Silver ETFs Trade at Steep Premium as Prices Hit All-Time High
On the National Stock Exchange (NSE), the most-traded silver exchange-traded funds (ETFs) from major mutual fund houses have surged, with gains ranging roughly 9% to 13% over recent sessions. Yet, their net asset values (NAVs) imply valuations should be substantially lower, signaling that investors are paying a notable premium for exposure to silver. In practical terms, investors are purchasing ETF units at prices that include a 2% to 10% premium over the metal’s underlying value.
What Is Driving the Surge?
The price action in silver ETFs, even as the underlying markets show mixed signals, points to a momentum-driven bet rather than a straightforward reflection of supply and demand for physical silver. While the ETFs are trading at elevated levels, MCX Silver December futures slipped about 0.6% in the period, suggesting retail enthusiasm is a larger force than fundamental directional moves in futures pricing.
Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities, described the current phase as a classic case of “FOMO” buying. “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 report. The behavior aligns with a broader pattern where rapid price advances attract cautious, latecomer buyers who expect the rally to continue in the near term.
Supply Constraints and Global Tightness
Analysts attribute the rally to a tightening market for physical silver and a widening global supply deficit. The Silver Institute has projected that total silver demand could exceed supply by about 100 million ounces in 2025, marking the fifth straight year of deficit. Demand from investors remains robust, while industrial usage—particularly in solar panels and electric vehicles—continues its upward trajectory.
Global banks and analysts have offered mixed price paths. Nomura expects a potential global shortfall of 142 million ounces for the year, with prices hovering in a near-term range of $50–$55 per ounce. Julius Baer has suggested a slightly higher band of $52–$58, driven by expectations of lower real interest rates and strong industrial demand. The London market has also faced its own frictions, with a shortage of freely available silver tightening the supply chain and complicating ETF sponsors’ ability to source metal directly.
Fund Houses Feel the Pressure
Behind the scenes, fund houses are grappling with inflows that outpace their ability to add new physical silver to backing. Each silver ETF unit is backed by actual silver held by the fund, and a surge in demand can strain inventories and logistics. Kotak Mahindra AMC temporarily paused fresh and additional lump-sum investments, as well as switch-ins into its Kotak Silver ETF Fund of Fund, citing supply and valuation pressures. Other major players—Nippon India, HDFC, UTI, Tata, and Kotak—have also reported NAVs near all-time highs, with some units trading around ₹165 on the NSE.
What Should Investors Do?
Market experts urge caution in this environment. While the longer-term fundamentals for silver remain constructive, the current rally appears to be driven more by sentiment than by immediate supply-demand changes. “Retail enthusiasm tends to peak near tops, and the recent disconnect between ETF prices and physical silver indicates speculative momentum rather than a fundamental repricing,” according to SAMCO’s Apurva Sheth. Investors are advised to consider waiting for premiums to normalize or to pursue systematic investment strategies rather than making lump-sum bets during volatile periods.
Silver’s 2025 Context and Outlook
With silver posting substantial gains in 2025 and a narrowing gold-silver ratio, analysts note that silver has outperformed relative to gold this year. Production costs for miners are seen as relatively low, ranging from $8 to $26 per ounce, which could provide some price support if demand remains firm. However, several indicators suggest the market may be entering an overbought zone, suggesting that caution and diversified exposure could be prudent for investors contemplating continued participation in the silver rally.
Bottom Line
As ETFs trade at notable premiums to their underlying silver, the key takeaway for investors is to balance potential upside with the risk of a premium contraction. For many, a disciplined approach—whether through staged or systematic investments, or through hedged exposure—may offer a more resilient path through a market characterized by sentiment-driven spikes and tight physical supply.
