Gold and silver-linked ETFs staged a smart recovery. However, given the extent of the fall, it surely made investors skeptical. However, leading fund managers believe that ‘panic’ is not the right response in this type of situation. Especially for gold, they believe the risk-reward situation is attractive at the moment.
MCX silver futures for March 5 closed at Rs 2,68,234 per kg on February 3, rising 13.63% on the day, while gold futures for April 2 settled at Rs 1,52,200 per 10 grams, up 5.70%. The recovery followed heavy selling over the previous sessions, when sentiment turned sharply negative despite no meaningful change in underlying fundamentals.
The fall that looked scarier than it was
The sharpness of the decline created the impression of a breakdown, especially in silver-linked products. On February 2, the top three silver ETFs logged deep cuts. Tata Silver ETF dropped nearly 19% from its previous close, while HDFC Silver ETF and Bandhan Silver ETF slid about 15% each. MCX silver futures also fell more than 3% in a single session, adding to the sense of disorder across silver exposures.
Satish Dondapati, Fund Manager – ETF at Kotak Mutual Fund, said the sell-off was widely misunderstood. “Investors should know why the prices are falling. They should not sell in panic. For example, in gold and silver, the recent fall has no fundamental reason. Prices had gained close to 100% in a short period of time, so a fall was expected. Along with that, some geopolitical issues eased recently, and there was profit-booking by investors.”
That context often got lost as prices slid rapidly over three sessions, even though the move followed a steep rally rather than a deterioration in supply-demand dynamics.
What actually happened inside ETFs
A common assumption during corrections is that ETF selling amplifies the fall. Dondapati pushed back on that reading. “Regarding ETFs, every ETF is backed by physical gold and silver. There are no futures involved. We have not seen significant redemptions in the last few days due to this fall. In fact, people are trying to buy at lower levels or average their positions. So, not much panic selling is happening through ETFs. This is the same for both silver and gold.”
The distinction matters because ETF prices are often blamed for exaggerating volatility. In this case, the structure worked as designed, tracking spot moves without forced liquidation pressure.
Why silver crack or jumps harder than gold always
Silver’s steeper fall, and equally sharp rebound, again displayed its different behaviour profile. “Silver always rises or falls harder than gold because it is an industrial product. The demand and supply can change very quickly. Most people also use silver for speculation,” Dondapati said.
He added that paper positioning plays a major role globally. “For every one ounce of silver, there are around 350 to 400 contracts of paper silver. Futures prices are mostly driven by speculation, which is why silver is more volatile than gold. Gold is seen as a safer investment. Central banks have been buying gold since 2022… Today, roughly one-third of gold demand comes from central banks.”
Siddharth Srivastava, Head – ETF Product & Fund Manager at Mirae Asset Investment Managers (India), said the divergence has implications for positioning. “Gold has corrected meaningfully, so from a risk-reward perspective, it looks more appealing. Silver can continue to be more volatile.”
That difference showed up clearly between January 30 and February 2, when silver collapsed far more aggressively than gold, before staging a faster bounce on February 3.
Gold ETFs moved higher across the board on February 3 after the prior sessions of weakness. Invesco India Gold ETF led the rebound, closing at Rs 13,204.95, up 7.83%. Axis Gold ETF rose 7.21% to Rs 126.45, while 360 ONE Gold ETF gained 7.09% to Rs 149.60. HDFC Gold ETF, Baroda BNP Paribas Gold ETF, Kotak Gold ETF, Groww Gold ETF, Nippon India Gold BeES, and Motilal Oswal Gold ETF posted gains ranging between about 4.7% and 6.6%.
Silver ETFs moved even more sharply. Mirae Asset Silver ETF surged 15.43% to Rs 254.36. HDFC Silver ETF climbed 15.34% to Rs 248.22, SBI Silver ETF rose 14.54% to Rs 253.77, while UTI Silver ETF and Tata Silver ETF advanced 14.04% and 13.51% respectively. The size of the one-day move showed how quickly sentiment can turn once selling pressure eases.
The trigger points behind the correction
Dondapati linked the intensity of the move to positioning rather than fundamentals. “The intensity of this correction is partly due to speculation. Paper silver in the global market is much higher than physical silver. Another trigger was the announcement of a new US Federal Reserve chairman. The expectation of aggressive rate cuts vanished, which caused selling in gold and silver.”
As those expectations reset, prices stabilised and buyers returned, leading to the sharp recovery seen on Tuesday.
How allocation decisions come into play during sharp corrections
The January 30–February 2 slide, followed by the rebound on February 3 & 4, has pushed allocation discipline into focus rather than attempts to identify exact entry points. Dondapati said such phases are not suited to precision calls. “It is very difficult to tell the correct time or price to enter. We advise investors to maintain at least 15–20% of their allocation in precious metals. Aggressive investors can keep a higher proportion in silver, while conservative investors can keep more in gold.”
He cautioned against deploying capital in one tranche after violent price moves. “Invest gradually rather than in lump sums. Even after a fall, investing in a staggered manner is the best approach. Keep your portfolio allocation in check and rebalance whenever necessary.”
How physical pricing really works in ETFs
Srivastava said confusion around premiums and discounts often clouds judgment during volatile phases. “Both gold ETFs and silver ETFs hold physical bars of the respective metals. So any buying or selling involves actual physical metals. There was some margin difference between physical metal prices… Currently, they are at a discount. But whatever creation or redemption happens is mostly around domestic spot prices.”
He explained that sourcing follows strict standards. “ETFs buy LBMA-certified 1 kg, 995-purity bars for gold and 30 kg, triple-line purity LBMA-certified bars for silver from bullion traders. Transactions are priced based on the domestic spot market.”
What the rebound changes and what it doesn’t
The February 3 bounce does not remove volatility, particularly in silver, but it does reset positioning after the excesses of the previous rally. Dondapati said trying to pick exact entry points usually backfires. “It is very difficult to tell the correct time or price to enter.”
Srivastava said allocator-style exposure can reduce concentration pressure during such phases. “Silver can continue to be more volatile.”
Conclusion
Most analysts believe that the recent correction in prices is an opportunity for those who missed the rally earlier. The rebound made one thing clear: the correction was widely misread.
