Why Silver ETFs swung sharply-And what recovery signals for investors

If you tracked silver ETFs closely on Thursday, the price action may have felt unsettling.

 

Silver-linked exchange-traded funds saw sharp intraday swings, reflecting heightened volatility across global markets. Yet by the end of the session, spot silver prices had staged a recovery, underlining a pattern investors in precious metals are becoming increasingly familiar with: short-term turbulence, long-term structural support.

 

According to a recent note from Edelweiss Mutual Fund, such moves are not unusual for silver, which tends to react more sharply than gold during periods of market stress or uncertainty.

 

Why Silver ETFs React Faster Than Spot Prices

 

 

For investors, it helps to understand the difference between what happens in ETFs and what unfolds in the physical or spot market.

 

• Silver ETFs are traded instruments. Their prices can be influenced by:
• Sudden shifts in global risk sentiment
• Profit booking after sharp rallies
• Short-term flows driven by derivatives and arbitrage

 

Spot prices, by contrast, are anchored more closely to physical demand and supply. Edelweiss notes that silver continues to benefit from strong industrial usage, with nearly half of global demand coming from sectors such as electronics, solar energy, and electric vehicles. This structural demand often acts as a stabiliser after sharp sell-offs.

 

The recovery in spot prices reflected this underlying support, even as ETFs mirrored near-term nervousness.

 

Volatility Is a Feature, Not a Flaw

 

One of the key takeaways from the Edelweiss note is that silver’s higher volatility is intrinsic to the asset, not a signal of weakening fundamentals.

 

Historically, silver has:

• Outperformed during precious metal bull phases
• Experienced deeper interim corrections than gold
• Delivered strong long-term returns, but with wider price swings

 

Gold, on the other hand, tends to offer stability and downside protection, especially during equity market stress. This contrast is why Edelweiss emphasises the role of combining gold and silver rather than viewing them in isolation.

 

Why do Silver ETFs trade at a premium to iNAV during high-demand phases?

 

"Silver ETFs are designed to mirror the price of the underlying metal, but during periods of sharp price movement, investor behaviour can temporarily override that design. When silver prices rise rapidly, investor interest tends to surge in a compressed time window rather than build gradually. This leads to a sudden spike in secondary market demand for ETF units.

 

If this surge in buying outpaces the creation of new ETF units backed by physical silver, a short-term imbalance emerges. The traded price of the ETF begins reflecting urgency and scarcity rather than the intrinsic value of the underlying metal. This is when premiums to NAV become visible," said Prasenjit Paul, Equity Research Analyst at Paul Asset and Fund Manager at 129 Wealth Fund.

 

Importantly, this is not a failure of the ETF structure. It is a market response to demand concentration. ETFs are efficient over time, but they are not immune to short-term behavioural distortions when participation becomes momentum-driven. The premium, in effect, is the price investors pay for immediacy during high-interest phases.

 

What does this mean for investors entering late in the cycle?

 

"For investors entering during these demand-heavy phases, realised outcomes can diverge meaningfully from headline silver price performance. Even if the underlying metal continues to perform reasonably, a normalisation of the ETF premium can dilute returns. This creates a scenario where an investor believes they are taking pure silver price exposure, but is actually exposed to two risks, metal price volatility and entry-point distortion.

 

The second risk is rarely visible at the time of investment, but becomes evident when enthusiasm subsides and liquidity normalises," said Prasenjit Paul, Equity Research Analyst at Paul Asset and Fund Manager at 129 Wealth Fund.

 

Silver’s higher volatility compared to gold further amplifies this effect. Timing errors that might be absorbed in gold-linked products can become consequential in silver. Late-cycle entry, therefore, is not just about buying at a higher price, it is about buying into a phase where structural frictions are at their peak.

 

How should investors think about silver exposure within a long-term portfolio?

Silver is best approached as a tactical allocation rather than a foundational one. Its price cycles tend to be sharper and more episodic, making it less suitable as a long-term stabiliser in a portfolio.

 

"From a portfolio construction perspective, silver works when allocation size is modest, entry is staggered, and exit rules are defined in advance. Without these guardrails, silver exposure can disproportionately influence portfolio volatility without contributing meaningfully to long-

term goal outcomes," said Paul.

 

Silver should enhance a portfolio at the margins, not dictate its behaviour.

 

What should investors focus on instead of short- term silver price narratives?

 

"The starting point should be the portfolio’s required return, not the market’s recent return. Every asset allocation decision should be evaluated against what the portfolio actually needs to achieve, not what an asset has delivered in the recent past. If an investor’s long-term plan requires a 10–11% return, any allocation that introduces disproportionate volatility needs to justify its role clearly. Silver rallies can be compelling, but they should not override portfolio-level discipline," said Paul. 

 

Once returns overshoot what is required, the rational response is rebalancing, not doubling down. Investing becomes more stable when the question shifts from predicting price direction to managing risk and locking in outcomes.  As Edelweiss’s analysis suggests, the key is not reacting to every move, but understanding where silver fits within a broader allocation strategy—especially when markets remain uncertain and price discovery remains volatile.