Silver futures experienced a significant downturn on the Multi-Commodity Exchange (MCX) this Thursday, January 22, with prices dropping sharply amid a combination of easing geopolitical tensions and a strengthening US dollar. The decline in global uncertainties, particularly after US President Donald Trump stepped back from new tariff threats and proposals to annex Greenland by force, contributed to reduced safe-haven demand for precious metals. As a result, MCX silver prices fell by 4%, settling at ₹305,753 per kilogram today. This marks a substantial drop of nearly ₹30,000 from the all-time high levels previously recorded.
Silver ETFs Witness Steeper Declines Compared to Futures
While silver futures eased by 4%, the fall in silver exchange-traded funds (ETFs) was much more pronounced. Tata Silver ETF on MCX crashed almost 24% to ₹25.56 today, highlighting a stark divergence in performance. Other major ETFs also faced severe losses: Edelweiss Silver ETF and Mirae Asset Silver ETF each plunged 22%, 360 ONE Silver ETF lost 21%, and Nippon India Silver ETF shed 20% on the National Stock Exchange (NSE). This disparity between futures and ETFs has raised questions among investors and analysts alike.
Analysts Explain the Divergence in Silver Markets
Market analysts attribute the aggressive selling in silver, particularly in ETFs, to investors questioning the need to hold gold and silver as safe-haven assets amid reduced geopolitical risks. However, the sharper fall in silver ETFs compared to MCX silver is largely a function of how Indian silver had moved into a speculative premium ahead of the Union Budget, rather than a sudden collapse in underlying global fundamentals, as explained by Harshal Dasani, Business Head at INVasset PMS.
Dasani noted that silver ETFs tend to trade at massive premiums or discounts to their net asset values (NAVs) due to their characteristic sharp volatility. Despite the recent sharp fall, most silver ETFs are still trading at a premium to their NAVs. This premium was driven by rumours of an import duty hike by the government in the upcoming Union Budget and speculative buying by investors.
Premium Unwinding and Market Dynamics
Over the last two sessions, silver on MCX had significantly outperformed COMEX because of expectations around an import duty tweak or a policy signal in the Budget. At its peak, Indian silver was trading near $107 per ounce, almost $13 above the COMEX price of around $94, which is an unusually wide premium by historical standards. Dasani explained that this premium was not driven by physical tightness alone but was largely sentiment-led and expectation-driven.
Once it became clear that no immediate duty relief was forthcoming, that excess premium started unwinding. "Silver ETFs, which are priced off domestic spot benchmarks but also reflect investor flows and arbitrage pressures, tend to react faster in such 'premium collapse' phases," Dasani said, adding that when retail investors rush to book profits, ETF units face additional selling pressure even if MCX futures are still stabilising.
NAV Calculations and Timing Differences
Manav Modi, Commodities Analyst at Motilal Oswal Financial Services, highlighted that NAV calculations for mutual funds are very different from MCX price movements. “Any event or price move is first reflected in futures prices, while NAVs are calculated with a lag. Because of the difference in timings, ETFs (which close at 3.30 pm) don’t always catch up with MCX moves immediately,” he said.
Modi believes that ahead of the Union Budget approaching, this spread tends to widen further. Since ETF prices had risen sharply despite the disparity, we’re seeing profit booking at higher levels, he said, expecting inflows to resume once the budget-related uncertainty settles.
Should Investors Consider Buying Silver ETFs Now?
Modi advised caution amid a 200% rally seen in silver prices in almost a year. “I would definitely advise caution and closely watch how the market behaves, especially for ETFs. ETFs still make sense as an investment, particularly when other asset classes are underperforming, but the approach should be staggered—through SIPs rather than lump-sum investments,” he recommended.
While spot gold and silver still reflect historically elevated levels, the ETF correction looks like profit-taking and risk-rebalancing as equity markets rally, opined Justin Khoo, Senior Market Analyst for APAC at VT Market. He finds structural drivers such as central-bank accumulation, long-term demand, and inflation hedging undiminished. Therefore, disciplined investors may see this correction as a strategic accumulation zone, but should avoid aggressive short-term speculation given ongoing volatility, he advised.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions.
