Gold, silver ETFs jump up to 4% as precious metals rise: What lies ahead?

Gold and silver

• Gold and silver ETFs rose as domestic prices increased on Feb 19
• MCX and NSE removed extra margins on gold and silver futures
• Experts warn of volatility from global events, China holidays

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Gold and silver exchange traded funds (ETFs) gained in trade on February 19 as the prices of precious metals increased. Experts have highlighted what lies ahead for these safe-haven assets.

Gold futures with April expiry recorded marginal gains to rise to Rs 1,56,133 per kilogram on MCX in the morning trading hours of Thursday. Silver futures with March expiry meanwhile rose nearly 1 percent to Rs 2,45,870 per kilogram.

This comes despite a muted sentiment in global commodity prices on a firm dollar ahead of key US inflation data that could influence the Federal Reserve's interest rate-cutting trajectory. The US dollar held steady at a more than one-week high, making greenback-priced bullion more expensive for other currency holders.

Why are gold and silver prices rising today?

The rise in domestic prices of gold and silver came as the Multi Commodity Exchange of India (MCX) and the National Stock Exchange of India (NSE) announced the withdrawal of additional margins on gold and silver futures contracts, effective from today.

MCX said that the additional 3 percent margin on gold futures contracts and the 7 percent margin on silver futures contracts introduced earlier this month will be removed. These additional margins were introduced as risk management measures after a record rally in gold and silver prices earlier this year. After the recent sharp correction seen in the precious metals, the exchanges removed these additional margins.

Gold and silver ETFs:

Groww Silver ETF gained more than 4 percent, while UTI Silver ETF, Axis Silver ETF, HDFC Silver ETF, 360 ONE Silver ETF, Motilal Oswal Silver ETF, DSP Silver ETF, Mirae Asset Silver ETF, SBI Silver ETF, Aditya Birla Sun Life Silver ETF, ICICI Prudential Silver ETF and others gained nearly 4 percent each, as seen at 9.40 am.

Among the gold ETFs, Motilal Oswal Gold ETF and Groww Gold ETF gained more than 2 percent. Birla Sun Life Gold ETF, SBI Gold ETF, Zerodha Gold ETF, UTI MF Gold ETF, HDFC Gold ETF, Nippon India Gold ETF, ICICI Prudential Gold ETF and others gained nearly 2 percent each.

What lies ahead?

Jateen Trivedi, VP Research Analyst - Commodity and Currency at LKP Securities, noted that the broader structure still reflects a weak undertone with lower highs and lower lows in place for gold. “A decisive break above $5,000 on CME would be required to negate the short-term weakness and revive bullish momentum… Fed’s meeting minutes and China’s market reopening are likely to inject additional volatility in the coming sessions. Immediate support is placed near ₹1,48,000, while resistance remains around ₹1,55,000,” he added.

The week-long closure of major hubs like the Shanghai Gold Exchange (SGE) for the Lunar New Year creates a significant "liquidity vacuum" in the global bullion market, said Aamir Makda Commodity & Currency Analyst, Choice Broking. "As the world’s largest physical buyers go offline, trading volumes thin out, often resulting in exaggerated price volatility and wider bid-ask spreads. Historically, this period triggers a price correction; once the pre-holiday buying pressure from China ceases, traders who entered positions early often engage in profit-taking, leading to a downward shift in momentum," the analyst added.

Silver is particularly vulnerable during this timeframe compared to gold; because Chinese industrial production hits a standstill during the festivities, the dramatic drop in manufacturing demand makes silver prices much more susceptible to a sharp decline. With this perspective, it is advised to traders to avoid taking trades in bullion,” he further said.

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