Silver ETFs crash up to 24% as MCX silver rate eases 4% — What explains this divergence?

Silver rate today: Silver futures tumbled on the Multi-Commodity Exchange (MCX) on Thursday, January 22, amid ease in geopolitical tensions, which dampened safe-haven demand, and strength in the US dollar.

Global tensions declined as US President Donald Trump backed down from new tariff threats and proposals to annex Greenland by force, pushing MCX silver prices lower by 4% to ₹305,753 per kilogram today. From its all-time high, the silver rate today on MCX is lower by almost ₹30,000.

Even as silver futures eased 4%, the fall in silver ETFs was much starker. Tata Silver ETF on MCX crashed almost 24% to ₹25.56 today. Edelweiss Silver ETF and Mirae Asset plunged 22% each. 360 ONE Silver ETF lost 21%, and Nippon India Silver ETF shed 20% on NSE.

What explains the divergence?

Analysts said, amid Trump suggesting there would be no conflict with Greenland and some easing of geopolitical tensions, investors are questioning the need to hold gold and silver, leading to aggressive selling in silver, particularly in ETFs.

But 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 Budget, rather than a sudden collapse in underlying global fundamentals, explained Harshal Dasani, Business Head, INVasset PMS.

Silver ETFs tend to trade at massive premiums or discounts to their NAVs as they are often characterised by sharp volatility.

Despite the sharp fall in silver ETFs, most are still trading at a premium to their net asset values (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.

Dasani said that 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, he said, 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.

This premium, he explained, 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.

Manav Modi, Commodities Analyst, Motilal Oswal Financial Services, said 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 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 you consider buying silver ETFs?

Modi advised being cautious 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 advised.

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 - APAC, 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.