Silver on Dhanteras: Prices down 50% from peak, should investors buy now?

Silver's sharp correction has revived investor interest but experts are divided on its portfolio value, risks and the right way to invest

Silver

Amit Kumar New Delhi

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With silver prices correcting sharply from their January peak, investors looking to buy the metal this Dhanteras face a dilemma of does the fall offer an opportunity or is the metal still too volatile to deserve a place in their portfolios?

Silver, unlike gold, is both a precious metal and an industrial commodity, with demand coming from solar panels, electric vehicles, electronics and emerging technologies. While these factors support its long-term prospects, they also make silver more sensitive to changes in global economic activity and investment flows.

The recent correction has further divided market participants. While some experts see an opportunity for long-term investors to enter gradually, others caution against treating the price fall as an automatic buying signal.

Is the price correction an opportunity to buy?

Saumil Gandhi, senior analyst for commodities at HDFC Securities, believes the correction of more than 50 per cent in international and domestic silver markets has improved the metal's risk-reward profile. Although further downside cannot be ruled out, he believes the overall downside appears relatively limited.

Gandhi suggests that investors consider initiating positions at current levels through staggered purchases, adding to their holdings after every 5 per cent decline rather than investing the entire amount at once.

The underlying support comes from industrial consumption, particularly in solar energy, electrification and electronics. The global silver market is also expected to remain in a supply deficit, which could support prices over the longer term, he said.

However, the outlook is not uniformly positive.

Silver prices are influenced by industrial demand and speculative trading in futures markets, including on COMEX. Such trading can amplify price movements, making it difficult for retail investors to predict the next direction, Chacko said.

He does not recommend silver as an investment for long-term wealth creation, suggesting that investors instead focus on diversified equity mutual funds.

Vikram Dhawan, fund manager for commodities at Nippon India Mutual Fund, also advises investors to distinguish between long-term demand drivers and short-term price movements.

Silver is entering its sixth consecutive year of global supply deficit, with the shortfall being met through withdrawals from above-ground inventories. Demand from artificial intelligence infrastructure, electrification and advanced electronics remains supportive.

However, Dhawan cautioned that overcapacity in photovoltaic manufacturing and efforts to reduce silver consumption in individual solar cells have moderated demand from this segment. Supply deficits, therefore, do not guarantee uninterrupted price appreciation.

Silver or gold: Which is better for diversification?

The distinction between the two metals is important when deciding their place in a portfolio.

Sharwan Goyal, executive vice-president and head of passive, arbitrage and Quant Strategies and Fund Manager (Equity) at UTI AMC, said gold primarily serves as a store of value and a potential diversifier during economic or geopolitical uncertainty. Silver combines precious-metal demand with exposure to industrial growth.

This industrial connection creates opportunities but also makes silver more vulnerable to economic slowdowns. Its higher volatility means investors should not expect it to provide the same defensive qualities as gold.

Rahul Khetawat, senior vice-president and fund manager at 360 ONE Asset, said his firm’s current portfolio positioning favours gold over silver because of macroeconomic and geopolitical uncertainties.

Rising energy prices, inflation concerns and hawkish commentary from the US Federal Reserve have weighed on precious metals by reducing expectations of monetary easing. While central bank purchases and investment demand remain supportive, Khetawat believes gold offers a relatively better risk-reward proposition in the current environment.

Gandhi, however, believes silver can offer higher returns than gold once the ongoing correction stabilises and prices regain upward momentum. He considers it suitable for investors with a moderate-to-aggressive risk appetite.

How much silver should investors hold?

There is no universal allocation that works for every investor.

Gaurav Arora, head of research at Sahi, an investment platform, suggests keeping 8–10 per cent of the portfolio in gold and silver combined, with silver accounting for the smaller share. Even investors seeking higher exposure to precious metals should avoid allocating more than 20 per cent to the category, he said.

Goyal offers a more specific illustration. An investor with a Rs 10 lakh portfolio could consider allocating Rs 50,000 (5 per cent) to silver and Rs 1 lakh (10 per cent) to gold. The remaining Rs 8.5 lakh could be distributed across equities, fixed income and other assets according to the investor's financial goals and risk appetite.

Dhawan suggests that allocations to precious metals could broadly range between 5 and 15 per cent, depending on individual circumstances. Allocations below 5 per cent may have little impact on overall portfolio performance, while exposure exceeding 15 per cent could weigh on returns during prolonged periods of price consolidation.

Chacko takes a more conservative position. He does not recommend any strategic allocation to silver, citing its weaker risk-adjusted returns compared with equities and gold.

Physical silver, ETFs or mutual funds?

For investors who decide to buy silver this Dhanteras, the investment route can make a difference to their overall returns.

Physical silver involves 3 per cent GST, dealer premiums and making charges, which Arora estimates can range between 3 and 8 per cent for coins and bars. Investors must also account for storage, purity verification and resale costs.

Silver ETFs eliminate physical storage requirements but involve expense ratios and tracking differences. Arora estimates ETF expense ratios at around 0.30–0.60 per cent and advises investors to check whether the market price is trading at a premium to the net asset value (NAV).

Silver mutual fund schemes, which invest in silver ETFs, offer another option without requiring a demat account. They also allow systematic investment plans (SIPs).

Gandhi prefers ETFs over physical silver, provided investors buy close to their NAV. Goyal and Dhawan also highlight ETFs and mutual fund schemes as more convenient options for financial portfolio diversification.

Gandhi’s preference for diversified equities over silver and Goyal's emphasis on measured precious-metal exposure underline an important distinction for festive buyers.

Buying silver on Dhanteras may carry cultural significance, but investors should not confuse the tradition with a financial strategy. As Goyal puts it, the festival can be an occasion to start investing, not a deadline to complete the purchase. For those entering the market, a measured allocation and staggered buying are more important than trying to predict the next price movement.