Later, silver was refined and coined in its pure form. Many nations
used silver as the basic unit of monetary value. In the modern world, silver bullion has the
ISO currency code XAG. The name of the United Kingdom monetary unit "pound" (£)
reflects the fact that it originally represented the value of one troy pound of sterling silver.
In the 1800s, many nations, such as the United States and Great Britain, switched from
silver to a gold standard of monetary value, then in the 20th century to fiat currency.

• Jewellery and silverware

Goddess Minerva on a Roman silver plate, 1st century BC Main articles: jewellery and
silversmith

Jewellery and silverware are traditionally made from sterling silver (standard silver), an
alloy of 92.5% silver with 7.5% copper. In the US, only an alloy consisting of at least 92.5%
fine silver can be marketed as "silver" (thus frequently stamped 925). Sterling silver is
harder than pure silver, and has a lower melting point (893 °C) than either pure silver or
pure copper. Britannia silver is an alternative hallmark-quality standard containing 95.8%
silver, often used to make silver tableware and wrought plate. With the addition of
germanium, the patented modified alloy Argentium Sterling Silver is formed, with improved
properties including resistance to firescale.
Sterling silver jewellery is often plated with a thin coat of .999 fine silver to give the item a
shiny finish. This process is called "flashing". Silver jewellery can also be plated with
rhodium (for a bright, shiny look) or gold.

Silver is a constituent of almost all coloured carat gold alloys and carat gold solders, giving
the alloys paler colour and greater hardness. White 9 carat gold contains 62.5% silver and
37.5% gold, while 22 carat gold contains up to 8.4% silver or 8.4% copper.

Silver is cheaper than gold, though still valuable, and so is very popular with jewellers who
are just starting out and cannot afford to make pieces in gold, or as a practicing material for
goldsmith apprentices. Silver has also become very fashionable, and is used frequently in
more artistic jewellery pieces.

• Dentistry

Silver can be alloyed with mercury, tin and other metals at room temperature to make
amalgams that are widely used for dental fillings. To make dental amalgam, a mixture of
powdered silver and other metals is mixed with mercury to make a stiff paste that can be
adapted to the shape of a cavity. The dental amalgam achieves initial hardness within
minutes but sets hard in a few hours.

• Photography and electronics

Photography used 30.98% of the silver consumed in 1998 in the form of silver nitrate and
silver halides. In 2001, 23.47% was used for photography, while 20.03% was used in
jewellery, 38.51% for industrial uses, and only 3.5% for coins and medals. The use of silver
in photography has rapidly declined, due to the lower demand for consumer colour film
from the advent of digital technology, since in 2007 of the 894.5 million ounces of silver in
supply, just 128.3 million ounces (14.3%) were consumed by the photographic sector, and
the total amount of silver consumed in 2007 by the photographic sector compared to 1998 is
just 50%.

• Mirrors and optics

Mirrors which need superior reflectivity for visible light are made with silver as the
reflecting material in a process called silvering, though common mirrors are backed with
aluminium. Using a process called sputtering, silver (and sometimes gold) can be applied to
glass at various thicknesses, allowing different amounts of light to penetrate. Silver is
usually reserved for coatings of specialized optics, and the silvering most often seen in
architectural glass and tinted windows on vehicles is produced by sputtered aluminium,
which is cheaper and less susceptible to tarnishing and corrosion. Silver is the reflective
coating of choice for solar reflectors.

• Other industrial and commercial applications

Yanagisawa A9932J alto saxophone: has a solid silver bell and neck with solid phosphor
bronze body. The bell, neck and key-cups are extensively engraved. Manufactured in 2008,
silver and silver alloys are used in the construction of high quality musical wind instruments
of many types. Flutes, in particular, are commonly constructed of silver alloy or silver
plated, both for appearance and for the frictional surface properties of silver.

• Medicinal

Silver ions and silver compounds show a toxic effect on some bacteria, viruses, algae and
fungi, typical for heavy metals like lead or mercury, but without the high toxicity to humans
that are normally associated with these other metals. Its germicidal effects kill many
microbial organisms in vitro, but testing and standardization of silver products is difficult.

Hippocrates, the "father of medicine", wrote that silver had beneficial healing and anti-
disease properties, and the Phoenicians used to store water, wine, and vinegar in silver
bottles to prevent spoiling. In the early 1900s people would put silver coins in milk bottles
to prolong the milk's freshness. Its germicidal effects increased its value in utensils and as
jewellery. The exact process of silver's germicidal effect is still not entirely understood,
although theories exist. One of these is the oligodynamic effect, which explains the effect on
microorganisms but would not explain antiviral effects.

Silver is widely used in topical gels and impregnated into bandages because of its wide-
spectrum antimicrobial activity. The anti-microbial properties of silver stem from the
chemical properties of its ionized form. This ion forms strong molecular bonds with other
substances used by bacteria to respire, such as molecules containing sulphur, nitrogen, and
oxygen. When the Ag+ ion forms a complex with these molecules, they are rendered
unusable by the bacteria, depriving them of necessary compounds and eventually leading to
the bacteria's death.

• Clothing and shoes

Silver inhibits the growth of bacteria and fungi. In clothing, such as socks, it keeps odour to
a minimum and reduces the risk of bacterial and fungal infection. The combination of silver
and moisture movement (wicking) may help to reduce the harmful effects of prolonged use
in active and humid conditions.

Silver is incorporated into clothing or shoes in one of two ways:

A process in which silver nanoparticles are integrated into the polymer from which yarns are
made.

A process in which the silver is coated onto the yarns, such as X-Static or Sanitized Silver.
 TECHNICAL ANALYSIS
Silver has been making new Highs since last few months. It has been observing a bull run
after it has crossed the mark of Rs 29500.

Head And Shoulders Bottom Pattern (3years)

Silver first touches the left shoulder, then forming the head and later touching the right
shoulder and finally giving a breakout.

Similar Pattern has been observed below where the graph if of 6 months.
Flag Pattern

Double Top (1 year)

Long Term Support (1year)
Short Term Support

Ascending Triangle in Uptrend

Simple Moving Average

---- 5 days moving average

--- 35 days moving average

Relative Strength Index (RSI)

Bollinger Bands