Diwali festival, the beginning of the new Hindu calendar year, is regarded as ideal for buying precious metals like gold and silver. Samvat 2080, which is ending in couple of days, clearly belonged to both silver and gold exchange traded funds (ETFs), as they outperformed both Nifty50 and BSE Sensex.
Gold ETFs, silver ETFs, Nifty and the Sensex are witnessing a record run this year delivering 30 per cent, 28 per cent, 27 per cent and 25 per centrespectively. Nifty rode the bull wave on the back of solid corporate earnings, a rise in foreign investments and positive investor sentiment, while geopolitical worries fuelled the bullion run.
But will gold and silver still be the star of Samvat 2081, given the high price, strong competition from equities, the removal of Sovereign Gold Bonds (SGBs), and Cyclone Dana’s impact on rural demand?
“This surge has not come as a surprise because precious metals, especially gold is considered as a haven in war-like situations. Amid the ongoing West Asian conflict and other geopolitical tensions, coupled with the Fed’s shift towards easing monetary policy, both the metals have experienced significant gains over the past year. Additionally, the upcoming US presidential elections have heightened financial market uncertainty, driving more investors towards gold,” Shruti Jain, Chief Strategy Officer, Arihant Capital Markets, told businessline.
Sriram BKR, Senior Investment Strategist, Geojit Financial Services, pointed out that buying of gold by global central banks, including India, and the US Fed rate cut are positive triggers for the precious metal.
According to Zerodha Fund House, the number of gold ETF folios surged from 48 lakh to 57.1 lakh in one year ending September 2024.
Discontinuation of SGBs/Gold ETF
Gold ETFs saw some competition in the form of SGBs due to the latter’s better returns. SGBs, since their introduction in November 2015, have always been a superior option for investing in gold. Though the Centre has now stopped the scheme considering the financial burden, analysts say this will not dissuade investors towards investing in gold. “Lack of fresh issues is actually a dent for investors looking at investing in the fresh issue(s), for its tax benefits. Still, SGB series are listed and traded in exchanges. So, those looking at investing in SGBs can continue to look at them depending on their tenure of investment, the available liquidity and the market price,“ said Geojit’s Sriram.
Chakrivardhan Kuppala, Co-Founder and Executive Director, Prime Wealth Finserv, concurred: “With SGBs off the table, many investors looking for secure gold investments may shift to gold ETFs. These ETFs offer liquidity and can be traded on stock exchanges, making them more flexible compared with SGBs. Additionally, they remove the need for physical storage, which is a plus. In 2024, gold ETFs have seen inflows of around ₹7,367 crore, indicating a rise in demand for these products.”
But high prices may cause minimal impact on physical gold, these analysts pointed out. Physical gold has always been an attraction during the three or four festive seasons. Since gold prices are at its peak (both globally and domestically), some may defer purchases or do it at a reduced pace, said Sriram.
Silver, the glowing substitute
It is against this backdrop that silver comes to the rescue. The glittering white metal, valued both as a precious metal and an industrial commodity, is influenced by a mix of economic, geopolitical and technological factors. Unlike gold, silver has widespread industrial uses, especially in electronics, solar panels, semiconductors and medical devices. As new technologies continue to develop, the demand for silver in these areas is likely to increase, potentially driving prices higher.
Silver ETFs so far have seen good traction among the investors. Per data, Silver ETF inflows for FY25 till September stood at ₹4,993 crore, of which ₹1,664 crore came in August alone. According to Sriram, FY25 flows were 9.9x the inflows of FY24-same period. Silver ETF Folios were up 236 per cent year on year as of September. “We feel it is finding traction among investors, in terms of adding to the portfolio as part of diversification or for near-term directional views. Some inflows could be a shift from buyers of physical silver too.”
Just like gold, silver is also considered a safe haven, said Jain. With the rising geopolitical tensions and uncertainty due to US elections, silver prices have been on a northward trajectory. Additionally, the value of silver has also bolstered by the global demand from the EV sector and the increasing use of photovoltaic technologies in renewable energy. “With the stimulus package announced in China, we can see a rise in the industrial demand for silver. Moreover, a good number of investors are favouring silver over gold due to its affordability. So, the long-term view on silver is positive,” he added.
Gold as an asset class is crucial for portfolio diversification. This will come in handy during market downturns as gold prices often rise when other assets decline, according to Jain. Moreover, the yellow metal provides a more stable investment option for those looking to protect their wealth amidst market volatility and geopolitical risks, added Kuppala.