Silver ETFs Sink Up to 20% as Speculative Frenzy Unravels
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– Panic Sell-off Impact: Silver exchange-traded funds (ETFs) faced a dramatic drop on Thursday, with several schemes plummeting 15-20%, starkly contrasting the 2-3% decline in spot silver prices. This disconnect stemmed from a sudden unwinding of speculative positions accumulated in recent weeks, as the unprecedented rally came to an unexpected halt.
– Market Movements:
– Tata Silver ETF fell 16%
– Silverbees, ICICI Prudential Silver ETF, and Zerodha Silver ETF dropped 10-11%
– Spot silver initially increased by 3.1% to $96 per ounce after dipping 2.6% earlier.
“A notable decline in the underlying spot prices led to a significant sell-off of ETF instruments, creating a situation where supply pressure heavily outweighed demand,” explained Nirav Karkera, Head of Research at Fisdom.
– Previous Rally and Speculative Bets: The recent spike in silver—one of the standout performers of the past few months—prompted traders to leverage borrowed funds. Domestic silver prices surged by 102% over three months and 243% year-on-year.
– Early Trade Instability: Earlier in the day, Tata Silver ETF experienced a nosedive of up to 24%, while Zerodha Silver ETF plunged 20.7%. Silverbees and ICICI Prudential Silver ETF saw drops of 19.8% and 19%, respectively. The rapid decline was likely exacerbated by forced selling due to margin calls from brokers.
– Broker Insights: Anindya Banerjee, Head of Commodity and Currency Research at Kotak Securities, noted that ETF values fluctuated sharply as market makers’ selling activity initiated stop-loss triggering and prompted panic selling among retail investors.
– Geopolitical and Local Influences: The downturn was partly influenced by comments from Donald Trump at Davos, alleviating geopolitical tensions, which in turn diminished the safe-haven appeal for gold and silver. Local speculation about potential increases in import duties on precious metals ahead of the upcoming Union Budget also weighed heavily on market sentiment, as highlighted by Arun Sundaresan, Head of ETF at Nippon Life India Asset Management.
– Investor Strategy: As the premium in silver prices built on false rumors dissipated, investors rushed to exit, leading to steep price declines. Pankaj Arora, National President of the All India Jewellers and Goldsmith Federation, pointed out that ETF investors face challenges when compared to futures market traders, who have a longer window to react to international cues.
– Fund House Advice: Experts advise retail investors to be cautious and avoid chasing silver ETFs at inflated levels due to the metal’s volatility. Niranjan Awasthi, Senior Vice President at Edelweiss Mutual Fund, recommends tracking the indicative Net Asset Value (iNAV) of ETFs, suggesting it’s prudent to wait for price stabilization if the ETF is quoting at a significant premium to the iNAV.
– Future Outlook: Banerjee remains optimistic about silver’s prospects over the next year, asserting that much of the excessive enthusiasm has been purged from the market.
In conclusion, the recent tumble of silver ETFs serves as a stark reminder of the market’s volatility and the risks of speculative investments. Investors should exercise caution and remain informed while considering their positions in silver ETFs to navigate these turbulent waters effectively.