Gold, silver ETFs recover partially as precious metals rise up to 9% from day's lows: Here's what analysts say

gold, silver etfs

• Gold and silver ETFs partially recovered after sharp early-day crashes
• Analysts remain bullish on long-term outlook despite current volatility
• Margin hikes and profit-booking caused the recent precious metals flash crash.

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Gold and silver exchange traded funds (ETFs) made a partial recovery on February 2, after crashing sharply earlier during the day. Analysts have expressed belief in the long-term bullish outlook for the precious metals, despite current volatility.

Edelweiss Silver ETF, Kotak Silver ETF, Mirae Asset Silver ETF and Tata Silver ETF, which had hit the 20 percent lower circuit earlier during the day, recovered up to 10 percent.

Gold ETFs, which were down up to 9 percent in the early trading hours, were down up to 6 percent, with some already in the green. It is important to note that despite the partial recovery, most of the ETFs are still in the deep red.

Gold, silver prices recover:

Gold futures with April expiry on MCX, which fell to Rs 1,37,065 per 10 grams earlier during the day, recovered more than 9 percent to recover all losses and trade at Rs 1,49,920 per 10 grams.

The contracts with February expiry meanwhile jumped over 3 percent.

Silver futures made some recovery from their respective lows, but are still in the deep red.

Why are gold, silver prices falling today?

Gold and silver ETFs, which earlier saw a significant surge along with the precious metals, have seen a significant decline recently, with the trend continuing today as well. The sharp fall in gold and silver prices came amid rampant profit-booking, along with stronger dollar. 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.

Additionally, CME Group announced hikes in margins on its metal futures on Saturday and the changes are set to take effect after market close on Monday. This will also likely weigh on precious metals. COMEX gold futures ⁠margins have been raised from 6 percent to 8 percent, while COMEX 5000 silver futures are set to increase to 15 percent ‍from 11 percent.

Here's what analysts say:

The recent "flash crash" in gold and silver, triggered by a hawkish US Fed nominee and increased margin requirements, is viewed by many as a necessary cooling of "overbought" markets rather than a trend reversal, said Abhinav Tiwari, Research Analyst at Bonanza.

He however noted that the long-term outlook remains structurally bullish, despite the volatility. “Record central bank buying, silver’s persistent supply deficit, and geopolitical tensions provide a solid floor,” he said.

“We have maintained a cautious stance on silver following its parabolic move and have suggested trimming overallocation to precious metals to realign portfolios with long-term strategic allocation levels. While it is prudent to wait for further information and trend confirmation, we currently prefer gold from a relative risk-reward perspective,” said Siddharth Srivastava, Head - ETF Product & Fund Manager, Mirae Asset Investment Mangers (India).

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