Silver ETFs Witness Dramatic Reversal After Spectacular January Rally
The silver market experienced a rollercoaster ride in recent days, with exchange-traded funds (ETFs) showcasing extreme volatility. After rallying as much as 37% throughout January, silver ETFs faced a sharp selloff on Friday, January 30, plunging by a staggering 23% as investors rushed to book profits following precious metals' retreat from record highs.
Sunday Session Brings Mixed Fortunes Amid Budget Anticipation
During the special Budget session on Sunday, February 1, silver ETFs presented a mixed picture. Meanwhile, silver rates extended their losses significantly, hitting a 6% lower circuit as investors continued profit booking amid a global selloff triggered by a strengthening US dollar. Market sentiment faced additional pressure following reports that CME Group is raising margins on Comex gold and silver futures. Investors also maintained a cautious stance ahead of the highly anticipated Union Budget 2026.
On the Multi Commodity Exchange (MCX), silver prices fell sharply by 6% to reach the lower circuit of ₹2,74,410 per kilogram. This decline followed Friday's substantial fall when silver prices had already collapsed by 19% to ₹3.12 lakh per kg, while gold plunged 2% to ₹1.65 lakh per 10 grams.
January's Remarkable Rally Despite Sudden Correction
Despite the sudden and severe correction, silver concluded January with impressive gains, rising ₹73,000, or 30.5%, from ₹2,39,000 per kg recorded on December 31, 2025. Gold also delivered a strong monthly performance, with prices increasing by ₹27,800, or 20.2%, from ₹1,37,700 per 10 grams recorded at the end of the previous year.
The rally in precious metals received substantial support from persistent geopolitical strains involving the United States and Iran, coupled with a notably weaker US dollar driven by policy uncertainty in Washington. Additional flashpoints, including U.S.–EU tariff tensions linked to Greenland, further intensified safe-haven demand for both gold and silver.
ETF Performance Highlights Market Extremes
Among specific ETFs, Zerodha Silver ETF rallied an impressive 37% in January, while Nippon India Silver ETF surged 33%. Kotak Silver ETF advanced 30% and SBI Silver ETF jumped 29% during the same period, showcasing the breadth of the January rally.
The Carnage: Understanding What Triggered the Crash
The impact of the selloff was visible across all major silver ETFs. SBI Silver ETF crashed 20%, while Zerodha Silver ETF, Nippon India Silver ETF and Kotak Silver ETF each fell approximately 20%.
In Sunday's session, Nippon India Silver ETF tanked another 12%, Zerodha Silver ETF lost 3%, while SBI Silver ETF added 3% and Kotak Silver ETF rose 1.5%, illustrating the divergent movements within the sector.
Key Factors Behind the Market Reversal
The dramatic reversal was triggered after US President Donald Trump indicated he would soon announce his pick to replace Federal Reserve Chair Jerome Powell, with reports pointing to former Fed governor Kevin Warsh. The prospect of a more hawkish Federal Reserve stance unnerved investors who had positioned for an accommodative policy path. The dollar index rose 0.4% to 96.60, and the greenback strengthened 0.7% against the Swiss franc.
Profit booking accelerated after President Trump criticized the Federal Reserve for not easing rates, prompting traders to turn cautious at elevated levels. Simultaneously, Bloomberg reported that CME Group is raising margins on Comex gold and silver futures after prices suffered their biggest slides in decades.
Margin requirements on silver futures have been increased to 15% from 11% for the non-heightened risk category, and to 16.5% from 12.1% for the heightened risk category. For gold futures, margins have been raised to 8% from 6% under the non-heightened profile and to 8.8% from 6.6% for the heightened profile. Margin hikes have also been applied to platinum and palladium futures.
Analyst Perspectives and Investment Guidance
Despite the sharp fall across prices and ETFs, analysts indicated that the broader structural drivers supporting precious metals had not disappeared. Silver had recorded gains for nine consecutive months, while gold had extended its rally for six straight months, supported by geopolitical uncertainty, safe-haven demand and earlier dollar weakness. The recent decline was viewed as profit booking after an exceptionally steep rally rather than a complete shift in the underlying trend.
Nikunj Saraf, CEO at Choice Wealth, explained, "The 14% plunge in Gold and Silver ETFs isn't mysterious—it's classic profit-taking after Thursday's record highs on MCX. A hawkish Fed chair pick under President Trump sparked global fears of tighter policy."
He further elaborated that the plunge reflected profit booking after record highs on MCX, as expectations around a hawkish Federal Reserve leadership strengthened the USD and pressured overbought metals. He noted that spot gold fell 3.9–5% to $5,183 per ounce and silver fell 5.7% to $109.55 per ounce, while Indian ETFs mirrored the global correction. He advised investors to diversify, avoid panic selling, and watch for rebounds supported by central bank demand, adding that long-term bulls continued to hold firm.
Meanwhile, Hareesh V, Head of Commodity Research at Geojit Investments, noted that a persistent global supply gap had deepened, with 2025 marking the fifth straight year of deficits, while industrial demand from solar, electric vehicles, and AI-related electronics intensified the rally. He further observed that monetary factors, including Federal Reserve rate-cut expectations and a weakening U.S. dollar, will keep investment flows into silver.
Strategic Recommendations for Investors
Analysts advised investors to avoid panic selling during such sharp corrections and instead consider staggered allocations if they maintained a long-term view. Given the steep run-up and historically high volatility in silver, intermittent corrections were considered likely, especially if the dollar strengthened further or geopolitical risks eased.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
