Gold, silver ETFs crash up to 16% as precious metal crash extends to third day: What lies ahead

Gold and silver ETFs

• Gold and silver futures fell 6% on MCX, continuing a three-day decline.
• Gold and silver ETFs fell up to 16 percent in early trading hours
• Analysts attribute the drop to profit-booking, not a fundamental issue.

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Gold and silver extended their significant crash on MCX, with futures plunging 6 percent at open on February 1. This pushed gold ETFs down, which fell up to 16 percent in the early trading hours of Sunday.

Gold futures with April expiry dropped 6 percent, or Rs 9,140 per 10 grams in a single session to open at Rs 1,43,205 per 10 grams. This marks a sharp drop of nearly Rs 50,000 per 10 grams (26 percent) in just three sessions after hitting a fresh lifetime high of Rs 1,93,096 per 10 grams.

Silver futures with March expiry also dropped around 6 percent, or Rs 17,515 per kilogram to open at Rs 2,74,410 per kg. The contracts have declined Rs 1,45,638 per kg (35 percent) in just three sessions after hitting fresh lifetime high of Rs 4,20,048 per kg.

The sharp fall in gold and silver prices came amid rampant profit-booking, along with stronger dollar. Additionally, US President Donald Trump said he had chosen former ⁠Federal Reserve Governor Kevin Warsh, who is known to be hawkish and rigid about rate cuts, to ⁠head ⁠the American central bank.

Gold, silver ETFs crash:

Baroda BNP Paribas Gold ETF crashed 16 percent to Rs 135.20 apiece, while Motilal Oswal Gold ETF fell nearly 16 percent. Edelweiss Gold ETF, LIC MF Gold ETF and Birla Sun Life Gold ETF fell more than 15 percent each.

ICICI Prudential Gold ETF, Bandhan Gold ETF and Groww Gold ETF fell around 14 percent each in the early trading hours.

Bandhan Silver ETFs fell around 16 percent, while Motilal Oswal Silver ETF and Zerodha Silver ETF declined around 15 percent. Groww Silver ETF and others fell up to 14 percent.

Stock exchange fixes price band for gold, silver ETFs:

After the sharp volatility in the precious metals and subsequently in ETFs wiped off significant amounts of investor wealth, BSE issued a notice saying that the reference price for these ETFs shall be based on the T-1 NAV, as published by the respective Mutual Funds/Asset management Companies.

Accordingly, the prescribed price band of 20 percent on both upper and lower end shall be applicable to the said T- 1 NAV price for trading purposes, BSE said.

What lies ahead?

Last week’s sharp fall in gold and silver prices can be explained as a classic bout of profit-booking after an extended record rally and not as a breakdown in fundamental sentiments, said Pranav Koomar, Founder and CEO of PlusCash.

While high positioning, strong dollar movements, and an uptick in bond yields have contributed to a correction in gold prices, from a medium- to a long-term perspective, the prices have continued to find support due to global uncertainty, buying from Central Banks, and tight supply dynamics, the analyst added.

Investors should consider any fall as a buying opportunity and not a sign of any change in the trend, Koomar said.

Maneesh Sharma, AVP - Commodities & Currencies, Anand Rathi Shares & Stock Brokers, noted that the sharp moves in precious metals seen today reflected speculation that Warsh may be less enthusiastic to cut rates than other candidates, given his past warnings of inflation risks and more recent calls for the Fed to reduce its balance sheet.

"Going ahead markets could now look ahead to more cues from labor market reports due next week in US which could show signs of weakening labor markets, while local markets could remain glued towards Union budget announcement due on Sunday. Any signs of changes in Import duty structure could reflect directly into MCX prices. Overall volatility with a corrective bias is expected to persist for few more sessions before markets stabilize at lower levels," Sharma added.