Even though it is gold that has been hogging the limelight among precious metals, it is silver that is providing the highest returns.

Analysts said silver prices have risen 109 per cent from its trough in 2008.

It was the top returns provider far outdoing gold with quarter-on-quarter returns rising by 18 per cent (in the third quarter of 2009) and 26.9 per cent on an annual basis.

Silver volumes have also risen at the Dubai Gold and Commodities Exchange (DGCX). The metal now records about 150 to 300 contracts traded on the exchange on a daily basis as opposed to three months earlier when silver traded a daily average of about 50 contracts. Each contract size of silver futures at DGCX comprises of 1000 troy ounces.

Silver stood at $16.32 an ounce yesterday.

Analysts said for the immediate term silver will adopt a bearish trend but then there are brighter prospects in the longer term. "We have been warning of the potential to test technical support located at $16.20 given the shape of the charts and the complete lack of physical demand and our target has been achieved.

"We would expect this level to hold for now, with potential for a short covering bounce to $16.60, although chart watchers will be wary of the fact that the next major support after $16.20 is a distant $14," Jeffrey Rhodes, CEO, INTL Commodities DMCC wrote in his daily report.

Analysts said there are three prime reasons for the phenomenon.

The first is that investor demand for the metal has been unusually strong.

The second is that industrial demand has been strong. And the third is that Chinese have developed a strong appetite for the metal – especially silver jewellery.

"Silver prices have risen by 109 per cent from last year's trough. The appreciation was driven by a confluence of factors. After the sharp downturn, a stabilisation of the global economy has removed some of the immediate downward pressure on silver fabrication demand. More importantly investor demand has been strong," Michael Widmer, Merrill Lynch metals strategist, wrote in his recent report.

"Assets under management at exchange traded funds, for instance, have been trending higher since the meltdown of the global financial markets in 2008," Widmer added.

Gold, he said, has benefitted from higher gold prices and the weakening of dollar.

Expansion of liquidity by major economies around the world has also helped the metal, he said.

China that had earlier this year showed a decline in silver demand is now showing an uptrend, analysts said.

"Against the general trend we note that silver offtake from China's fabricators and the jewellery sector remained elevated through the cycle," analysts wrote.

"The popularity of white jewellery [in China] helped to keep silver demand from the jewellery sector at high level," they said.


Retail gold sales recover

Retail gold sector is projected to recover faster in Dubai than other Gulf markets, as rise in number of tourists and stable prices in October boosted demand.

Dubai's jewellery sales are mainly derived from tourists visiting the emirate.

"There are signs that the economy is starting to recover because we are beginning to see more tourists and sales rose 10 per cent in October compared to last year," said a sales manger at Kanz Jewels, one of the largest retailers at Dubai Gold Souk.

The economic crisis and high gold prices have curbed consumer's appetite for the yellow metal causing demand to drop between 30-40 per cent over the past six months, traders told Reuters.

"We feel demand has picked up after the Diwali festival because the price has gone down and it is expected to remain stable," said MP Changappa, sales manger at Chammaur Jewellers, which has branches in Dubai and Manama.

"As for our Bahrain branch, I feel the recovery will be slower since demand is mainly from the local market," he added. Spot gold prices reached $1,044 an ounce on Sunday from a record high of $1,072 in early October.

Discounted gold prices in the emirate also played a part in luring more buyers.

"There are a lot of retailers who sell jewellery at a discounted rate to the international gold price because they themselves bought the gold at a lower rate, so this means a slightly lower profit for them," said Pradeep Unni, senior gold analyst at Richcomm Global Services.

"With discounts and less summer heat, tourists are brining back demand to Dubai more than any other Gulf country," he said.

Total demand for gold in the Middle East fell by 18 per cent in the second quarter of this year to 72 tonnes after being up 33 per cent in the previous quarter, according to a report released by the World Gold Council.

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