Silver rally: Unwinding of premiums, profit-taking could trigger correction

New investors should enter gradually, invest with a 5-10 year horizon, and cap exposure at 5-7 per cent of the portfolio

Silver closed at ₹344,564 per kg on January 27. The metal has surged 137.6 per cent over the past three months and 281.7 per cent over the past year. Experts say investors need to turn cautious after such a humongous run-up.

 

Safe-haven demand is up 

Strong investment demand, a widening supply deficit, and robust industrial consumption have driven the price of silver higher. “Safe-haven allocation alongside gold has accelerated amid eroding confidence in the US dollar. President Donald Trump’s criticisms of the Federal Reserve, expansive fiscal policies amid rising debt, unpredictable tariffs, and fears of currency debasement have reinforced this trend,” says Kaynat Chainwala, assistant vice president, commodity research, Kotak Securities.

 

Geopolitics has added to demand. “President Trump’s threats to resource-rich nations such as Greenland, Cuba and Mexico, following military action in Venezuela, have highlighted the escalating global competition for critical minerals,” says Chainwala.

 

Central banks have also played a part. “Expectations of US Federal Reserve rate cuts, along with continued accumulation by central banks and sovereign entities, have further amplified investor interest,” says Riya Singh, research analyst, commodities and currency, Emkay Global.

 

Industrial demand remains firm. Electric vehicle manufacturing, solar panel production and expanding data centres continue to drive consumption.

 

On the supply side, acute physical shortage has created a squeeze and deepened a multi-year deficit. “China’s silver export controls, implemented on January 1, 2026, could intensify the physical supply squeeze,” says Chainwala.

 

The above-mentioned factors could continue to support the rally over the next six to 12 months as well.

 

What could trigger a correction 

Silver’s gains could stall if risk sentiment improves. “If geopolitical tensions across the globe ease, investors may rotate funds away from safe-haven assets towards riskier assets, potentially triggering a price correction,” says Deveya Gaglani, senior research analyst - commodities, Axis Securities.

 

A stronger US dollar would also weigh on prices.

 

Sentiment-driven moves also remain a key risk. “Unwinding of speculative premiums—especially in Indian silver exchange-traded funds—can trigger aggressive selling. Premium collapse and high volatility can drive sharp declines even if fundamentals do not reverse, as seen recently,” says Singh.

 

Policy shifts could also put pressure on domestic prices. “An unexpected import duty cut, or a status quo in the February 1 Budget, could compress the current premium on the MCX,” says Chainwala.

 

A weaker US economy could reduce AI and renewable-energy demand, which supports industrial consumption.

 

High prices could also push industrial users to explore alternatives to protect margins. “If viable substitutes emerge, the euphoria could fade,” says Gaglani.

 

Risks have risen 

Silver remains inherently volatile because it plays the role of both a safe-haven metal and one that has industrial usage. “While physical shortages remain, the rally has increased timing and valuation risk,” says Singh. Profit-taking after a sharp rise can trigger sizeable corrections.

 

Recent price action has been extreme, with near 4–7 per cent daily swings seen almost every day this month. “Such volatility can unsettle retail participants who lack risk-management mechanisms,” says Gaglani.

 

New investors: Enter cautious 

New investors should enter gradually and with a long horizon. “Staggered investment through systematic purchase plans is advisable rather than lump-sum buying,” says Singh. They should adopt a 5–10 year horizon and keep allocation limited to 20–30 per cent of the precious-metals bucket (not more than 5–7 per cent of the total portfolio).

 

Existing investors should rebalance 

Existing investors in physical silver can maintain allocation, as scarcity and premiums may persist. They should avoid panic selling on dips or chasing highs. Those whose portfolio weight has exceeded their original allocation can book partial profits but should avoid a total exit. They should continue with monthly systematic investment plans (SIPs) to average out their purchase price.  Singh suggests treating sharp price dips as opportunities for strategic purchases.                          Price has nearly tripled over past year 

Period	Returns (%)
3-month	137.6
6-month	201.3
1-year	281.7
3-year	71.6
5-year	39.3
10-year	25.6
25-year	16.3

Above one year returns are annualised.  Source: Zaveri Bazar, IBJA. Compiled by BS Research. 

The writer is a Mumbai-based independent journalist