Home / Money / Personal Finance /  Gold vs Silver ETFs: Where to invest this Diwali season?

Exchange-traded funds (ETFs) for both Gold and Silver are considered to act as a safeguard against rising inflation and market downturns. In a nutshell, Gold ETFs are securities that track the price of domestic physical gold and are units representing actual gold that may be in paper or dematerialized form. It is possible to buy and sell gold ETFs much like stocks, which is often more advantageous if you want to invest in physical gold. One gramme of gold is equal to one unit in the gold ETF, and this unit is guaranteed by 99.5% pure physical gold. Whereas, Silver ETF is an exchange-traded fund that invests its underlying assets up to 95% of its corpus in physical silver that tracks the price of silver in the stock exchanges. Silver is in high demand throughout industry, investments, and jewellery; as a result, its price is more sensitive to economic swings than gold's, making silver a more powerful hedge against inflation when economies are on the rise. However, because of its lower demand than silver, gold is less impacted by economic downturns. Both ETF categories help investors diversify their portfolios and lower storage costs. However, some funds, including Edelweiss Gold & Silver ETF and Motilal Oswal Gold & Silver ETFs FoF, invest in both asset classes. So let's find out where investors should invest if they want to sparkle their personal finance during Diwali by investing in a Gold or Silver ETF.

Difference between Gold & Silver ETFs

Niraj Bora- Founder of Surmount Business Advisors Pvt Ltd said “While the structure of the ETFs is the same for gold and silver, there are few differences in them as to the underlying commodity in each of them. Gold ETFs have a better volume on the exchanges and hence the liquidity aspect is quite good in the case of Gold ETFs. However, gold is more volatile than silver since its discovery and mining is expensive as opposed to silver, which is more abundant in availability compared to gold. Returns are typically more in gold ETFs in the past compared to silver, which trade-offs with the higher volatility that comes with gold. Demand for gold is higher since the supply is limited compared to silver. In terms of similarities of gold and silver ETFs, the structure of the ETFs are the same as the underlying commodity."

What should be your investment strategy towards Gold & Silver ETFs?

Utkarsh Sinha, managing director Bexley Advisors said “Silver and Gold are historically one of the most correlated assets: investing in one is almost (though not strictly) similar to investing in the other. Historically, silver investments were more feasible for smaller ticket sizes, while gold was reserved for larger amounts. However, the advent of ETFs with fractional ownership solves that challenge in a significant way. In an inflationary environment, both gold and silver see a rally in prices - however, that does not automatically make them an ideal candidate for investment. The best way for a retail investor to invest is to have a diversified asset: ideally, a mix of long-term equities, debt and some uncorrelated commodities thrown in. Unfortunately, a lot of investors interpret buying gold and silver simultaneously as diversification, which is incorrect - they really are like two sides of the same coin."

He further stated that “The best option for most investors remains mutual funds: you may want to diversify slightly and buy some gold / silver ETFs, or better still, chose a fund that has gold / silver exposure built-in. If you have held long-term equities, this is probably not the time to liquidate that and buy gold / silver: you will be selling at the bottom and booking a loss, rather than sticking with a ride that is likely upwards soon and banking a profit. And gold or silver may indeed go up, but one must compare that with the upward potential of the equities you are withdrawing, from their current position. If you were into short-term and speculative assets or such as many of the crypto tokens, or a 'hot-tip' stock that you bought, which has crashed in value, the opposite approach may work: it might be time to book your losses, recover what you can and invest in a long term fund that can recover the value and give returns on top."

Which types of investors should bet on Gold & Silver ETFs?

Nidhi Manchanda, Certified Financial Planner, Head of Training, Research & Development at Fintoo said “Silver ETFs are very new in the Indian Market, unlike Gold ETFs which have been in the market for over a decade. It is suggested to go for Gold ETF owing to its low correlation to Indian Stocks and effective hedge against inflation. On the other hand, Silver is more volatile than Gold and it is more of industrial metal, hence its demand depends upon the demand for electronic gadgets, electric cars, solar energy, batteries etc. Fears of economic slowdown will impact Silver and are thus already discounted to some extent. So, it can be considered comparatively risky as an investment in current times. Owing to these reasons, moderate to conservative investors may look at avoiding silver ETFs as an investment. It is further suggested to invest upto 10% of the portfolio in Gold ETF this Diwali instead."

Gold vs Silver ETFs: Where to invest in this Diwali season?

Vivek Banka, Founding Team at GoalTeller said “This Deepawali, we do recommend investors to look at Gold ETF's / Sovereign Gold Bonds as an investment option for multiple reasons for upto 3-5% of their financial portfolio - 1) As a diversification the entire portfolio, 2) We believe gold could be a dark horse for the next 12m as the entire Crypto saga which investors touted as the next safe haven has been blown away ( temporarily at least) and the flows to Gold might resume in case of geopolitical tensions exacerbating. A lot of Silver STF's have been recently launched too, however, we continue to stick to Gold as our recommended vehicle as Silver is more volatile and linked to industrial activity/uses as well ( which of course can bode well over long periods however as a safety haven we prefer Gold)."

Nehal Mota, Co-Founder, Finnovate said “Should gold be an essential part of investment portfolio? Between Jan-22 and Aug-22, MCX Gold returned 5.5% against 2.3% for Nifty and 1.1% for CRISIL Bond Index. But that is not the reason to buy gold. Gold offers a hedge or protection amidst tough macroeconomic conditions and geopolitical risks. Depending on your life stage, a portfolio allocation of 5%-15% in gold is advisable. Gold was the star performer in difficult years like 2008, 2010, 2019 and 2020. Gold prices are influenced by jewellery demand, ETF demand, central bank demand etc. But, 2 key factors boosting gold prices are tweaked dollar and elevated macroeconomic / geopolitical risks."

She further stated that "Physical gold like bars/coins (ex-jewellery) are difficult to maintain and store. Sovereign Gold Bonds guaranteed safety plus fixed interest. However, they are illiquid and not available on tap. Instead, Gold ETFs are easily bought and sold on the stock exchange; held in Demat account at low cost. Can one buy silver ETFs instead of gold ETFs? Their economics differ since gold is a pure precious metal while silver is a precious and industrial metal. However, the global volatility of silver ETFs has averaged 1.8 times that of gold. So, for hedging portfolio risk, gold ETFs best fit the bill."

Nitin Rao,Head Products and Proposition, Epsilon Money Mart said “On the auspicious occasion of Dhanteras, investors tend to buy precious metals such as gold and silver. In earlier times only physical form was available for investors but as the markets are developing Indian investors have varied options for investing in gold and silver through ETF, Funds and bonds. Earlier this year silver ETF were launched as an investment option. Exposure to these commodities does offer diversification benefits to investors. Gold is a precious metal and historically has provided a hedge against inflation. Whereas Silver is mostly a base metal which has industrial usage as well. An ideal exposure to commodities in your portfolio should be around 5%-7% depending on your investment horizon and risk profile. Instead of looking at exposure to gold and silver individually, investors also have an option of investing in funds which offer exposure to both commodities through one fund. The exposure to gold and silver is dynamically managed by the fund manager."

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.


Vipul Das

Vipul Das is a Digital Business Content Producer at Livemint. He previously worked for Goodreturns.in (OneIndia News) and has over 5 years of expertise in the finance and business sector. Stocks, mutual funds, personal finance, tax, and banking are among his specialties, and he is a professional in industry research and business reporting. He received his bachelor's degree from Dr. CV Raman University and also have completed Diploma in Journalism and Mass Communication (DJMC).
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