Why gold & silver ETFs are replacing your locker keys

For centuries, families in India have stored wealth in gold jewellery, coins, or silver bars. The idea was simple: tangible metal provided safety, value preservation, and a ready fallback in times of crisis. That cultural instinct has not gone away. But investing in physical form brings its own set of challenges. These are storage, purity, liquidity, and sometimes even emotional attachment clouding financial judgment.

In recent years, gold ETFs and silver ETFs have emerged as modern avatars of these traditional assets. They retain the essence of precious metals but package them into a financial product that is transparent, liquid, and far more practical. Thus, precious metal ETFs are a cleaner alternative.

Gold: The anchor metal

Gold has always played the role of a stabiliser. Historically, it has performed best during periods of economic stress, geopolitical shocks, or falling interest rates. Value Research data as on Sep. 18, 2025 shows domestic gold prices rising 49.84% over the last year, and up 43.98% year-to-date (YTD), reflecting its safe-haven appeal when global uncertainty escalates. For instance, in last 1-year period, the domestic equity market has been flat (-0.39%) amid global tariff wars and uncertainty.With ETFs, you can hold gold seamlessly in demat form and even buy in small quantities. This avoids both the storage worries of jewellery and the illiquidity of coins and bars.

Silver: The cyclical metal

Silver is different in character, compared to gold. It is more volatile, driven by industrial demand in electronics, solar panels, and clean energy. That makes it a cyclical amplifier, often outperforming in reflationary or growth phases. In the last three months, silver prices in India surged 15.83%, outpacing gold (up 10.67%) over the same period. Over one year, silver delivered 43.47%, showing how strongly it can ride industrial upswings.However, volatility is what makes silver difficult to hold in traditional form. Prices can swing sharply. ETFs solve the problem by offering intraday liquidity and easy diversification. In this way, investors can adjust exposures without physical exchange or high transaction costs.

Why ETFs score over physical metals

Here are a few points to consider.

1. Liquidity and transparency: Selling physical gold often involves discounts, making charges, or purity tests. Silver bars can be even harder to offload at fair value. ETFs, listed on stock exchanges, trade close to actual market prices and can be liquidated instantly.

2. Lower costs: Jewellery carries making charges, storage lockers cost money, and coins or bars may have mark-ups. ETFs charge a small management fee but eliminate these hidden costs. Over longer periods, this can add up significantly.

3. Purity and security: When buying physical, purity remains a constant worry. ETFs are backed by standardised bullion of high quality, stored with custodians. This removes the risk of adulteration or disputes over karats.

4. Tax efficiency: Frequent buying and selling of physical metals triggers short-term capital gains at individual levels. Studies show that tax drag can erode compounding when investors attempt DIY rebalancing. ETFs, especially when held within a fund structure, allow for internal rebalancing without immediate tax outgo. This preserves wealth more efficiently.

5. Diversification across cycles: Gold usually anchors portfolios, while silver magnifies cyclical swings. Often, one leads while the other lags, though there are rare periods like the past year when both rally strongly together. The challenge is that such phases are unpredictable and short-lived. Rather than trying to guess the turns, holding ETFs of both metals provides a steadier balance compared with stacking coins or bars in a locker.

Conclusion

Precious metals will always have a place in Indian households. But the form of holding matters. Physical metal is cumbersome, sometimes inefficient, and not always aligned with financial goals. ETFs bring the same store-of-value and cyclical upside into a structure that is cost-effective, liquid, and transparent.

For investors who respect tradition yet want modern efficiency, gold ETFs and silver ETFs are a pragmatic and modern bridge.

When choosing ETFs, investors should assess expense ratio, tracking error, trading liquidity. Also selecting ETFs that have a good track record helps. These factors influence long-term returns and determine how closely the ETF mirrors metal prices.

(The author is Principal-Investment Strategy, ICICI Prudential AMC)

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)