Gems and Jewellery Market in India 2010 In India, jewellery is revered and valued as a treasure from ages, be it any

festival or a marriage, the celebrations are incomplete without gold and silver ornaments. Being the biggest consumers of silver, the industry is set to thrive for a very long time. However, the market is highly dominated by the unorganized players, but with the prospering economy and surging income levels, the organized segment and retailing of branded jewellery is fast catching up in the currently fragmented market which is worth USD 16 bn and shows huge potential for growth in the future. An analysis of the drivers explain the factors for growth of the industry including mass appeal and growing income among households, low cost and abundance of skilled labour, growing use of high-end technology, advantages of SEZs, changing consumer perceptions and preferences, and growing training institutes. The key challenges identified encompass rising silver prices, competition from unorganized players, dependence on raw material import and emerging threat from other countries. Key trends identified include the growth in organized retail space, aggressive marketing and advertising, large scale shows and exhibitions, domestic players acquiring foreign companies, investments from PE firms and corporate houses entering the market. The major government bodies regulating this sector have been described and the policies adopted by the government have also been analyzed including industrial policy, FDI policy, Kimberley certification process and hallmarking. The key initiatives of the government identified include tax benefits, import duty relaxations, provisions for exports and other initiatives. The competition section provides an overview of the competitive landscape in the industry illustrating the share of organized and unorganized players. It also includes a detailed profile of the major players in the market including their financials and expansion plans. The key developments in the sector have also been highlighted.

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 worlds 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 20 Silver Producing Countries in 2009 (millions of ounces) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Peru Mexico China Australia Bolivia Russia Chile United States Poland Kazakhstan Canada Argentina Turkey Sweden Morocco Indonesia India Guatemala Iran South Africa 123.9 104.7 89.1 52.6 42.6 42.2 41.8 39.8 39.2 21.7 19.6 17.1 14.0 8.7 8.3 7.7 7.3 4.2 3.5 2.6

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 2008s 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.

Precious Metals Forecast 2010

Silver
Executive Summary Prices continue to out perform Gold on both the upside and the downside. In 2010, Silver is expected to range between $13/oz and $25/oz. Investment demand is expected to remain strong in 2010, but a rebound in fabrication demand should see buying pressure increase. After the slump into recession in 2008, the recovery has been fast, but we doubt it is sustainable and therefore expect further distress to be seen in the months ahead. The dollar may be oversold in the short term, but structural problems suggest further dollar weakness is likely and that could lead to a dollar crisis. With the supply overhang, investors are going to have to continue buying Silver,

but given their current interest and the big picture outlook, this is likely to happen.
Introduction Since moving above $10/oz in March 2006, Silver prices have been on a rollercoaster ride with some fast and long rallies interspersed with steep and aggressive sell-offs; none more so than the drop from $21.36/oz to $8.50/oz between March and October 2008. However, the strong rebound after last years sell-off does indicate ongoing steady interest. Silver has benefitted from being both an industrial metal and a cheap precious metal, as industrial metals have rallied strongly in anticipation of an economic recovery and as a cheap precious metal, it has won market share from Gold jewellery. Also as a precious metal it has been sought after as a hedge against dollar weakness and financial distress. Given the diverse nature of Silver demand, prices are expected to perform well as even if weakness is seen in one area of demand, the other areas should hold up and indeed could see demand accelerate. Silver also does not have the threat of IMF sales overhanging it. Generally for these reasons we feel there is still good upside potential for Silver and with prices (basis $17.50/oz) still 18% below last years highs and arguably still 185% below the 1980 highs, the outlook remains bullish. However, given Silvers supply/demand situation the outlook for Silver can only be bullish while investors remain as committed to buying Silver as they have been in recent years. Over the past five years fabricated demand has on average been around 2,000 tonnes lower then supply. While investors are prepared to buy this surplus then higher prices can be seen, but should investors interest wane then Silver prices could tumble. Overall, we remain bullish for Silver as it is likely to follow in Golds footsteps and at times outperform it. In last years Forecast report we were looking for the bulk of trading in 2009 to be between $11/oz and $18/oz; the low in January 2009 was $10.33/oz and the high has so far been $17.93/oz. In 2010, we feel Silver will trade within a $13/oz to $25/oz range as we expect mo re turbulence in the financial markets
Fabrication Demand Fabrication demand covers Silvers use in industry, photography, jewellery manufacturing and in the making of coins. So far in 2009, all these sectors, with the exception of coins, have seen demand hit hard. Despite weaker prices, which in the first eight months of the year averaged $13.34/oz compared with $17.16/oz in the same period last year, demand has fallen as the impact

