My Precious! Silver ETF rush takes the market by surprise
Mumbai: Domestic silver exchange-traded funds (ETFs) posted their strongest single-day gains in 2025 as the strong run-up in the metal prices sparked a buying frenzy among investors, causing distortions between fund values and spot prices.
Most Silver ETFs – traded like shares – spiked as much as 6-14% during Thursday’s trading. Silver prices rose as much as 5% to ₹1.59 lakh.
Market participants said the jump in silver ETF values was not just due to the surge in metal prices but because there wasn’t enough physical silver to meet the unprecedented demand for the ETF units. Silver ETFs in India are backed by physical silver.
When demand for ETF units increases, market makers create new units by delivering physical silver to the fund house (AMC) in exchange for ETF units. On Thursday morning, these market makers could not supply enough silver, causing the shortage.
“To create units of Silver ETFs, market makers or bullion dealers, are required to deliver physical silver to the Asset Management Company (AMC) in exchange for ETF units,” said Satish Dondapati, fund manager, Kotak Mahindra AMC. “Due to a temporary silver shortage this morning, the exchange prices of silver ETFs surged 8-10%, marking the highest single-day spike this year.” As supply constraints eased during the day, prices stabilised by the end of the day, said Dondapati.
Currently, India is facing a major shortage of physical silver, with bulk deliveries delayed by 7-12 days and premiums rising to ₹5,000-7,000 per kilogram, said Navneet Damani, head of research- commodities & currency at Motilal Oswal Financial Services .”The shortage is driven by higher industrial demand, central bank buying from countries like Saudi Arabia and Russia and growing investor interest,” he said.
Silver has many industrial uses, including those in making electric vehicles, semiconductors and green energy technologies like solar panels.
Damani said some traders may also have booked profits early in the morning and re-entered later, adding to the price swings.
Prices of domestic silver have moved up nearly 79% in the past year, whereas most ETFs have delivered returns between 77% and 90%.
A Balasubramanian, CEO, Aditya Birla Sun Life Mutual Fund said the recent spike in silver ETFs is due to under ownership of the asset as investors are now rushing to own it in order to diversify their portfolio.
Price Outlook
Traders are watching whether silver is able to cross the crucial resistance zone of $50-51 per ounce. According to Bloomberg, silver’s December Futures were at $49.14 on the Comex on Thursday evening.
“We expect silver to move towards $50, where it may face resistance and stabilise. A break above $51 could push prices quickly towards $60,” said Damani. The white metal has historically faced strong resistance at $50-levels and sees multiple short positions created in this zone.
Dondapati said unlike silver’s previous rallies in 1980 and 2011, today’s silver uptrend is underpinned by strong fundamentals.
“While short-term corrections or profit-taking may follow the recent surge, our long-term outlook remains bullish on silver, more so than on gold at this stage,” he said.
Dondapati said currently, demand for Silver ETFs is outpacing that of gold. With gold recently reaching its $4,000 target, investors are now hoping silver will catch up to its $50 target, he said. Balasubramanian advises investors to remain cautious on silver after the recent run-up and consider adding more equities to their portfolios.
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