Silver ETFs Rise: What Should Investors Do?
On X, financial planners are warning investors to hold buying Silver Exchange Traded Funds that are currently trading at a massive 8% to 18% premium.
Conversations on X about Silver Exchange Traded Funds (ETFs) have spiked as the funds trade at premiums of 8% to 18% above their net asset value (NAV). Financial planners are warning investors to hold off on buying until prices stabilise.
The premiums mean buyers are paying well above the actual value of the silver the ETFs hold. The reason is a shortage of physical silver bars, which has disrupted the usual mechanism that keeps ETF prices in line with the metal they track.
Under normal conditions, large investors perform arbitrage: they buy silver, sell ETF units, and profit from the difference, bringing prices back in line with the NAV. Currently, this process is failing. Market makers cannot obtain enough silver to exchange for ETF units, leaving prices elevated.
Deepak Shenoy of Capital Mind explained that the shortage has created a scarcity of sellers. “With low physical silver available, a market maker isn’t able to do this, so there are not enough sellers in the market,” he said.
Rajneesh Jha of Vitta Capital said investors should avoid chasing inflated prices. “Such imbalances don’t last long — when supply normalises, ETF prices can drop sharply even if silver prices stay flat,” he added.
The premium has influenced fund strategies. Kotak Mutual Fund has stopped accepting fresh lump-sum investments in its Silver ETF Fund of Fund to prevent investors from buying into overvalued units. Financial planners are urging investors to wait until premiums ease before making large purchases.
Santosh Meena, head of research at Swastika Investmart, pointed out that this decoupling of ETF prices from their NAV has become a curious pattern in India's silver market. "Silver ETFs like Nippon India and ICICI Prudential are trading at notable premiums. This is driven by low trading volumes and extremely bullish sentiment," he said.
