Silver ETFs jump up to 6%, white metal reclaims $51 as Democrats win US midterms. What should investors do?

Silver exchange-traded funds (ETFs) rallied up to 6% on Wednesday as silver prices rebounded more than 4%, moving back above the $50-per-ounce mark. The recovery followed the Democrats’ victory in the US midterm elections, offering some relief to investors after the metal’s recent sharp decline.

Out of 19 silver-based ETFs, 14 jumped up to 6% each, including some names such as Nippon India Silver ETF, Tata Silver ETF, HDFC Silver ETF, Kotak Silver ETF, Axis Silver ETF and Mirae Asset Silver ETF.

The other five silver ETFs gained 5% each, and this list included names such as Zerodha Silver ETF, Edelweiss Silver ETF, Angel One Silver ETF, Bandhan Silver ETF and Quant Silver ETF.


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Shivam Pathak, CFP and Founder of Asset Elixir, told ETMutualFunds that Silver’s sharp rise has been supported by the US election outcome, a weaker dollar and declining bond yields.

However, silver remains highly volatile due to its dual role as an investment and industrial metal. Investors should avoid chasing the rally and consider staggered investments while keeping exposure limited in their portfolio, Pathak further said.

According to a report by ETMarkets, the rebound comes after silver plunged to an 11-month low earlier this week, slipping below $50 and entering oversold territory.

The political outcome also weighed on the US dollar and Treasury yields, providing support to precious metals. "We've seen gold benefit from the fact that yields and the dollar have dropped, and that's because of this opinion that the gridlock that could emerge between the executive and the legislature in the US now could slow the amount of spending in the US," Kyle Rodda, senior financial market analyst at Capital.com, told Reuters.

CNBC quoted Rhona O'Connell, head of market analysis for EMEA and Asia at StoneX, that a Democratic takeover of both chambers of Congress could support gold and silver by putting downward pressure on interest rates and the dollar.

She cautioned that such an outcome could bring fiscal brinkmanship and institutional friction, adding to uncertainty. The Iran war and a weaker dollar would also compete with the impact of a hawkish Federal Reserve.

O'Connell said the prospect of reduced fiscal stimulus could push long-term yields lower and weaken the dollar, although debt-limit premiums in Treasury bills and a Federal Reserve inclined towards another rate hike could offset some of that impact.

Rajesh Minocha, a Certified Financial Planner (CFP) and Founder of Financial Radiance, shared with ETMutualFunds that investors shouldn't rush to chase the gains in silver ETFs. Silver prices have always been erratic.

Minocha further said that factors related to global economics and even the use of silver in industrial manufacturing also influence prices. Rather than thinking of it as an opportunity for quick returns, it should be an insignificant addition to the portfolio only for the sake of diversification.

Way ahead for Silver

Global investment bank HSBC said silver prices had fallen to nearly $54 an ounce before stabilising. Although the metal retains some potential to appreciate, the brokerage expects further gains to be limited.

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HSBC believes silver is trading close to levels justified by its fundamentals and maintains a mildly positive view on the metal. However, industrial and jewellery demand are expected to weaken further. Institutional buying, particularly from China and India, is likely to support demand for large silver bars.

Demand for coins and smaller bars could also improve, although the recovery may be gradual as high prices continue to deter buyers. Silver exchange-traded funds (ETFs), which saw outflows earlier this year, have also started rebuilding their holdings.

Silver could gain if the anticipated interest rate hikes do not materialise. Fiscal profligacy and geopolitical risks are other factors expected to support prices.

On the supply side, silver production is expected to increase despite difficulties in expanding mine output at higher prices. Since most mined silver is produced as a by-product of gold and base metals, producers have limited ability to quickly increase output in response to rising prices.

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

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