Silver prices are showing a notable divergence in recent market activity. While MCX December futures have increased by 1%, reaching a peak of ₹1,64,660 per kg, silver ETFs in India have seen significant declines of 6% to 8%. This contradiction has left investors puzzled about the contrasting trends in silver prices.
ETF Declines Amid Rising Futures
On Thursday, major silver exchange-traded funds (ETFs) experienced substantial drops. HDFC, Motilal Oswal, Mirae Asset, and SBI reported a 6% decline, while Aditya Birla, Axis, and Zerodha saw a 7% decrease. Edelweiss faced an even sharper decline of approximately 8%.
Market Correction Explained
Analysts attribute this disconnection between rising futures and falling ETF values to a necessary market correction. This correction comes after a prolonged inflation of ETF valuations. Recently, ETFs’ net asset values (NAVs) traded at unusually high premiums compared to their indicative NAVs (iNAVs). As a result, investors are now feeling the effects of this premium compression.
Underlying Causes of Silver ETF Performance
The current situation stems from a supply crisis in the market. On October 9, silver ETFs experienced a sudden price increase, despite stable international spot prices. Market makers had little to no inventory of the LBMA-certified silver bars required for ETF procurement, leading to inflated prices for ETF trades.
- Premiums for ETFs typically hover around normal levels.
- Recent spikes have reached between 12% and 18% above import parity prices.
- Retail investors, attracted by silver’s momentum, purchased at inflated levels.
Fund Houses Take Action
In response to market volatility, major mutual funds have suspended new investments in silver ETFs. This includes firms such as ICICI Prudential, Kotak Mutual Fund, SBI Mutual Fund, UTI Mutual Fund, and TATA Mutual Fund. HDFC Mutual Fund has also restricted subscriptions. Analysts highlight that these suspensions reflect concerns over current valuations and uncertainty in premium normalization.
Advice for Investors
Fund houses recommend caution for investors considering new silver ETF purchases. Mirae Asset advises clients to observe market conditions closely before making any decisions. They suggest waiting for a normalization of premiums before investing in silver ETFs, particularly if investors have bullish expectations.
Long-Term Outlook for Silver
Despite recent corrections, silver’s fundamental strength remains robust. Analysts predict that silver prices may consolidate within the $50-$55 range in the coming months, with potential peaks reaching $75 per ounce by 2026. Bank of America has even upgraded its forecast to $65 per ounce, citing ongoing supply shortages.
The expected growth in silver prices could see domestic values hitting ₹2,40,000 by the end of 2026, based on anticipated currency exchanges.
Technical Analysis and Future Targets
On a technical level, silver has crossed significant barriers, with analysts noting strong market participation. Having recently reached $53 (approximately ₹1,62,700), the next resistance levels are projected at ₹1,71,000-₹1,72,700 ($57.40-$59). Continued momentum may lead to aggressive targets of ₹1,86,000-₹1,93,000 ($66.30-$70).
Investors are reminded to stay vigilant and informed as the market dynamics of silver continue to evolve.
