Another view:
businessweek.com
WILL INDIAN SILVER TARNISH BUFFETT'S PLANS?
Asia's biggest buyers--and hoarders--of silver
are selling instead
In the heart of central Bombay, in a small compound
surrounded by old residential buildings, stands the city's
largest bullion refinery, owned by the Sonawala family.
Here, 1,543 pounds of silver bars imported daily from
Swiss banks are reduced to smaller ingots. Silversmiths
buy the ingots to turn them into the dishes, flatware, coins,
jewelry, and foil that merchants peddle in the silver
bazaars. According to the Silver Institute in Washington,
Indian demand reached 4,040 tons in 1996 and at least
that much last year. That's 16% of global demand, making
the country the largest silver market on earth after the U.S.
Little wonder, then, that the refinery is usually hopping.
STALLED IMPORTS. But in the past two months, work at
the refinery has slowed--because of one man half a world
away. Until a few days ago, most Indians had never heard
of Warren Buffett. They even say his name wrong,
confusing it with buffet. No matter. Since last October,
when Buffett began buying silver, imports into India have
nearly stalled as Indians decided that the metal costs too
much. Today, more and more Indians are selling their
dishes and jewelry made of silver, which now fetches
$7.25 an ounce, 20% above the normal $6. That makes
for an interesting match-up: 960 million Indian sellers vs.
one billionaire buyer from Omaha. ''Tell [Buffett] he can't
last,'' thunders dealer and refiner Mukul Sonawala.
''Indians say the price is too high. They're saying: 'Mr.
Buffett, have your buffet, we'll wait till the price drops.
Good-bye.'''
If Sonawala is right, India could put downward pressure on
the silver prices that Buffett has driven up. A walk through
Bombay's normally crowded silver market certainly shows
that few are buying. During this auspicious time of year for
Hindus, when the stars are properly aligned for weddings
and coming-of-age ceremonies, merchants normally ring
up their biggest sales of silverware, coins, and statues of
religious deities. But this year, the silver shops are
deserted. Not even the usually free-spending overseas
Indians can be spied striking a deal.
Instead, at top shops such as Bherumal Shamandas and
tony Tribhovandas Bhimji Zaveri, customers are coming in
to sell their silver dinner services. They either pocket the
cash or invest the proceeds in gold, which is trading below
$300 an ounce. According to M.L. Damani, president of
the Bombay Bullion Assn., Indians sold 1.7 tons of silver in
just three days in early February.
SAFETY NET. Unlike the rest of the world, where silver is
used mostly for electronics and photographic materials,
the use of silver in India is predominantly personal. Indians
consider silver and gold a form of personal security in a
nation that provides no social safety net for its citizens.
Consequently, a silver item is the first purchase from
savings. Indians wear silver jewelry, embroider silver
threads into clothing, worship idols made of silver, and eat
off of silver plates. They even consume an estimated 132
pounds of silver a day in the form of a gossamer-thin foil
that covers desserts or gets ground with tobacco.
Indians' use of silver is so extensive that dealers here feel
little need for knowledge of the international markets. Even
now, just a handful of silver dealers know anything about
Warren Buffett's current play; some even mistakenly think
the high prices mean the Hunt brothers are up to their old
tricks.
But if India holds the key to silver-market trends, Buffett
should take heed. The Bombay Bullion Assn. says that if
the price of silver continues to ride at more than $7 an
ounce, Indian demand could fall by 40% this year, driving
the price down to $6.50. Almost all of the 110,000 tons of
silver stock in India is held by private citizens, squirreled
away in iron safes and cupboards. So Buffett's
calculations could be drastically upset if Indians start
unloading all that tonnage. Bombay bullion dealer
Sonawala jokes that if that happens, Buffett, like the
Indians, may have to consume some of his 4074 tons of
silver himself to keep prices up. That would be some
buffet.
By Manjeet Kripalani in Bombay |
