Gold and silver exchange-traded funds (ETFs) experienced a significant downturn on June 25, with prices sliding over 3% as both domestic and global bullion markets corrected sharply. This selloff, however, is being interpreted by market experts as a "volatility reset" rather than a fundamental collapse in the long-term investment case for precious metals.
Precious Metals ETFs See Steep Declines
Silver-backed ETFs bore the brunt of the market correction, plunging by nearly 3.81%. Specific funds like Nippon India Silver ETF (SilverBeES) dropped to Rs 205.23, while ICICI Prudential Silver ETF and SBI Silver ETF saw similar declines. Gold ETFs also traded lower, though their losses were comparatively milder, averaging around 2.0-2.7% across major schemes such as BNP Paribas Gold ETF, Kotak Gold ETF, and ICICI Prudential Gold ETF.
Factors Driving the Selloff
Analysts point to several key macroeconomic factors contributing to the decline. A strengthening US dollar, coupled with rising expectations for interest rate hikes by the US Federal Reserve, has reduced the appeal of non-yielding assets like gold and silver. Furthermore, the unwinding of safe-haven positions, which had accumulated during earlier periods of market uncertainty, also contributed to the selling pressure.
Harshal Dasani, Business Head at INVasset PMS, commented on the situation, stating, "The correction in gold and silver ETFs is not just a bullion price move; it is a reset in the rate trade. Precious metals are reacting to a stronger dollar, rising US rate-hike expectations, and the unwind of crowded safe-haven positions after a sharp rally earlier in the cycle."
Domestic and International Bullion Prices Tumble
The weakness in ETF prices directly tracked a sharp decline in bullion on the Multi Commodity Exchange (MCX). Silver futures contracts saw extreme volatility, initially plunging by nearly Rs 3,000 per kg before recovering some ground. Despite the rebound, silver prices had fallen by approximately Rs 17,000 per kg over the first four trading sessions of the week.
Gold futures also opened significantly lower, with the August contract briefly slipping to Rs 1,40,543 per 10 grams before recovering to trade closer to Rs 1,42,000. This domestic weakness mirrored trends in international markets, where spot gold extended losses after breaking below the $4,000-an-ounce mark for the first time in seven months.
Silver's Amplified Volatility
Dasani highlighted silver's particular vulnerability during this period. "Gold ETFs have corrected, but silver ETFs have underperformed because silver is a higher-beta metal. It carries both precious-metal demand and industrial-demand expectations, so when liquidity tightens and risk appetite fades, the fall is sharper," he explained.
Long-Term Outlook vs. Short-Term Volatility
Despite the recent dips, experts advise investors to differentiate between short-term market fluctuations and the long-term strategic role of precious metals in a diversified portfolio. "For Indian portfolios, this does not break the strategic case for gold. Gold still has a role as a currency hedge, geopolitical hedge, and portfolio diversifier," Dasani emphasized.
He cautioned that while gold remains a "cleaner defensive allocation," silver requires more discipline due to its amplified movements. "Silver can deliver sharper upside in a reflation cycle, but in a dollar-led tightening scare, it will also correct harder. This is a volatility reset, not a collapse in the long-term bullion thesis," Dasani concluded, urging investors to separate allocation from momentum.