Silver ETFs offer 11% returns in one month. Should you invest?


Silver ETFs, the newest entrant in the mutual fund industry, are topping the return charts in one- and three-month horizons. The category has offered 11.69% returns in one month and 12.23% returns in three months. The category has a total of 12 ETFs and FOFs at the moment. Analysts believe that silver ETFs might gain from many global and domestic tailwinds.

Silver has witnessed sharp volatility since the start of this year, marking a high of Rs 73,000 and a low of 51,500. Silver has the trait of both precious as well as industrial metal and currently both these variables are triggering the rise in the white metal. Commodity analysts say that the rise in geo-political uncertainty, a jump in physical demand, increased the safe haven appeal for silver; while on other hand, supply tightness, energy crisis leading to a shut-down of mines in Europe, China led to a rally in base metals, which supported an up-move in silver as well.

“Silver’s demand has seen a significant jump this year. On the domestic front, silver imports have already crossed the 8000 tonnes mark. According to the silver institute, demand in India almost doubled in 2022 as buyers took advantage of low prices to replenish stockpiles drawn down in 2020 and 2021. Amidst this surge in demand, the amount of silver stored in vaults in London and New York monitored by the COMEX has fallen by around 25% this year. The institute is expecting strong demand from industries such as solar panel and auto makers and more silver supply deficits in the coming years, but not as large as in 2022,” says Navneet Damani, Senior VP – Commodity Research at Motilal Oswal Financial Services.

Fund managers believe that silver demand can stay exaggerated for some more time and the funds will see higher returns. However, they also say that the metal can be volatile.
“Global silver demand is expected to rise by 16% this year and reach a fresh high of over 37,000 mt. Surge in silver consumption is led by record industrial, physical and jewelry demand this year. Growth in global industrial demand is driven by EV, solar, 5G and green-tech. Demand for silver in India has exploded this year and may cross 10,000 mt. in 2022. The global silver market is expected to be in a multi-decade high deficit in 2022. There has been a substantial drawdown in global silver inventories,” says Vikram Dhawan, Head Commodities & Fund Manager, Nippon India Mutual Fund.

As inflationary concerns continue to be an overhang for major asset classes, central banks globally have taken an aggressive stance on interest rates. Analysts believe that it is important to remain cautious as more rate hike expectations in the short term could continue to cap the gains for metals. In the longer term scenario, advancements in green technology like EV batteries, solar panels and few others will be a strong tailwind for silver.

“Silver on the domestic front has given 18% return from the lows, it marked on Sep ’22; similarly major Indian silver ETFs have given a return 15% from the lows. While on a monthly basis on an average Silver ETFs have given a return of 5% boosting the market sentiment for the metal. Silver ishares (iShares is a grantor trust which provides investors with a simple and cost-effective method to gain exposure to the price of silver) on other hand have given a return of -11% on YTD basis. Hence, with lower prices, narrower spread difference in gold and silver prices, sell off from COMEX warehouses, spike in physical demand is leading to this rise in investment in silver, on the domestic front,” says Navneet Damani.

Mutual fund advisors say that silver can be more volatile than gold and it also does not work as a hedge against stock market volatility. Hence, retail investors should be cautious while investing in these ETFs and FOFs.

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