Duty Hike Buzz To Speculation Drive: Why Silver ETFs Are Trading At A Premium

Silver ETFs in India are currently trading at a premium to their Net Asset Value (NAV), driven by a combination of import duty hike rumours, sharp movements in the futures market and strong speculative interest, as per experts. Prices across major Silver ETFs have jumped sharply in a single session, ICICI Prudential Silver ETF jumped over 6.4% on NSE to Rs 313.91, while its BSE counterpart rose 6.1% to Rs 313.74.

UTI Silver ETF gained around 5.5% to Rs 299.99 on NSE and Rs 300.22 on BSE. Aditya Birla Sun Life Silver ETF climbed nearly 5% to about Rs 308.95 on NSE and Rs 308.96 on BSE. Nippon India Silver ETF advanced over 5.1% to Rs 297.50, while Zerodha's Silver ETF (Silvercase) surged 5.7% to Rs 31.55. Kotak Silver ETF also moved up over 4% to Rs 297.33.

Market experts say that the speculations that the government could raise import duty on silver has prompted investors to buy exposure early, as any hike would push domestic prices higher. Investors are increasingly turning to silver ETFs as a simple and liquid way to gain exposure, and this sudden surge in demand has pushed ETF prices above the value of the silver they hold.

Adding to the rally is short covering by traders who had earlier bet on a fall in silver prices but were forced to buy back their positions as prices moved up, further increasing buying pressure in the market.

According to a senior mutual fund official, the current rally is being driven largely by financial flows rather than actual physical demand. He said "If you look at last month, December saw Rs 15,000 crore of inflows into gold and silver ETFs, compared to just Rs 5,000 crore in November. Actual physical demand is not that strong," the official said, adding that gold jewellery demand has fallen by 15-20% and physical supply remains abundant.

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He said silver's sharp rally, nearly 50% in a month, has encouraged speculative behaviour, with investors willing to pay higher prices and even use leverage to gain exposure. He also pointed out that the cost of owning silver in the futures market has risen sharply due to high volatility, with implied volatility in options as high as 50-70%, showing how speculative the market has become.

Navneet Damani Head of Research Commodities Motilal Oswal Financial Services said the premium is also linked to a mismatch between MCX futures prices and physical market rates. "The derived price should be around Rs 2.95 lakh, but the physical market is trading near Rs 3.25 lakh, which means there is a premium of about Rs 30,000," he said.

Damani also pointed out that late-evening rallies in MCX futures have inflated ETF prices. "MCX moved up by nearly 12,000 points after market hours and another 10,000 points today, and ETFs reflect that movement, which is why they appear to be trading at a premium," he said, while noting that compared to the latest MCX price of around Rs 3.30 lakh, ETF prices near Rs 3.15 lakh are still adjusting.

Overall, experts say the current silver rally is being driven more by speculative financial flows than real-world demand, with high volatility, leveraged futures positions, heavy ETF inflows and expectations of further price gains creating a disconnect between financial and physical markets.

"There is mispricing because of hyperactivity, higher option prices and speculative demand," the senior mutual fund official said, and until physical demand strengthens or speculative activity cools, silver ETFs are likely to continue trading at a premium.

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