Gold and silver prices fall, ETF inflows rise: What should investors do next?

Gold and silver prices traded lower in domestic and global markets on Tuesday, while investor interest in precious metal exchange-traded funds (ETFs) remained strong, supported by global uncertainty and diversification demand, market participants said.

In the domestic market, silver prices came under fresh selling pressure after gains in the previous session. On the Multi Commodity Exchange (MCX), silver prices fell by more than Rs 5,000 to trade near Rs 2,57,000 per kg. In the global market, silver prices declined by around 2 per cent.

Gold prices also weakened. On MCX, gold prices slipped by about Rs 869 to trade near Rs 1,57,000 per 10 grams. In the international market, gold prices were down by around $30 per ounce.

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Crude oil, rupee and equity markets

Crude oil prices traded in a narrow range. Brent crude was marginally lower near $69 per barrel, while West Texas Intermediate crude hovered around $64 per barrel. The rupee strengthened slightly against the US dollar, rising about 5 paise to trade near 90.70 per dollar.

Equity markets extended gains for a third consecutive session. The Nifty was trading near the 25,980 level, while the Sensex was up around 380 points, supported by IT, metal and pharma stocks.

Strong inflows into gold and silver ETFs

Despite the decline in gold and silver prices, flows into precious metal ETFs remained strong. January mutual fund data showed gold ETFs recorded net inflows of over Rs 24,000 crore, sharply higher than Rs 11,647 crore in December. Silver ETFs saw net inflows of Rs 9,463 crore during the month. Assets under management of silver ETFs stood at around Rs 1.25 lakh crore.

Market participants said the net inflow into gold ETFs in January was almost equal to total inflows across all equity mutual fund categories combined for the month, highlighting rising investor preference for gold through ETF routes.

Central bank buying, volatility driving gold demand

Optima Money Managing Director Pankaj Mathpal said investor interest in gold ETFs has been driven by both global and domestic factors. “One of the key reasons for rising interest in gold is that central banks across the world are increasing their gold holdings,” Mathpal said. “At the same time, volatility in equity markets has made gold an attractive option for investors,” he added.

Mathpal said gold ETFs have delivered strong returns across time horizons. “Over the last one year, gold ETFs have given returns of around 80 per cent. Long-term returns have also been strong, with three-year CAGR around 37 per cent, five-year CAGR near 25 per cent and 10-year CAGR close to 17 per cent,” he said.

ETFs offer ease, caution advised on allocation

He said ETFs offer operational ease compared with physical gold. “Gold ETFs offer transparency, liquidity and ease of transaction. Investors can buy and sell easily through mobile apps without worrying about storage or purity issues,” Mathpal said.

However, he cautioned against aggressive allocations. “Investors should avoid putting a large amount at one time. Investing through systematic investment plans and increasing allocation during corrections is a better strategy,” Mathpal said.

On silver ETFs, Mathpal said volatility remains higher. “Silver has both store-of-value and industrial demand characteristics. While it has delivered strong returns recently, the downside risk during an economic slowdown is higher compared to gold,” he said. He added that silver allocation should be lower than gold.

Expert views and ETF market performance

LKP Securities Limited’s Jateen N Trivedi said gold prices are currently forming a base, which is supporting ETF interest. “The Rs 1,55,000 level is an important support for gold in the near term. If prices hold above this level, they may attempt to move towards Rs 1,60,000,” he said.

Prithvi Finmart Managing Director Manoj Kumar Jain said global factors are likely to keep prices volatile, but ETF demand remains steady. “Geopolitical developments, dollar movement and upcoming economic data could keep gold and silver prices volatile, but downside appears limited at present levels,” Jain said.

Silver and gold ETFs traded mixed during the session. Nippon India Silver ETF fell 0.77 per cent to Rs 241.82, Tata Silver ETF slipped 0.48 per cent to Rs 24.66, HDFC Silver ETF declined 1.01 per cent to Rs 241.95, ICICI Prudential Silver ETF eased 0.60 per cent to Rs 252.20, and SBI Silver ETF dropped 0.81 per cent to Rs 247.50.

Gold ETFs edged higher. Nippon India ETF Gold BeES rose 0.03 per cent to Rs 128.02, Tata Gold ETF gained 0.20 per cent to Rs 14.99, ICICI Prudential Gold ETF advanced 0.21 per cent to Rs 132.55, and SBI Gold ETF was up 0.04 per cent at Rs 131.94.

One-year returns stood at around 149–150 per cent for silver ETFs and about 77–78 per cent for gold ETFs.