Correction in silver funds: Enter gradually with minimum five-year horizon

Existing investors who have become overweight after the bull run of the past year should book partial profits and rebalance

After a stellar bull run that delivered a return of 121.6 per cent over the past year, silver funds appear to be losing momentum. They have corrected 14.1 per cent over the past month. Experts say investors need to reset their return expectations after such a sharp run-up. Silver is now likely to consolidate and deliver normalised returns over the next six to 12 months.

 

What led to the correction

 

The recent correction reflects the unwinding of momentum after a crowded rally in 2025. “Momentum-driven capital exited quickly after the macro picture turned hostile,” says Rahul Bhutoria, director and co-founder, Valtrust. Deveya Gaglani, senior research analyst — commodities, Axis Securities, adds that investors booked profits after silver touched $120 per troy ounce in the international market.

 

Another major trigger was the outbreak of the Iran war. As oil prices spiked above $100 a barrel, they fuelled inflation concerns. “From expecting rate cuts, the market shifted to expecting a possible rate hike,” says Gaglani.

 

Safe-haven flows have strengthened the US dollar. Since silver is priced in dollar terms in the international market, a stronger dollar tends to weigh on it. Bond yields have also risen, making debt products more attractive.

 

Rising crude and natural gas prices could slow global growth, which could weaken industrial demand for silver. “Short-term demand recalibration from industrial segments such as solar and electronics contributed to the correction,” says Prasanna Pathak, managing partner, The Wealth Company.

 

Globally, exchanges undertook margin hikes as prices fell. Margin calls and forced liquidation amplified the fall in silver. “Silver exchange-traded fund (ETF) sell-off and a liquidity shift towards the energy segment weighed on its price,” says Manav Modi, commodities analyst, Motilal Oswal Financial Services.

 

Structural bull case intact

 

Experts say the structural case for silver remains intact over the medium term. The shift towards climate-friendly technologies, which require silver, will continue to support demand. “Demand from greentech, renewables, electric vehicles (EVs), and electronics continues to grow,” says Vikram Dhawan, head — commodities and fund manager, Nippon India Mutual Fund. Demand from artificial intelligence (AI) data centres and semiconductor manufacturing is also expected to grow.

 

While emerging technologies will continue to support demand, supply remains constrained. “Silver is entering its sixth consecutive year of deficit in physical supply,” says Bhutoria. Mine supply cannot respond quickly because most silver is produced as a by-product of other metals.

 

The gold-silver ratio has moved back into a range that has historically looked attractive for entry.

 

Consolidation likely

 

Experts say silver is now fairly valued. “It has already retraced nearly 50 per cent from its peak of $120 and is hence unlikely to see a further major correction,” says Gaglani.

 

At the same time, it is unlikely to sustain the pace of the recent rally. “Gains are likely to be more measured and sustainable rather than exponential,” says Dhawan.

 

The next six to 12 months are likely to see volatility and phases of consolidation. “Silver may consolidate in the $60–80 range over the next two quarters,” says Bhutoria. He adds that a sustained correction below $55 is likely only if the conflict continues for a long time and causes prolonged economic disruption.

 

Pre-requisites for another run-up

 

Experts say a sustained move above $100 is likely to take time. “An upward re-rating is possible in the second half if the dollar and interest rates turn supportive,” says Bhutoria.

 

Monetary policy easing and global rate cuts would support precious metals. A pick-up in global manufacturing would also sustain industrial demand. But for that, industrial users in solar, EV, and high-technology sectors should be able to absorb and pass on higher costs. “Higher safe-haven demand and a revival in ETF inflows could help the bull run resume,” says Modi.

 

The earlier rally was driven by re-rating and liquidity. “The next phase will depend more on actual demand realisation, macro stability, and sustained investment flows,” says Pathak.

 

Existing investors: Rebalance

 

Investors should treat silver as part of their long-term asset allocation rather than as a short-term trading bet. It can enable portfolio diversification and provide a hedge against inflation.

 

Investors should book partial profits in silver and rebalance if the recent rally has made them overweight. “Long-term investors should view dips towards lower levels as buying opportunities,” says Modi.

 

At the same time, investors should avoid aggressive purchases at current prices. Fresh additions should be made in a staggered manner rather than through lump-sum exposure.

 

New investors: Enter systematically

 

New investors who missed the rally over the past year may use the correction to enter silver, as the current price level is more reasonable than it was three months ago.

 

Entries should be made through a systematic investment plan (SIP) to average out purchase costs and reduce the impact of volatility. Lump-sum investments should be avoided.

 

Silver should be treated as a high-volatility commodity that requires a long-term horizon. Leverage should be avoided. The investment horizon should be at least five years. Investors should be prepared for interim volatility and drawdowns.

 

Total allocation to precious metals should generally not exceed 15–20 per cent of the portfolio. “A 70:30 or 80:20 split between gold and silver can balance return potential with volatility,” says Dhawan.

 

Pathak suggests that conservative investors should allocate 5–7 per cent to silver, moderate investors 7–10 per cent, and aggressive investors 10–15 per cent. 

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The writer is a Mumbai-based independent journalist