Silver’s Record Rally Faces a Budget Speed Bump: Duty Cut Could Dampen Prices, HDFC Securities Warns
Silver has recently enjoyed an impressive surge, reaching record highs, but this rapid ascent may be threatened by potential changes in import duties outlined in the upcoming Union Budget. HDFC Securities cautions that such a move could impose immediate downward pressure on domestic silver prices, even as the longer-term outlook for precious metals remains optimistic.
Silver in the Current Market
– Price Milestone: Silver futures on the Multi Commodity Exchange surpassed Rs 3 lakh per kg on Monday, highlighting its allure as a hedge amidst global uncertainties.
– Import Duty Implications: HDFC Securities warned that a government decision to reduce import duties on silver could lead to lower domestic prices, indirectly impacting investors in India.
Market Conditions and Investor Behavior
– Outperforming Competition: Silver has recently outpaced gold, propelled by a unique blend of supply limitations and strong demand.
– Supply Shortages: The years between 2021 and 2025 are expected to see a cumulative global supply deficit of nearly 800 million ounces of silver, roughly equating to a full year of mine production.
– Record Industrial Demand: Industrial usage of silver remains at peak levels, while investment inflows and dwindling inventories at major global hubs have tightened the market.
Potential Risks from Budget Decisions
– Fiscal Policy Effects: Indian investors must consider how fiscal policies affect silver prices. A reduction in import duties would lower landed costs, potentially reducing the domestic price of silver even if global prices remain high.
– Profit-Taking Scenario: Analysts predict that such a duty reduction could trigger short-term profit-taking following silver’s significant gains.
Long-term Outlook for Silver
HDFC Securities, while highlighting these budget-related risks, maintains a positive medium to long-term outlook for silver:
– Continued Demand Drivers: Factors such as robust industrial usage, ongoing supply deficits, and a dovish monetary policy environment contribute to a favorable backdrop for silver prices.
– Gold-Silver Ratio Shift: The gold-silver ratio has drastically compressed from about 90:1 in early 2025 down to approximately 57:1, further strengthening silver’s appeal over gold.
– Extended Bullish Trend: The overall bullish trend in precious metals is expected to persist into 2026, despite a probable moderation in gains following last year’s significant rally.
Recommendations for Investors
In light of current conditions, HDFC Securities recommends that investors consider allocating up to 10% of their portfolios to precious metals. Here are some strategies to keep in mind:
– Flexibility in Exposure: Investors should remain adaptable, ready to adjust their allocation depending on individual risk tolerance and market developments.
– Utilizing ETFs: The brokerage suggests considering exchange-traded funds as a vehicle for gaining exposure to silver, while remaining mindful of potential policy-induced volatility surrounding the upcoming budget.
In conclusion, while silver’s dramatic rise may face pressure from potential cuts in import duties, its long-term prospects remain strong due to sustained demand and ongoing supply challenges. The true extent of its resilience may hinge on the decisions made in the upcoming Union Budget, ensuring that all eyes remain on government actions in the weeks ahead.