Silver ETF Frenzy Cools As Physical Shortage Eases; Funds Trading At Discount

The frenzy around silver exchange-traded funds (ETFs) appears to be cooling, with most funds trading at a discount over the last two sessions.

This marks an end to the hot-air premiums at which the silver ETFs traded in the preceding five sessions, rising by 5-10% each, as the precious metal's demand soared amid a global shortage.

Silver ETFs started surging after Oct. 9, when global silver rates crossed $40 an ounce after the London Bullion Market Association pointed towards a shortage in physical silver.

Starting Friday, a reversal of this trend could be seen, as the ease in global supply has led to the tapering in global rates. The metal, on that day, slipped 6% during the trading in US spot market. India's Multi Commodity Exchange mirrored the decline, where December futures had slumped 10% in intraday trade.

Among prominent exchange-traded funds, ICICI Prudential Silver ETF was trading 7.34% lower at Rs 153.68 at 4:44 pm, whereas Nippon India Silver ETF was trading 7.33% lower at Rs 148.82. Both slipped below their indicative-net asset value. Similarly, SBI Silver ETF was trading 7.74% lower at Rs 151.8 at 4:55 pm, well beneath its i-NAV.

Till the past week, several mutual funds were halting fresh inflows into their silver fund-of-funds, amid the sharp squeeze in physical silver supply.

The supply, which began easing on Friday, led to a sharp decline in the metal's rate in the spot market. At the start of the week marking the onset of Diwali, silver was trading 6% lower at Rs 1,59,615 per kg.

At the time of publishing this article, the silver rate in US spot market stood at $51.79 an ounce, down 0.22% as against the previous day's close. On India's Multi Commodity Exchange, silver futures for December delivery were trading 1.3% lower at Rs 1,54,671 per kilogram.

Silver prices are likely to fall further, as the global market is now seeing a supply glut instead of a squeeze, according to Kumar Jain, national spokesperson for the India Bullion and Jewellers Association (IBJA).

The London Bullion Market Association (LBMA) has released additional quantities into the market, leading to a sudden price drop worldwide. "Silver sales have cooled off now. We don't see much demand after Dhanteras, and prices are expected to fall further," Jain said.