Gold, silver ETFs sink up to 10%, extend rout for second day. Should investors tap out?

Silver- and gold-based commodity ETFs fell up to 10% on Friday after precious metal futures traded sharply lower on the MCX, extending losses for a second consecutive session.

The decline followed a global sell-off in technology stocks and a strengthening US dollar, which erased most of the gains from a brief rebound earlier in the week.

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On Friday, the Kotak Silver ETF led the losses, sliding 10%, while the HDFC Silver ETF, SBI Silver ETF and Edelweiss Silver ETF fell about 9% each. Bandhan Silver ETF recorded the smallest decline, down around 6%.

Among gold ETFs, the Angel One Gold ETF slipped 8%, followed by the Zerodha Gold ETF, which declined 5%.

Hareesh V, Head of Commodity Research at Geojit Investments, told ETMutualFunds that gold and silver remain highly volatile after last week’s steep plunge, which was triggered by hawkish Federal Reserve expectations following Kevin Warsh’s nomination, a stronger US dollar, and sharp margin hikes by the CME that forced leveraged positions to unwind. Profit-taking after record highs further amplified price swings, keeping market sentiment fragile.

Advising investors on the way forward, Hareesh said bullion investors should remain patient and avoid reacting to short-term volatility driven by margin hikes, profit-taking and policy uncertainty.

“Gradual, staggered accumulation can help manage timing risks as long-term fundamentals such as geopolitical tensions, central bank demand and currency pressures remain supportive, while closely tracking the US dollar and upcoming Federal Reserve signals is crucial to navigating the current phase of heightened volatility,” he said.

In Friday’s session, MCX silver futures for March 5 delivery plunged 6%, falling Rs 14,628 to Rs 2,29,187 per kg. Gold futures for April 2 delivery also came under pressure, slipping Rs 2,675, or 2%, to Rs 1,49,396 per 10 grams.

Silver has remained extremely volatile in global markets. Prices rebounded as much as 3% after plunging 10% to below the $65 level, a more than six-week low. Despite the rebound, the white metal was still down nearly 16% for the week. In the previous week, silver had shed 18%, marking its steepest weekly decline since 2011.

The sharp selloff spilled over into domestic ETFs as well. On Thursday, commodity-based ETFs fell as much as 21%, led by silver ETFs, which plunged up to 21%, while gold-based ETFs declined up to 7%.

The steep fall followed a series of margin hikes in precious metal futures. Margins on silver futures were raised by 4.5% and on gold futures by 1%, effective February 5. This was followed by an additional hike of 2.5% on silver futures and 2% on gold futures, which came into effect on Friday.

As a result, the total additional margin now stands at 7% for silver futures and 3% for gold futures from February 6 onward.

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Akshat Garg, Head – Research & Product at Choice Wealth, told ETMutualFunds that silver has corrected largely because prices had risen too quickly over a short period. During such phases, short-term selling pressure and lower liquidity can also make ETF prices look weaker. He added that the recent fall reflects price adjustment and profit-booking rather than any sudden deterioration in silver’s fundamentals.

“There’s no need for panic. Silver is a volatile asset and sharp ups and downs are part of the journey. One correction does not change the long-term relevance of silver, but it does remind investors why position sizing matters,” Garg said.

He advised investors to avoid chasing prices or reacting to day-to-day movements. “If someone wants exposure, staggered buying is a far more sensible approach than lump-sum investing, especially in a volatile phase like this. For long-term investors, this phase calls for patience and discipline rather than action."