The demonetisation drive by the Indian government to crackdown on unaccounted wealth combined with higher prices impacted demand for silver bar in India that led to global investment in silver bar drop by nearly half in 2016, according to a survey.

The World Silver Survey 2017, released by the Silver Institute and produced on its behalf by the GFMS Team at Thomson Reuters (GFMS), said that global silver mine production in 2016 recorded its first decline since 2002, dropping by 0. 6 per cent in 2016 to a total of 885.8 million ounces (Moz).

A large proportion of the drop was attributable to the lead/zinc and gold sectors, where production dipped by a combined 15.9 Moz.The report said that total physical demand for silver fell by 11 per cent last year to 1,027.8 Moz, dragged lower by weaker jewelry, silverware, and retail investment.

The largest falls were recorded from coin and bar investment, which declined 29 per cent last year to 206.8 Moz with a slump in Indian purchases accounting for the bulk of the fall.

The survey further added that silver coin and medals fabrication fell by 9 per cent in 2016, from its record high in 2015, to 123.2 Moz."Silver bar investment fell by 46 per cent, mainly the result of lackluster demand in India due to a combination of higher prices, destocking and government measures on unaccounted wealth," the survey said.The introduction of an excise duty on

gold in India also had a spillover effect on silver demand.

"India played a huge role in last year's decline...This has a lot to do with the crackdown on unaccounted wealth and also the introduction of consignment basis which had a spillover effect to the silver sector as well," lead analyst at the GFMS Team/Thomson-Reuters in London Johann Wiebe told PTI.

The survey added that jewelry fabrication also fell 9 per cent in 2016 to 207 Moz, a four-year low, as higher prices and moribund economic conditions dragged consumption lower in key markets, most notably in China and India, which both fell acutely.

Silver bar demand weakened much more than coins, with offtake dropping by 46 per cent to 83.6 Moz.The decline was dominated by the particular characteristics of the Indian market, which had represented 53 per cent of global bar demand in 2015.

In 2016, Indian demand was down by two-thirds, representing almost four-fifths of the worldwide drop.This was due to the combination of higher prices, government measures on unaccounted wealth and destocking.

On the evening following the demonetization announcement the silver price was trading at 50 to 70 cents over the landed price as cash hoarders quickly wanted to convert their cash into physical assets.

Further, turnover on the Multi Commodity Exchange of India (MCX) decreased by 7 per cent in 2016, to a nominal 6,931 Moz.

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