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The Indian gold market is in upheaval due to Prime Minister Nerandra Modi's new demonetization policies. Modi introduced the statutes last month, which mandate the discontinuation of 1000 and 500 rupee notes, the country's most valued currencies, according to The Wall Street Journal. While these efforts have hurt the criminals who often counterfeit such bills or use them in elicit off-the-books transactions, they have also damaged the precious metals market.
Gold prices have fallen considerably, as investors brace for a significant drop in cash-to-gold conversions, normally the province of swindlers looking to convert black money into legitimate assets. Currently, the precious metal is trading at $1170.50 per troy ounce, according to Gold Price. Analysts expect this figure to decline further, with the wedding season, a period of intense gold buying, coming to a close.
With this long-term trend in play, investors and residents are searching for alternatives. Surprisingly, many have turned to gold's lesser-valued counterpart: silver.
Keeping gold on hand
Indian families have traditionally placed immense value in gold, Quartz reported. In 2011, researchers from the Macquarie, an Australian investment bank, dissected the trend and discovered that almost 80 percent of households in the country keep most of their savings in gold, accounting for a total of $950 billion, half of India's gross domestic product. Of course, most of these purchases aren't made on the precious metals market. Instead, families buy jewelry made with the alloy, requiring craftspeople to import $25 billion in gold each year.
Despite efforts made by the Indian government to convert these metal assets to cash or bonds, most still cling to gold, stinting the country's economy in effort to obtain financial security.
Metal swap on the rise
However, market forces have forced many families to change their habits. Modi's demonetization scheme and recent tariff increases have both devalued the metal and dissuaded importers from bringing it into the country. Consequently, silver has suddenly become a hot commodity.
The precious metal is going for more than $17 per troy ounce and is up 20 percent for the year. Over the last decade, demand for silver has shot up 600 percent. Gold is moving in the opposite direction, with demand dropping 30 percent from September 2015 to September 2016.
Should this trend continue, precious metal traders in the country with silver-heavy portfolios will certainly benefit – as will mining operations extracting the metal.