Silver ETF correction: ETFs plunge driven by sentiment shift, not fundamentals, say analysts

Silver prices extended their sharp correction on Thursday, January 22, as investors aggressively unwound safe-haven positions following easing geopolitical tensions and a strengthening US dollar. While declines in physical and futures markets remained relatively modest, the selloff was most pronounced in silver exchange-traded funds (ETFs), underscoring the role of sentiment, positioning and liquidity rather than a sudden shift in underlying demand fundamentals.

On the Multi Commodity Exchange (MCX), March silver futures slipped around 2% in early trade. In contrast, silver ETFs recorded steep losses, with the Nippon India Silver ETF, ICICI Prudential Silver ETF and Kotak Silver ETF tumbling between 10% and 14%, and at points plunging as much as 19–20% during morning trade. These funds fell below their indicative net asset values (iNAVs) as unusually high premiums built up during the recent rally rapidly evaporated and turned into discounts.

Correction after all-time highs

The correction followed a strong surge earlier in the week that pushed silver prices to record highs. International spot silver was trading near $92.27 an ounce, down from a peak of $95.87 touched on Tuesday, but still hovering near elevated levels. The comparatively limited decline in spot prices and MCX futures suggests that the day’s volatility was concentrated largely in ETF markets, where speculative premiums were unwound swiftly.

Market participants said the pullback was triggered by an improvement in global risk appetite and a retreat from defensive trades. Safe-haven demand cooled after US President Donald Trump clarified that the United States would not use military force over Greenland and signalled he would refrain from imposing tariffs scheduled for February 1 after reaching an understanding with NATO. These developments reduced near-term geopolitical and trade-war concerns, supported the US dollar and weighed on dollar-denominated commodities such as gold and silver.

Justin Khoo, Senior Market Analyst – APAC at VT Market, said the sharp slump in precious metal ETFs reflected a sudden shift in macro sentiment rather than a breakdown in long-term fundamentals. “Prices had been bolstered by record demand as geopolitical and trade tensions drove safe-haven buying. As those risks eased and equity markets rallied, investors moved to book profits and rebalance risk,” he said, adding that the strengthening dollar further pressured bullion-linked assets.

Dr Ravi Singh, Chief Research Officer at Master Capital Services Ltd, said the correction was a direct result of profit booking and the unwinding of safe-haven positions. “Following Trump’s clarification on Greenland and tariffs, concerns around trade war and geopolitical risks declined sharply. Gold and silver had rallied earlier on risk-off sentiment driven by war and tariff threats, and today’s fall reflects investors locking in gains,” Singh said.

Should you buy silver now?

On whether the correction offers a buying opportunity, Singh urged caution amid heightened volatility. “It is best to avoid opening large positions in gold and silver at this stage. Given the steep and volatile movements, markets may still move lower,” he said. He advised investors to wait for clearer price stability before committing fresh capital. For long-term investors, Singh said a disciplined approach such as a monthly SIP in gold funds could help manage timing risk. “SIP-based investing enables cost averaging by buying more units during dips and fewer during rallies, smoothing out overall costs,” he said.

Aditya Agrawal, CFA and Chief Investment Officer at Avisa Wealth Creators, echoed similar views, noting that the sharp ETF declines were driven more by sentiment and liquidity than fundamentals. He said long-term investors could consider staggered allocations within defined asset-allocation limits, while short-term traders should remain cautious amid ongoing volatility.

What lies ahead

Looking ahead, investors are closely tracking US Personal Consumption Expenditures (PCE) inflation data and weekly jobless claims due later in the day for cues on the Federal Reserve’s policy outlook. While markets broadly expect the Fed to hold interest rates steady in January, expectations around the timing and pace of rate cuts later in the year remain fluid, adding another layer of uncertainty for precious metals.

Despite the day’s turbulence, some market participants remain constructive on silver’s medium-term outlook. Ponmudi R, CEO of Enrich Money, said COMEX silver continues to trade firm near the $92–$93 range after recently touching record highs above $95.80. “The rally has been driven by robust industrial demand from sectors such as solar energy, electric vehicles, artificial intelligence and electronics, along with tightening global supply,” he said.

From a portfolio perspective, Singh stressed that precious metals should be viewed primarily as risk-management tools rather than return-generating assets. “Gold and silver help in diversification and capital preservation during inflation, rupee depreciation and geopolitical stress, but exposure should be moderate,” he said. He added that frequent rebalancing and avoiding over-concentration at elevated price levels are crucial to managing risk.

Analysts said silver is likely to remain volatile in the near term, with prices closely tracking currency movements, shifts in global risk sentiment and any renewed geopolitical triggers that could once again revive safe-haven demand.