Silver ETFs gain traction as industrial demand, returns outshine gold

Silver is emerging from gold's shadow as ETF returns outpace gold in recent weeks amid rising industrial demand, favourable price ratios and investor interest

Silver could soon gain favour among investors, especially as global trade deals are formalised. While gold has dominated investor interest over the past year amid geopolitical tensions and trade conflicts, silver is beginning to emerge from its shadow.

 

For the three-year period, gold and silver funds have given an average return of 21.28 per cent and 14.78 per cent compounded annually, respectively. However, over the past month, gold exchange-traded funds (ETFs) have fallen by 1.62 per cent while silver ETFs have gained 0.55 per cent on average. Experts believe gold remains a core component of diversified portfolios, but silver offers an attractive opportunity.

 

“Silver is still trading below its 2011 peak of $45, despite strong demand and a favourable gold-to-silver ratio. Historically, such conditions have led to silver outperforming gold. While gold may continue its run, silver could play catch-up, making this a good time to consider silver ETFs,” says Niranjan Avasthi, Senior Vice-President, Edelweiss Mutual Fund.

 

“While gold will now continue to consolidate, we are relatively more bullish on silver,” says Siddharth Srivastava, Head – ETF Product and Fund Manager, Mirae Asset Investment Managers (India).

 

Demand outpacing supply

 

Gold has benefited from safe-haven demand triggered by geopolitical tensions, trade wars and central bank purchases. With countries entering new trade pacts, silver demand may surge due to its industrial utility.

 

“Silver plays a dual role as both an industrial and precious metal, offering investors a unique opportunity for portfolio diversification. Its long-term growth outlook remains strong, driven by rising demand in key sectors such as renewable energy, electronics, telecommunications and automotive,” says Vishal Jain, Chief Executive Officer, Zerodha Fund House.

 

Silver demand is expected to rise further with the growth of sectors like artificial intelligence, electronics and telecom. “With silver demand consistently outpacing supply, we expect silver to outperform gold in the medium term,” says Avasthi.

 

Investors must be cognisant of the risks as well. Like any other commodity, silver can go through a lull. It also does not offer any income except when its price rises. 

 

“While investing in a silver ETF, one should be aware that it has historically exhibited higher price volatility than gold and is exposed to the risk of slower-than-expected industrial demand,” says Srivastava.

 

Take the ETF route

 

By investing in silver via ETFs, investors can avoid challenges such as assessing purity, storage (it is bulkier than gold) and insurance costs (to safeguard against theft) associated with physical silver.

 

“Silver ETFs provide investors with a valuable tool to diversify their portfolios and capitalise on the metal’s unique characteristics,” says Jain.

 

Altogether, 15 silver ETFs collectively manage ₹15,470.76 crore in assets.

 

“When investing in a silver ETF, investors should compare total expense ratio, liquidity on the exchange and tracking difference. They should ensure that the transaction price is around the real-time indicative net asset value (iNAV) of the ETF. Investors should also use a limit price to conduct the transaction, otherwise it may get executed away from the fair price,” says Srivastava.

 

Limited allocation

 

Experts recommend a measured approach.

 

“Silver ETFs are ideal for investors with a moderate to high risk appetite seeking diversification. Those already invested in gold ETFs should consider adding silver ETFs, as both metals often perform well together. A 5–10 per cent allocation with a 3–5 year horizon is recommended for meaningful returns. Conservative investors may avoid silver due to its higher volatility,” says Avasthi.