Why Gold and Silver ETFs Are Falling Now
Following a significant gain, gold and silver ETFs have experienced a dramatic decline. This article provides a simple explanation of the global price decline, the disappearance of ETF premiums, and the implications for Indian investors.
MARKET NEWS
8/31/20264 min read
Gold and silver ETFs are declining mostly due to the way ETFs are priced and traded in India as well as the fact that global gold and silver prices have dropped from extremely high levels. The decline is a combination of two factors: the actual decline in metal prices and an additional decline in ETF pricing as the previous "premium" vanishes.
What is actually falling: Metal or ETF?
Gold and silver futures and spot prices (global and on the MCX) have fallen from record highs. Gold and silver ETFs in India track these prices, but they also trade on the stock exchange as shares. When demand is great and units are limited, their market price can range from fair value (near to actual metal value) to a premium (higher than fair value). When metal prices correct and demand cools, ETFs usually drop more than the commodity since the initial premium is lost.
Global gold and silver prices corrected after touching the highs
Following a big surge, various factors brought metal prices lower. When news showed a softer US attitude on tariffs and no military action in regions like Greenland, the "safe-haven" rush into gold and silver slowed, and investors returned to riskier assets such as stocks. Many investors took profits following large gains, adding to selling pressure. A stronger US dollar made dollar-priced gold and silver more expensive for buyers using foreign currencies, resulting in less demand and lower prices. Expectations of a "higher for longer" US interest rate environment made non-yielding assets, such as gold, less appealing than bonds or fixed deposits.
ETF-specific reasons include premium unwinding and supply-demand mismatch
This is a major reason why ETFs may fall more sharply than metals. During the surge, many gold and silver ETFs traded at a premium to their iNAV due to significant demand for ETF units and fund companies' limited ability to quickly create additional units. With a limited supply of units and great demand, buyers were willing to pay more; therefore, the ETF price exceeded the actual metal value. When global prices fell and mood shifted, many investors hurried to sell ETF units. At the same time, fund houses caught up with supply, reducing the lack of units. The premium immediately vanished, and ETF prices returned to near to iNAV. So, part of the dramatic drop in ETFs is due to not only a drop in metal prices but also the elimination of this extra premium.
Leveraged prodcuts and margin changes
Globally, some leveraged ETFs and futures traders had acquired significant positions in silver and gold. When prices began to fall, markets for gold and silver futures boosted margin requirements. Leveraged funds had to sell underlying investments in order to meet margins and keep their leverage ratio intact. This resulted in a feedback loop: price drops, forced selling, and further price drops, particularly in silver. This worldwide volatility and forced selling shifted mood, which subsequently spread to Indian markets and ETFs.
Domestic market timing
Sometimes Indian markets close while global markets remain open. If global gold and silver correct unexpectedly on a day when India has a market holiday, Indian ETFs will gap down the next day to catch up with the new world level. This can make the drop appear quick and huge on the chart, even if it occurred gradually elsewhere.
Why do silver ETFs fall more than gold ETFs?
You may observe that silver ETFs have dropped more than gold ETFs. Silver is more volatile than gold; thus, its price swings are inherently larger. Silver also attracts more short-term traders and leveraged positions, so when mood shifts, the selling intensifies. Silver is used in both industry and investment, so any changes in growth or demand predictions have a greater impact.
Means gold and silver are bad investment options?
No, not necessarily. The decline is primarily a correction following a big rally, rather than a fundamental collapse of gold and silver as assets. A technical change in ETF pricing as a result of premium unwinding contributes to the decline. Long-term investors should expect such corrections in any asset class. The trick is to determine whether you're buying for short-term trading or long-term wealth creation and hedging. You may also determine how much of the decline is due to metal price vs premium elimination by comparing ETF pricing to iNAV on the fund house or exchange website.
Follow us on
Smart Money Management is a finance platform dedicated to helping people make smarter decisions about earning, investing, and managing money.
Quick Links
Contact Us
smm@smartmoneymanagement.site
© 2026 Smart Money Management. All Rights Reserved