Gold, Silver ETFs Fall Up To 11% In A Month: Should Investors Hold, Buy Or Exit?

Gold and silver exchange-traded funds (ETFs) have witnessed a sharp correction over the past month, with some silver ETFs falling nearly 11 per cent and gold ETFs declining over 7 per cent. The decline comes after a strong rally in precious metals over the past year and has left investors debating whether to book profits, hold existing investments, or use the correction to increase exposure.

Among gold ETFs, the five largest funds by assets under management (AUM) have all fallen between 7.36 per cent and 7.49 per cent over the past month. Nippon India ETF Gold BeES, the country's largest gold ETF with assets of Rs 56,755 crore, has declined 7.36 per cent. ICICI Prudential Gold ETF has fallen 7.38 per cent, while SBI Gold ETF has also slipped 7.38 per cent. HDFC Gold ETF is down 7.47 per cent, and Kotak Gold ETF has corrected 7.49 per cent.

The decline has been steeper in silver ETFs. Nippon India Silver ETF, the largest silver fund with assets of Rs 32,937 crore, has declined 10.65 per cent over the past month. ICICI Prudential Silver ETF has fallen 10.64 per cent, HDFC Silver ETF is down 10.53 per cent, SBI Silver ETF has corrected 10.46 per cent, and Tata Silver ETF has lost 10.45 per cent.

Even after the recent correction, gold and silver ETFs continue to show strong one-year returns. Gold ETFs are still up around 47 per cent, while silver ETFs have more than doubled investors' money, with returns exceeding 117 per cent.

As of June 22, the first session, gold futures on the Multi-Commodity Exchange (MCX) traded at Rs 1.49 lakh per 10 grams, while silver futures traded at Rs 2.38 lakh per kg.

Analysts attribute the recent weakness to a combination of global factors. Siddharth Srivastava, head of ETF product and fund manager at Mirae Asset Investment Managers (India), said, "Higher US real yields, profit booking due to asset rotation and a stronger US dollar are creating significant headwinds for gold & silver prices."

Gurmeet Singh Chawla, managing director at Master Portfolio Services, said, "Both gold and silver have now corrected significantly from their recent highs. The trigger is a cocktail of rising US interest rate hike expectations, easing geopolitical risk premium, and profit booking."

However, analysts do not see the recent correction as a sign of a structural deterioration in the asset class.

Chawla said that "gold is still up over 54 per cent year-on-year, and the structural case: dollar uncertainty, central bank buying, and domestic investment demand still remains intact."

Nitin Agrawal, CEO - mutual funds at InCred Money, said the recent correction appears to be driven largely by profit-taking. "The geopolitical risk re-rated the precious metals, leading to the sharp rally, and the recent correction looks more of a sign of profit booking rather than reallocation from the asset class," he said.

The fall in prices has left many investors wondering whether they should hold existing investments, buy more units, or exit after the sharp rally seen over the last year.

What Should Investors Do?

Most market experts advise investors to buy in a staggered way and rebalance their portfolios instead of making large one-time investments or exiting completely.

Agrawal said, "The answer, for most long-term investors, is more of an asset allocation decision rather than a tactical decision. Gold and silver warrant a 5-10 per cent asset allocation of the portfolio, and the current correction phase can be looked at as an opportunity to align the portfolio allocation to a pre-defined target weight."

He added that "corrections after such rallies are healthy."

According to Agrawal, "The best way to add is to stagger. Use an SIP into gold or silver ETFs, or divide a lump sum into tranches spread over weeks or months. This reduces timing risk and smooths your entry price."

He further said, "If your correction has pushed your precious-metal allocation below your target, rebalance to your target, don't chase a higher overall exposure."

For investors looking to enter the asset class, Chawla believes the current phase offers an opportunity. "For investors underweight on precious metals, this is a reasonable entry window. But it is suggested that one shouldn't do a lump sum and rather stagger your buying."

He added that "silver suits risk-tolerant investors given its higher volatility and industrial demand linkage."

Srivastava also expects volatility to continue in the near term. He said, "Both gold & silver are expected to remain volatile, driven by macroeconomic cues and geopolitical developments."

He added that "Gold's performance will be supported by sustained central bank buying, ongoing geopolitical uncertainties, concerns around inflation and global debt levels."

On relative attractiveness, Srivastava said, "Relatively, Gold seems better from a risk-reward point of view."

He added that "at current levels, where both precious metals have corrected sharply, there is an opportunity to allocate from a medium to long-term point of view, though with persisting weakness, one should look to invest in a staggered manner."

For investors already holding precious metal ETFs, analysts are not recommending exits. Instead, they suggest maintaining disciplined allocations, adding gradually during corrections and avoiding attempts to time short-term movements in gold and silver prices.