of recession has taken its toll. Demand from photography remains in steady decline and that is expected to continue, but the recession has knocked industrial demand down by an estimated 21% as actual demand has fallen and destocking will have made apparent demand fall even more. Silver jewellery and Silverware have faired better with an estimated 8.5% drop in demand. Fabrication of coins and medals grew strongly in 2008 and did so in the first half of 2009 as retail investors looked to buy precious metals that they could physically hold as means to protect themselves against bank closures and financial turmoil. The rapid fall in Silver prices during the second half of 2008 does suggest aggressive destocking, however, with total fabrication demand only falling around 1% last year, the data suggests holders of Silver were not prepared to sell into the sell-off. However, consumers do seem to running down stocks this year as demand has fallen heavily. In 2009 as a whole, fabrication demand is expected to drop 12% to 22,650 tonnes, down from the recent peak in 2005 of 26,350 tonnes. In 2010, demand is expected to recover as industrial demand anticipates a recovery and starts to restock. Jewellery - Changing trends Volatile prices and economic recession have seen jewellery demand fall, which is to be expected as spending on luxury items is bound to suffer in times of hardship. Indeed even significant price falls are not going to entice buyers back into the market if there are other higher profile issues such as rising unemployment and concern over the economic outlook. In addition, this year has also seen drought conditions in India, which is making a bad situation worse as the rural community will have less to spend. However, relative to Gold, Silver jewellery has fared better, Gold jewellery demand was off 25% in the first half of the year, which suggests that jewellery buyers have shied away from buying expensive jewellery, but have felt less extravagant buying cheaper Silver jewellery. Over the past decade, Silver jewellery demand has suffered less than Gold jewellery, as whether high bullion prices, or economic hardship has hit demand, Gold jewellery tends to suffer more, see chart. With Silver prices also well below 2008s peak, while Gold is near record highs, there is a bigger profit margin in Silver jewellery than in Gold, or Platinum jewellery. Overall we expect an 8.5% drop in Silver jewellery and Silverware demand in 2009, followed by a 2% pick-up in 2010 as more sustainable growth unfolds later in the year. In addition, the higher Gold prices go, the more consumers will trade-down to Silver jewellery, especially if Silver prices rise and Silver is seen as becoming a more expensive precious metal.

How to Invest in Silver

11

Why Invest in Silver?

For those of you who haven't been following the markets lately, things are pretty shaky. As history repeats itself, we are able to look back and see that things like this have happened before, and the economy has its ups and downs. Currently we are in a downward cycle, and can't be too sure when things will pick back up. Looking back, we are able to see that during these economic downturns, certain things go down, but at the same time, certain things go up. One of these things is Silver. Along with Silver there is Gold. The two are very closely linked. Typically, silver will copy/track the gold price. If gold goes up, so does silver.

Factors Affecting the Price of Silver

There are various factors that affect the price of Silver. Some of those factors are: Private and Institutional Investors, the large concentrated short position and Industrial demand. From 1973 the Hunt Brothers began to corner the market. They bought enough to cause the spike in 1980 to $49.45 per troy ounce. Soon after the price fell back down due to the New York Mercantile Exchange and the intervention of the Federal Reserve. In 1997 Warren Buffet purchased 130 million troy ounces of silver. Also, in April of '06 iShares launches a silver exchange traded fund which is called the iShares Silver Trust. As of April '08 the iShares Silver Trust held 180 million troy ounces of silver as reserves. The large concentrated Short Positions in silver also contributes to the price. As of April '07 it shows that the four or fewer largest traders are holding 90% of all short silver contracts. The total between these traders is equal to a total short of 245 million troy ounces. This is the equivalent to 140 days of production. Industrial Demand is one of the major factor that influences the price of silver. Although silver is relatively scarce, it is the most plentiful and least expensive of the precious metals. 95% of annual silver consumption comes from the three main areas of industrial uses, jewelery, silverware, and photography.

40000 35000 30000 25000 20000 15000 10000 5000 0 Jul/09

price/kg (Rs)

price/kg (Rs)

Oct/09

Jan/10

May/10

Aug/10

Nov/10