Domestic Silver Prices and Silver ETFs Are Outperforming Global Benchmarks: Is It Too Good to Be True?

With the ongoing Russia–Ukraine war, slowing global growth, and renewed tariff tensions under Trump, global uncertainty is once again on the rise. As fear spreads across markets, investors are flocking toward traditional safe havens, gold and silver.

There are many ways to invest in gold and silver today. Beyond buying them in their physical form, like coins, bars, or jewelry, investors can also opt for Exchange-Traded Funds (ETFs), mutual funds, or even digital gold. Each option offers a different mix of liquidity, safety, and returns, depending on your investment goals.

But recently, there has been a sharp spike in the premiums of the ETFs in India and domestic silver prices.

Prices of Physical Silver and Silver ETFs: Understanding Returns and Supply Strains

Going by the book, ETFs are passive mutual funds, which means their goal is to replicate the performance of their underlying asset. As a result, they typically deliver slightly lower returns than the asset they track—mainly due to factors like expense ratios, tracking errors, and fund management costs. In this case, since the underlying asset is silver, it’s expected that Silver ETFs would trail the actual performance of physical silver by a small margin.

From the chart, it’s evident that Silver ETFs have delivered absolute returns ranging between 23% - 26% during the period 26th September 2025 to 13th October 2025.

∙ SILVERBEES gave around 23.55%,

∙ SILVERADD about 23.97%, and

∙ SILVERCASE led the pack with 26.67% returns.

The average daily returns for these ETFs ranged between 2.18% - 2.46% during the same period.

When compared to silver global benchmarks, which delivered about 13% - 14% returns in the same period, domestic silver (23.77%) appears to have significantly outperformed the global benchmark. As a result, mutual funds, ETFs and the domestic silver commodity are trading at a premium to global silver prices.

Mutual funds investing in silver (like Axis, Nippon India, and DSP Silver FoFs) also showed comparable returns in the 23–25% range, while international benchmarks such as iShares Silver ETF ($) and LBMA Silver Spot Price ($) reported lower gains of 12-13%.

Interestingly, this sharp rise in silver ETF returns has also exposed a growing supply strain in the market. In fact, Kotak Mahindra Asset Management recently announced a temporary halt on new investments in its Silver ETF Fund of Fund from October 10, 2025, citing a shortage of physical silver in India. Following this, other AMCs have announced similar restrictions.

Due to strong investor demand and limited availability, domestic silver prices are trading at a premium compared to global benchmarks. This imbalance has intensified as the festive season approaches, further driving up prices. Spot silver even touched a record high of $51.22 per ounce, marking the first time it has crossed the $51 mark. ETF investors are paying a 10% premium to buy silver, which means that you have to earn 10% just to break even, as the premium will disappear eventually. Kotak AMC clarified that the suspension is temporary and will be lifted once supply improves and the premium normalizes.

Arbitrage Trade:

This anomaly clearly highlights how ETF performance can sometimes diverge from the underlying asset when market liquidity tightens. ETF investors may be familiar with similar premiums observed in Motilal Oswal NASDAQ ETF (MON100) during recent times.

Arbitrage of this price divergence (buying silver in the global spot market at a lower price and selling the ETF at higher price) should ensure this price inconsistency disappears; however, restrictions on importing silver and import duty prevent this arbitrage from happening until supply normalizes.

Also Read: Does Adding Gold to Equity Portfolio Reduce Risk? Here’s Our Analysis Based on 29 Years of Data

Conclusion:

The recent rally in silver may look impressive, but the current price in India (Physical / Mutual Funds / ETF) is higher than global silver prices. Shortages in physical silver supply and festive demand have temporarily inflated prices, pushing both ETFs and spot silver to trade at steep premiums over global benchmarks. Consulting an investment advisor can provide a detailed perspective on whether these movements reflect real value or short-term distortions.

For investors, the key lessons are clear:

• ETFs are not always a perfect mirror of the commodity they track — premiums can distort returns.

• Premium may not sustain once supply normalizes and premiums fade.

• Arbitrage limitations in India can delay price corrections, amplifying temporary inefficiencies.

In essence, Silver ETFs remain a convenient and liquid way to gain exposure to silver — but when the market shines too bright, it’s worth checking if that glow is genuine or just a reflection of scarcity.