Buying silver? CFP sounds alarm over ETF moves investors shouldn’t ignore

India’s silver ETFs are trading at premiums as high as 18% over their intrinsic value, stoking concerns among advisors as silver prices hit four-decade highs amid global shortages.

With silver surging past $50 an ounce for the first time since the 1980s and demand outpacing supply worldwide, Indian investors are pouring into silver exchange-traded funds (ETFs). But the scramble has pushed ETF prices significantly above their fair value, raising red flags.

As of 10:26 a.m. on October 9, data from the National Stock Exchange showed top-performing silver ETFs trading at substantial premiums to their Indicative Net Asset Value (iNAV). Axis’s AXISILVER was priced 9.92% higher than the previous close, with a startling 14% premium to its iNAV. HDFC's HDFCSILVER was up 9.96%, trading at a 12% premium. TATA’s TATSILV ETF led percentage gains with a 10.61% jump, reflecting an 18% premium—highest on the table.

"Be careful while buying silver currently," certified financial planner Kirtan Shah warned. "ETFs are trading at a 15–18% premium to fair value."

The spike stems from a deepening global supply deficit. Industrial demand from sectors like electronics and solar tech, along with festive buying in India, has stretched inventories. Physical silver delivery lags are now common, and traders are demanding premiums for immediate supply.

While ETFs offer convenience and liquidity, they are backed by physical silver reserves. In strained supply conditions, their prices can decouple from actual silver value, exposing investors to tracking risk. If ETF premiums suddenly collapse—regardless of silver prices—investors may face short-term losses.

Conversely, buying physical silver offers more direct exposure but carries storage, purity, and liquidity challenges.

The supply imbalance may persist, analysts say, but ETF premiums remain volatile. Investors are advised to match their strategy to their horizon: physical silver for long-term holding, ETFs for short-term trading—with eyes wide open.