Silver ETFs down by 7% as demand eases; market price slips below iNAV

After months of relentless rally and investor frenzy, silver seems to be cooling down. Silver Exchange Traded Funds (ETFs), which delivered stellar one-year returns of 65–70 return, witnessed a sharp correction on October 20 as prices cooled globally following an improvement in physical supply.

Silver turned hot early October when global spot prices surged past $40 an ounce, triggered by a possible physical shortage of the precious metal. It extended the rally, crossing $50 in mid-October. The rally, however, reversed toward the end of last week, as easing trade tensions capped safe-haven demand. On October 17, silver prices fell over 6 percent in the US, the correction spilled into the Indian market as well.

According to the India Bullion and Jewellers Association (IBJA), silver prices in India fell 7 percent on October 20, dropping from Rs 1,71,275 a kg to Rs 1,60,100 per kg. The fall impacted silver ETFs, which mirror domestic prices.

Silver ETFs fall up to 7.5% in a day

Data from Ace MF shows that silver ETFs logged steep single-day declines, with most funds falling upto 7 percent on October 20.

ICICI Prudential Silver ETF was down 6.96 percent, while Axis Silver ETF slipped 6.93 percent. Nippon India Silver ETF (SilverBees), the largest and most traded silver ETF in India, also declined 6.94 percent in a single session. Other large funds also dropped, highlighting a broad-based correction.

Premium over iNAV

At the same time, the unusual premium at which Indian silver ETFs were trading over their iNAV (intraday net asset value) has now disappeared, a sign that the market is normalising.

Just two weeks ago, heavy inflows and limited liquidity had pushed silver ETFs to trade at premiums of 10–13 percent over their iNAV, meaning investors were overpaying for exposure.

A check on the NSE shows

• Nippon SilverBees traded at Rs 148.79 vs iNAV Rs 152 at a discount
• ICICI Prudential Silver ETF traded at Rs 153.68 vs iNAV Rs 164.79
• Axis Silver ETF traded at Rs 154.62 vs iNAV Rs 163.99

In other words, ETFs are finally trading at fair value or even at a discount, a key signal that demand has moderated. Several mutual funds such as Kotak Mutual Fund, SBI Mutual Fund, UTI Mutual Fund, Groww Mutual Fund, Tata Mutual Fund ICICI Prudential Mutual Fund, Aditya Birla Sun Life MF and HDFC Mutual fund suspended transactions in their silver ETF FoFs when the prices stopped trading at a fair value.

With the physical shortage easing, premium in India’s silver market has dropped.  Moreover, after premiums spiked, market makers stepped in to create new ETF units, which reduced price distortions. HDFC Mutual Fund has now restored full subscription access to its HDFC Silver ETF Fund of Funds.

The rally has paused but not ended. Global investment demand, solar manufacturing, and industrial usage remain strong structural drivers. For long-term investors, the disappearance of iNAV premiums may offer a more rational entry point.