Silver ETFs Rally: Premiums Grow Despite Softening Futures
The ongoing surge in silver has captured the attention of retail investors and market watchers alike. On the National Stock Exchange (NSE), top-traded silver exchange-traded funds (ETFs) from providers such as SBI Mutual Fund, HDFC Mutual Fund, and Axis Mutual Fund have surged by roughly 9% to 13% in recent sessions. Yet their net asset values (NAVs) imply that these ETFs should be priced lower, suggesting investors are paying a premium of about 2% to 10% over the underlying silver value.
Meanwhile, in the futures market, MCX Silver December futures slipped about 0.6%, a contrast that points to a price rally driven more by investor sentiment than by immediate supply-demand fundamentals.
What’s Driving the Premium?
Analysts point to a classic case of “FOMO” or fear of missing out driving the current rally. Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities, characterized the surge as a retail-driven phenomenon where investors chase rapid gains. “Silver just hit ₹1.5 lakh per kg — and suddenly, everyone wants a piece of the metal. Investors who ignored silver below ₹1 lakh are now rushing into Silver ETFs, even if it means paying a hefty premium,” Sheth noted in a market commentary.
The premium reflects a combination of strong investment demand and tight physical availability. The Silver Institute projects a five-year deficit in supply, with total demand expected to outpace supply by around 100 million ounces in 2025. With industrial use rising in solar panels and electric vehicles, buyers are competing for a relatively scarce metal stock, which translates into higher ETF valuations relative to NAVs.
Supply Tightness and Global Deficit
Global analysts are not uniform in their short-term price forecasts, but several institutions warn that the market could remain tight. Nomura has flagged a potential global shortfall of about 142 million ounces this year, with near-term prices possibly hovering in the $50–55 per ounce band. Julius Baer similarly sees a range of $52–58, citing expectations of ongoing demand alongside lower real interest rates. These projections suggest that while the price narrative remains constructive, the magnitude of the premium on ETFs is more a reflection of sentiment and market structure than a traditional re-pricing of fundamentals.
Adding to the supply-side squeeze, a shortage of freely available silver in the London market has tightened the chain of custody for the metal, creating friction for ETF providers seeking physical backing. As ETFs scale up their exposure, issues around sourcing physical metal become increasingly material for fund houses and can press premiums higher.
Fund-Sundry Pressures: NAVs, Inflows, and Constraints
Every silver ETF unit is backed by actual silver stored by the fund. But surging inflows are straining supply chains. In response to the pressure, Kotak Mahindra Asset Management Company temporarily suspended fresh investments and other lump-sum or switch-in activities into its Kotak Silver ETF Fund of Fund, effective mid-October, citing supply and valuation pressures. Other major silver ETFs from Nippon India, HDFC, UTI, Tata, and Kotak have also displayed all-time high NAVs, with some units trading around ₹165 on the NSE.
What Should Investors Do?
Market experts urge caution. While the long-term fundamentals for silver appear constructive—driven by industrial demand and portfolio diversification—this rally seems to be sustained more by sentiment than by fundamental repricing. Apurva Sheth describes the current phase as “classic short-term peak behaviour,” where retail participation surges after sharp price moves. “Retail enthusiasm tends to peak near tops. The recent disconnect between ETFs and physical silver indicates speculative momentum, not fundamental repricing,” he said.
For investors navigating this environment, strategists recommend patience and discipline. Waiting for premiums to normalise, or adopting systematic investment approaches rather than lump-sum purchases, can help mitigate the risk of buying into a temporary peak. The broader context suggests that silver’s 2025 rally caps years of underperformance relative to gold, as the gold-silver ratio has narrowed. While some analysts view the metal as technically overbought, others highlight its role as a hedge against inflation and a key industrial input—factors that could sustain demand in the medium term.
Bottom Line
The current silver ETF premium reflects a complex mix of investor psychology, physical market tightness, and a supply deficit that remains unresolved in the near term. For now, traders and long-term holders alike should weigh the premium against the NAV, watch for normalization signals, and consider disciplined investment routes to ride out volatility while staying aligned with a longer-term silver thesis.
