Silver prices have hit record highs in India as demand for the precious metal continues to outpace supply, creating a sharp rise in both spot and futures markets. The sudden surge has even forced three major fund houses, Kotak Mutual Fund, UTI Mutual Fund, and ICICI Prudential Mutual Fund, to temporarily stop accepting fresh lump sum investments in their silver ETF fund of funds.
This move, according to the fund houses, is aimed at protecting investors from entering the market at inflated prices. Currently, physical silver in India is trading at a massive 12% premium over global rates, far higher than the usual half a per cent difference. The premium has been driven by a severe shortage of silver in the domestic market, with supply delays and strong festive season demand adding to the pressure.
While systematic investment plans (SIPs) in silver ETFs will continue as usual, the creation of new ETF units has been halted because these funds require physical silver as backing. With limited supply available, this temporary restriction aims to prevent investors from buying at unrealistic prices that could fall once the market normalises.
According to experts, there are three main reasons behind the steep rally in silver prices.
1. SUPPLY SHORTAGE AND FESTIVE DEMAND
India is facing an acute shortage of physical silver due to delayed imports and increased consumption during the festive season. The metal, widely used for gifting and in jewellery, sees heightened demand around this time of year. The ongoing shipping bottlenecks have worsened the supply situation, creating scarcity across retail markets.
“Silver, silver and silver all the way, 3.27% higher on MCX, gold 1.5% higher, copper 1.5% higher, all put together a very strong rally. Silver is the top gainer in the traded list, at 2.9% higher and trading at Rs 1,51,161. This rally refuses to abate,” said the Chief Analyst and Editor of Markets at Business Today Television.
2. INDUSTRIAL AND TECHNOLOGY DEMAND
Silver is increasingly being used in advanced technologies, including solar panels, electric vehicles, 5G equipment, and artificial intelligence (AI) hardware. The demand for these applications has surged globally, and silver has no viable substitute in these sectors.
Vandana Bharti, Assistant Vice President of Commodity Research at SMC Global Securities Ltd, said, “This is the metal where we see very little recycling compared to gold, and new silver mines take around 7-8 years to become operational. The demand from AI hardware, solar, and 5G is huge, and there is no substitute for silver in these categories. This has led to more ETF buying and global scarcity of the metal.”
Bharti added that physical silver stocks are running out across global markets, including the US, Europe, and China, leading to tight supply conditions. “What’s happening now is that physical silver is trading at a $3 premium compared to future silver, something that doesn’t happen in normal circumstances,” she said.
3. STRATEGIC METAL STATUS AND GLOBAL BUYING
Silver’s importance has gone beyond its use in jewellery and industry. It is now being considered a strategic metal, with central banks around the world adding silver—both physical and ETF-backed—to their reserves. The United States recently categorised silver as a “critical mineral”, increasing its strategic significance in the global supply chain.
“Many central banks are now buying silver along with gold, both in physical and ETF form. This has added immense pressure on the limited physical supply. The US has classified it as a critical mineral, which means every country and company wants to secure it. That is why the rally in silver has been so sharp and sustained,” said Bharti.
WHAT NEXT FOR INVESTORS?
Experts suggest that investors should remain cautious for now, as the market is driven by tight supply and speculative activity. “Investors should wait for the situation to normalise before entering silver ETFs. The market may cool down in the next two to three months,” Bharti advised.
However, long-term prospects for silver remain strong, with growing demand from the renewable energy, electronics, and defence sectors. Many analysts believe silver’s role as both an industrial and precious metal could make it one of the most valuable commodities in the years to come.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)
