Silver price rally, Silver ETF premiums: What are they hinting at?

With Kotak Mutual Fund temporarily suspending fresh lumpsum and switch in subscriptions in Kotak Silver ETF Fund of Fund, many investors are wondering whether silver prices have moved ahead of fundamentals. 

Silver hit a high of Rs 1,58,112 per kg in the spot market on Thursday, data compiled from MCX suggested. Silver ETFs, on the other hand, are trading at significant premiums over their indicative NAVs.  

Apurva Sheth, Head of Market Perspectives and Research at SAMCO Securities said the same silver was being ignored when it was languishing below Rs 1 lakh but investors are now rushing to buy Silver ETFs, even if it means paying a hefty premium over their indicative NAVs.

In a note, Sheth said top-traded silver ETFs like SBI Silver, HDFC Silver, and Axis Silver are up between 9 per cent and 13 per cent, at significant premiums to their NAVs. 

"The frenzy is so strong that while ETFs are soaring in double digits, MCX Silver December futures actually slipped 0.6 per cent — showing that retail enthusiasm, not fundamentals, is driving the price chase," he said.

Sheth said this is a classic case of FOMO buying that mirrors what one often sees near short-term peaks, when investors realise too late that they missed the rally.

Silver has support at Rs1,45,450-1,44,650 while resistance at Rs1,47,550 and  Rs 1,48,450 levels, said Rahul Kalantri, VP Commodities at Mehta Equities.

Kotak, while announcing temporary suspension in Kotak Silver ETF Fund of Fund, said it is primarily because of a shortage of physical silver in the domestic market, due to which silver is trading at a premium relative to international prices. The premium in domestic silver prices, it said, directly impacts the valuation of the scheme.

"Keeping in mind the high spot premium for Silver over the import parity price, Kotak MF is suspending lump sum subscription in Kotak Silver ETF Fund of Fund," Nilesh Shah of Kotak AMC said.

"Whenever the spot premium aligns with the import parity price, the fund of fund will open for subscription as we continue to maintain a bullish outlook on Silver as an asset class on a long-term basis," Shah said.

Investors should treat gold and silver as stability assets, not as return drivers, FinEdge’s Harsh Gahlaut told Business Today. 

"Their role in a portfolio is to provide diversification and act as a hedge during periods of volatility. Allocations should remain modest because overexposure can compromise long-term growth. The key is to avoid making decisions solely based on recent performance and to view these metals as part of a disciplined asset allocation strategy," he said.