Gold ETFs fall over 1%, silver ETFs drop up to 3%; what investors must know about the sell-off

Fresh updates from the financial markets indicate that Silver ETFs came under heavy selling pressure on the National Stock Exchange (NSE) on Friday, September 11, with the top three losers falling nearly 3 percent or more by 3:20 pm IST.

Mirae Asset Silver ETF (SILVERAG) was the biggest decliner among silver ETFs, falling 3.17 percent to Rs 220.70, down Rs 7.23 from its previous close. SBI Silver ETF (SBISILVER) followed with a 3.11 percent slide to Rs 222.02, losing Rs 7.13. Nippon India Silver ETF (SILVER) declined 2.96 percent to Rs 226.58, down Rs 6.91.

The selling was broad-based across silver ETFs. HDFC Silver ETF (HDFCSILVER) declined 3.09 percent, while Silver IETF (SILVERIETF) declined 2.95 percent.

Gold ETFs additionally traded softer, though the decline was less sharp. Choice Gold ETF (CHOICEGOLD) declined 1.28 percent to Rs 149.89, while 360 ONE Gold ETF (GOLD360) declined 1.04 percent to Rs 147.60.

Why are ETFs falling more sharply?

The ETF price reflects movements in the underlying metal as well as immediate market positioning, liquidity and earnings-taking.

"After the substantial surge in precious metals, market participants who had accumulated ETFs at softer marks have an incentive to lock in earnings when yields and the dollar suddenly climb. This is particularly relevant for silver because its recent surge has been much stronger and more speculative than gold's," stated Nirpendra Yadav, Sr. Research Market observer at Bonanza.

Experts stated the more than 1 percent decline in gold ETFs and nearly 3 percent slide in silver ETFs appear primarily to reflect a macro-fuelled correction in precious metals rather than a fundamental collapse in the metals story.

What is driving the sell-off in gold and silver ETFs?

Yadav pointed to four key factors behind the sharp slide.

Crude prices have become a major pressure point. Brent crude surged towards $110 a barrel amid escalating Middle East, US-Iran and Red Sea supply concerns. Elevated crude prices are feeding directly into inflation expectations and have changed the interest-rate outlook. Instead of markets confidently expecting easier monetary policy, market participants are now pricing in a greater possibility of rates staying elevated for longer. Current market pricing reportedly puts the probability of a Fed hike at around 70 percent.

US Treasury yields have jumped sharply. The US 10-year yield is approaching 5 percent, making interest-bearing assets more attractive compared with gold, which does not generate income.

The dollar has strengthened. The dollar index moved towards 99, its strongest level in roughly a week. A stronger dollar generally puts additional pressure on dollar-denominated gold and silver.

Silver is suffering more because it is the elevated-beta metal. Silver has both monetary and industrial characteristics. After its firm surge, earnings-taking can as a result be much sharper than in gold. The smaller and less liquid silver market can additionally amplify price movements.

So, while silver ETFs have fallen by around 3 percent and gold ETFs by more than 1 percent, the move does not necessarily mean the longer-term investment case for the metals has broken down. Instead, the slide appears to be a sharper correction following the recent surge.