Silver ETFs drop up to 18% as white metal's futures drop 11% on MCX; gold ETFs down 5%

Gold and silver ETFs fall

• Gold and silver ETFs dropped sharply, with silver ETFs falling up to 18 percent.
• Gold futures fell 3%, silver futures dropped 11% on Thursday.
• Analysts view the dip as profit-taking; metals' long-term outlook stays bullish.

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Gold and silver exchange traded funds (ETF) dropped in trade on February 5 as precious metals lost steam. This came after gold and silver prices were rebounding for the last two sessions following a sharp slump earlier.

Silver saw a sharper fall today, with its ETFs crashing up to 16 percent in the early trading hours of Thursday.

Gold and silver prices drop:

Gold futures with April expiry fell around 3 percent to Rs 1,48,455 per 10 grams on Thursday. The contracts with June expiry also fell around 3 percent.

Silver futures with March expiry dropped 11 percent to Rs 2,39,000 per kilogram. The contracts with May expiry also fell 11 percent.

Gold and silver ETFs crash:

Mirroring the sharp fall in precious metals, gold and silver ETFs dropped in trade. Kotak Silver ETF crashed around 18 percent to Rs 228.56 apiece, while Edelweiss Silver ETF fell more than 15 percent. 360 One Silver ETF, Mirae Asset Silver ETF, UTI Silver ETF, Axis Silver ETF, ICICI Prudential Silver ETF, HDFC Silver ETF and others fell around 12-14 percent each.

Among the gold ETFs, Motilal Oswal Gold ETF declined around 5.5 percent. Edelweiss Gold ETF, Choice Gold ETF, Axis MF Gold ETF, DSP Gold ETF, ICICI Prudential Gold ETF, 360 One Gold ETF, SBI Gold ETF and few others fell around 5 percent each.

What lies ahead?

Today's fall may have been driven by profit booking after two days of gains.

Markets are now focused on US ADP non-farm payrolls data and final services PMI readings from major global economies, said Kaynat Chainwala, AVP Commodity Research, Kotak Securities. However, the analyst added that the primary focus remains on Friday’s official US jobs report for signals on the timing of the next Federal Reserve rate cut.

“CME FedWatch currently shows no easing priced in until May, with June reflecting just a 44.1% probability of a 25bp cut versus a 44.9% chance of rates being held unchanged,” Chairwala said.

The "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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