Copyright © HT Digital Streams Limited All rights reserved. Thinking of buying silver this Dhanteras? After a frenzied rally, the precious metal may not be worth the hype Ananya Roy 6 min read Oct 18, 2025, 07:00 IST Silver is up 30% in barely a month, and up nearly 90% so far in 2025 compared to gold’s 65%. (Bloomberg) Summary Silver prices rose 90% in 2025 and outperformed gold due to a combination of high industrial demand, safe-haven purchases and a supply squeeze. But will it continue? What are the additional risks of investing in silver? Read on. This is a race where first place goes to silver. Gold has been on the ride of a lifetime since economic and policy uncertainty drove central banks to hoard the precious metal instead of the US dollar. What began as gold’s luster rubbing off on silver has evolved into a full-fledged rally in the industrial metal that is now outperforming gold. Silver is up 30% in barely a month, and almost 90% so far in 2025 compared to gold’s 65%. Where is it going? Silver’s high conductivity and low reactivity give it a unique advantage in new-age industrial applications including electronics, solar energy and electric vehicle batteries, apart from use in medicine, chemistry and jewellery. In the fight for rare earths, the US has also proposed adding silver to its list of critical minerals. But industrial use alone does not justify the recent frenzied rally in the metal. A supply squeeze, increased safe-haven demand and a surge in silver ETFs all contributed to the supply-demand imbalance that pushed up prices. While this adds to silver’s appeal, investing in this precious metal carries certain additional risks beyond those usually associated with buying over-inflated assets. The Domestic Premium Risk In India, domestic prices tend to command a premium over world prices. Currently, new silver buyers are reportedly paying a premium of 5-12% over world prices. That’s 5-12% shaved off their returns at the time of purchase itself. To be sure, the tendency of the rupee to depreciate against the dollar, logistics costs, import duties and other taxes tend to make local silver prices higher than global rates. In an efficient market, the difference will be arbitrated away. But this time the premium is too steep, and supply shortages, compounded by the surge in demand during the festive and wedding season, have prevented immediate arbitrage. So, the difference lasted longer than it usually does. There is even more to the story. The spot price for silver has recently trended higher than its futures price. This phenomenon, known as decline, indicates a short-term supply shortfall or excess demand. An eventual reversal to a typical contango market (one where futures prices are higher than spot) could lead to corrections and losses for investors. The ETF boom and not all that glitters The risk of investing in silver ETFs lies in the inefficiency in this market. The Securities and Exchange Board of India (Sebi) allowed silver ETFs in November 2021. ETFs offer several advantages over owning the physical metal—higher liquidity, greater security, guaranteed purity, greater transparency, and no storage costs. So it’s no surprise that the silver ETF industry has also seen a boom as the metal has recovered. From three silver ETFs in March 2022, we currently have 21 ETFs and funds tracking the metal. The assets tracking silver through these investment vehicles also exploded from ₹777 crore in March 2022 to over ₹35,000 crore at the end of September 2025. Of this, ₹10,000 crore was inflow in September alone. This amounts to a massive 47-fold jump in just about 3 years. To be sure, silver also rose in the period, but by less than 90%. That is, most of the assets under management expansion in silver ETFs come from accelerated inflows into the metal. But this sharp appreciation in appeal has its own set of drawbacks. All ETFs have some degree of inefficiency; an investor never gets a perfect one-to-one translation from ETFs to underlying assets. The 0.3-0.7% expense ratios of silver ETFs as well as their tracking errors take away from purity of exposure. This made a huge difference in returns. For example, an investor in the Motilal Oswal Silver ETF would have made 46% in the past one year, while an investment in Tata’s silver ETF would have returned 83%. Additionally, silver ETFs have overheated amid unrelenting retail enthusiasm. The net asset values (NAVs) of silver ETFs have become significantly higher than their indicative NAVs (iNAV). NAV is calculated by the fund house at the end of the day and includes the domestic premium over global prices. iNAVs are theoretical prices calculated on a real-time basis by third-party vendors, and represent the fair value of the underlying assets. When NAVs trend higher than iNAVs, as has recently been the case, it indicates that investors are paying too much. The difference between NAV and iNAV represents an additional layer of premium on top of the domestic premium. In other words, those who buy silver ETFs are taking on exposure that is increasingly different from silver domestic premium + expense ratio + tracking error + premium above iNAV. This has been all too clear over several sessions over the past few weeks. We saw silver ETFs rise 9-13% even as December silver futures fell about half a percentage point. The outperformance of silver ETFs over futures may seem like a good thing — more returns for ETF investors. But the truth is far from that. Such deviations between the NAVs of investment vehicles and the underlying assets eventually converge. The chicken has already come home to roost. On October 16th, when fresh inventory hit the markets, we saw a long overdue mean reversion. Silver ETF NAVs collapsed by up to 10%, even as silver futures held their ground. By overpaying through overheated silver ETFs, investors are setting themselves up for steeper declines in NAVs than silver itself. To prevent this, Kotak, SBI, UTI and Groww AMCs have already stopped accepting fresh lump sum investments and roll-ups in their silver funds. Other risks also loom Silver is often dubbed the devil’s metal, thanks to its propensity for sharp price drops. Like any other metal used in industrial applications, its price is extremely sensitive to economic cycles. For example, when the Eurozone crisis caused a global economic slowdown during 2011-13, silver corrected by 60%. Now we face increased policy uncertainty and trade protectionism, which could result in an economic slowdown. At the same time, silver’s high cost and growing application in new-age industries leave it vulnerable to technological evolution away from the metal. Short-term risks may arise from the fall in festive demand. Given its expensive valuations, silver could be staring at another price drop if any of these risks materialize. To top it off, investors would do well to steer clear of the hype. Those who wish to take silver exposure should do so and be well aware of the risks involved as outlined above. Certainly, some silver exposure in the portfolio would be prudent from a diversification standpoint. But the deviation between spot and futures contracts, domestic and international prices, and iNAV and NAV should be closely watched before investment decisions are made. And new silver exposure needs to be built in a slow and staggering fashion, rather than in one whimsical FOMO-driven sweep. Ananya Roy is the founder of Credibull Capital, a SEBI registered investment advisor. X: @ananyaroycfa Disclosure: The author does not hold shares of the companies discussed. The opinions expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to do their own research and consult a financial professional before making any investment decisions. Get all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download the Mint News app to get daily market updates. more topics #Silver #Silver ETFs Read next story
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