Silver Vs ETFs
Silver delivered a strong performance between January 19 and January 22, posting double-digit gains and reaffirming its status as one of the better-performing commodities this cycle. Supported by firm industrial demand, persistent supply constraints, and its dual role as an industrial metal and monetary hedge, the move was fundamentally healthy rather than speculative. While short-term pauses are normal within an ongoing bull phase.
A large section of investors who chose to participate through silver ETFs ended the period with returns that were materially lower than the performance of silver itself. Some even saw sharp drawdowns toward the end of the week, despite no comparable weakness in the commodity.
The First Signal: Price Moves That Didn’t Match the Asset
The above table compares daily price changes in MCX Silver with those of five major silver ETFs. The contrast is immediately visible. While MCX Silver posted strong cumulative gains over the period, ETF returns were uneven and, in aggregate, remained in single-digit.
More importantly, on the final day of the period (i.e., January 22), silver prices held firm while several ETFs corrected sharply. This is not a comment on volatility alone. It is a reflection of a deeper issue: the gap between asset performance and investor outcome.
Where the Gap Emerged: Trading Price vs True Value
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The second table shows the premium or discount at which silver ETFs traded relative to their Net Asset Value.
During the rally, several ETFs traded consistently at elevated premiums. In simple terms, investors were paying more than the value of the silver held by the fund. This excess did not represent higher silver prices. It represented pressure created by rapid buying and limited liquidity.
As buying intensity eased, prices gravitated back toward NAV. That adjustment reduced ETF prices even though silver prices remained resilient. The outcome felt like a loss, but it was not caused by silver. It was caused by how the entry was executed.
How Mispricing Turns Into Volatility
The third table captures intraday volatility, measured as the high-low range relative to the closing price. Here, the pattern becomes even clearer. Silver ETFs showed significantly wider intraday ranges compared with MCX Silver, particularly on the day premiums reversed. This isn’t accidental. Volatility rises when prices drift from value, even though the underlying asset remains stable.
What This Means for Investors
For investors, the lesson is practical rather than theoretical.
** Always compare the ETF market price with the indicative Net Asset Value (i-NAV) before buying.
** Avoid entries when premiums stretch meaningfully above fair value.
** Prefer staggered participation over urgency-driven buying.
Expense ratios are predictable and gradual. Premiums are immediate and reversible. The difference between the two can decide whether a rally translates into wealth or frustration.
ETFs remain effective instruments when price discovery is orderly. When it is not, outcomes become uneven — even in rising markets. So, participating in a bull market is not only about choosing the right asset. It is also about ensuring that the chosen instrument allows the investor to actually receive the return the asset delivers.
A Larger Market Consideration
Episodes like this highlight a structural gap in market design. When traded prices drift too far from the underlying value, volatility spikes, and outcomes increasingly disadvantage less-informed investors. Markets work best when price and NAV stay closely aligned, keeping volatility contained while allowing rallies to play out smoothly.
From a regulatory standpoint, a few market-friendly measures could meaningfully improve outcomes:
** Encourage tighter alignment between ETF market prices and i-NAV through clearer premium–discount tolerance bands. A clear realignment of circuit filters of ETFs and its underlying commodity (silver in this case) market should be looked into.
** Introduce calibrated daily price range limits to prevent sharp, value-detached moves during periods of heavy flows.
** Strengthen real-time i-NAV visibility to aid better price discovery for retail participants.
Such measures would be in line with the motto of the regulator: enhance stability, protect investors’ interests, participation, and reinforce confidence without restricting access or innovation.
Closing Thought
Silver moved in the right direction this week. The difference lay in how efficiently that reward reached investors. Understanding the difference between market direction and market structure is no longer optional. It is essential. Because in modern markets, returns are earned not only by being right on the asset, but by choosing the right way to own it.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.