The sharp decline in precious metal exchange traded funds on February 5 is a direct reflection of the volatility seen in MCX futures, where silver prices dropped 6 percent and gold fell around 3 percent in early trade. The correction comes just two sessions after both metals had staged a recovery from a prior slump, highlighting how sensitive investor positioning currently is to global macro signals and near-term profit booking.

Silver ETFs bore the brunt of the fall. Kotak Silver ETF declined nearly 17 percent in early trade to around Rs 231. Other silver-linked funds such as Edelweiss Silver ETF and Mirae Asset Silver ETF dropped between 12 and 16 percent, mirroring the deep cut seen in March and May silver futures contracts on the Multi Commodity Exchange of India.

Gold ETFs also saw notable pressure, though the drawdown was relatively milder. Motilal Oswal Gold ETF fell more than 5 percent, while products from ICICI Prudential Gold ETF, SBI Gold ETF, and others declined around 5 percent in line with the fall in April and June gold futures.

This price action is not occurring in isolation. Precious metals had rallied over the previous two sessions after an earlier sharp correction. The latest fall indicates that traders are quick to book profits in an environment where global rate expectations and liquidity signals remain uncertain. According to commodity analysts, the immediate trigger is the market’s positioning ahead of key US macroeconomic data, particularly the official jobs report due on Friday, which could reshape expectations around the timing of the next US Federal Reserve rate cut.

Market participants are also tracking ADP non-farm payroll data and services PMI readings from major economies. The CME FedWatch tool currently shows that rate easing is not meaningfully priced in before May, with June odds for a 25 basis point cut nearly evenly split with expectations of rates remaining unchanged. That ambiguity is translating into short-term volatility in assets like gold and silver, which are highly sensitive to real interest rate expectations.

Some analysts described the recent move in gold and silver as a cooling phase after an “overbought” run, rather than a reversal of the broader trend. A hawkish US Fed nominee commentary and increased margin requirements in global commodity markets reportedly added to the pressure, accelerating the unwinding of leveraged positions.

From a structural perspective, however, the long-term narrative for precious metals remains intact. Analysts point to continued central bank buying of gold, persistent supply deficits in silver, and ongoing geopolitical tensions as underlying supports for the asset class. That is why the current correction is being interpreted by many as a tactical shakeout rather than a fundamental shift.

For Indian investors, the episode is a reminder of how ETF prices are tightly linked to futures market volatility. Unlike physical holdings, ETF prices adjust almost instantaneously to global price movements and currency effects. Silver ETFs, in particular, tend to exhibit amplified volatility compared to gold due to silver’s dual role as both a precious and industrial metal.

Portfolio managers are advising caution on over-allocation to silver after its sharp run-up in recent months. Some prefer gold over silver from a relative risk-reward perspective at current levels, citing gold’s stronger role as a monetary hedge versus silver’s higher cyclical exposure.

The episode also underscores the increasing participation of retail investors in commodity ETFs, where short-term price swings can be significant. Many investors who entered silver ETFs during the rally may now be facing sharp mark-to-market losses, reinforcing the need for disciplined allocation rather than momentum-driven buying.