Silver ETFs down 15% in 2 months: What's the reason?
What's the story
Silver exchange-traded funds (ETFs) have witnessed a steep decline in recent months, with losses of up to 15% in just two months. The downturn is attributed to a combination of global volatility, changing commodity dynamics, and regulatory developments. A new domestic pricing rule has also come into effect from April 1, further complicating the market scenario for silver ETFs.
Investment strategy
Portfolio rebalancing recommended for silver ETF investors
Market experts recommend rebalancing portfolios to mitigate losses from silver ETFs. Rahul Khetawat, Fund Manager at 360 ONE Asset, advised investors who entered at higher levels to consider their individual risk appetite, investment goals, and time horizon while rebalancing. He explained that the decline was triggered by China's crackdown on silver speculation and a major unwinding of leveraged positions.
Market factors
Broader macro headwinds affecting silver prices
Khetawat also noted that broader macro headwinds such as a stronger US dollar, softening of industrial demand expectations, and a wider risk-off sentiment in markets have contributed to the sharp correction in silver prices. Hrishikesh Palve, Director at Anand Rathi Wealth Limited, emphasized that investment decisions should not be driven by emotions but by asset allocation. He suggested that equity should remain the core of portfolios for long-term wealth creation.
Price dynamics
Silver ETFs posted negative returns in last 2 months
Palve explained that silver's strong speculative and industrial components make its price movements sharper on both the upside and downside. He said corrections after sharp rallies are quite normal for precious metals, which often see declines of 20-30%. This comes after a stellar year for silver, which delivered around 154% returns. The commodity-based ETFs have declined significantly over the last two months, with all 17 funds in the category posting negative returns ranging from 13.76% to 14.79%.
Regulatory change
New rule on silver ETF pricing comes into effect
From April 1, a new rule came into effect mandating mutual funds to use domestic spot prices for gold and silver ETF valuation. The move is aimed at making the pricing of gold and silver ETFs more relevant for Indian investors by reflecting local factors like currency movements, import duties, or domestic demand. Khetawat said this will not have a material impact as it's just a change in valuation methodology.