Silver’s great disconnect: MCX prices soar but ETFs crash 8%. What’s really happening?
Silver ETFs of HDFC, Motilal Oswal, Mirae Asset and SBI fell 6% while a 7% drop was seen in Aditya Birla, Axis and Zerodha. Edelweiss, on the other hand, tumbled around 8%. The disconnect between soaring futures and collapsing ETF values has left investors asking a pointed question: if silver is up, why are my holdings down?
The answer lies in a brutal correction that analysts have been warning was inevitable. “What we’re seeing today is not a collapse in silver prices, but a normalisation of inflated ETF valuations. Mean reversion was bound to happen,” according to a senior fund manager tracking ETFs. For the last few days, ETFs’ net asset values (NAVs) have been trading at abnormally steep premiums to their indicative NAVs (iNAVs)—a premium compression that has now caught up with investors.
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The Premium Trap
The root cause traces back to a supply crunch that distorted the entire market structure. On October 9th, silver ETFs in India saw a sharp price surge even as international spot prices remained relatively stable. Commodity traders acting as market makers for silver ETFs found themselves with “low to negligible inventory” of LBMA-certified silver bars—the only type regulators permit for ETF procurement.
This scarcity triggered a cascade. Market makers began quoting abnormally high prices both on-screen (for ETF trading on exchanges) and off-screen (for direct ETF scheme purchases). ETF premiums that typically hover around standard levels spiked to a staggering 12-18% above import parity prices, according to analysts. Retail investors, seeing silver’s momentum and unaware of the structural distortion, continued buying at these elevated levels.Now comes the reckoning. “As there is a shortage of physical silver in the domestic market and silver exchange-traded funds are trading at unusually high premiums, this significantly impacts the retailer and investor pocket size,” notes Tejas Shigrekar, Chief Technical Research Analyst at Angel One. “The high premiums and volatility also implies higher tentative margins for trades.”Also Read | Silver’s white-hot rally triggers supply crisis as ETFs trade at shocking 10-15% premium
The Suspension Alarm
The chaos has prompted extraordinary action from fund houses. At least five major mutual fund companies have suspended fresh investments in silver ETFs. ICICI Prudential, Kotak Mutual Fund, SBI Mutual Fund, UTI Mutual Fund, and TATA Mutual Fund have all temporarily halted fresh subscriptions in their silver ETF Funds of Funds. HDFC Mutual Fund has restricted new subscriptions in its silver ETF FoF as well.
The suspension signals deep concern among fund managers about valuations. As one analyst put it, “Currently, we remain uncertain about how soon these premiums will normalise, coupled with unexpected high demand for the precious metal. Therefore, investors are advised to exercise caution when considering fresh investments in silver ETFs.”
What Should Investors Do Now?
The guidance from major fund houses is clear: stay on the sidelines for now. “We suggest that investors should avoid buying silver as of now and remain watchful for a few days,” Mirae Asset advised clients. “If the premium normalises or reduces by a reasonable level or if investors have a very bullish view on silver, so much so that these premiums don’t matter, then investors may choose to purchase a silver ETF after taking an informed call.”
This caution comes despite silver’s spectacular 2025 performance. Silver ETFs have more than doubled investors’ money this year, delivering over 100% returns—a run that made Thursday’s correction particularly jarring for those who rode the rally.
The Longer-Term Picture
Yet the corrective pressure shouldn’t obscure silver’s fundamental strength. Brokerage houses remain constructively positioned. Motilal Oswal projects consolidation around the $50-55 range over the next few months, with potential peaks reaching $75 per ounce by 2026 and sustained movement toward $77 per ounce in 2027 on COMEX. Assuming an average USD-INR rate around 90, this translates to silver potentially touching ₹2,40,000 by end-2026 domestically.
Bank of America has raised its silver target to $65 per ounce with an average of $56.25, even as it anticipates an 11% decline in demand next year. The bank cited continued supply shortfalls, with the Silver Institute projecting the metal is on track to record its fifth consecutive year of structural market deficit.
From a technical standpoint, silver has achieved a milestone. “Surging past the psychologically significant $50 per ounce level for the first time in over a decade indicates strong participation during rallies,” according to Angel One’s analysis. Silver reached $53 levels (₹1,62,700), with the next resistance zone identified at ₹1,71,000-1,72,700 ($57.40-$59). If momentum continues and these levels are sustained, aggressive targets of ₹1,86,000-1,93,000 ($66.30-$70) come into view.