Silver exchange traded funds (ETFs) have fallen nearly 38% from their all-time high in just seven trading sessions. After the record level reached on January 29, leveraged positions were opened rapidly due to margin expansion and profit booking, leading to heavy selling. This sharp fall came at a time when spot silver in the international market first slipped below $65 an ounce and then rose 8.6% to reach $77.33 on Friday with a strong rise. This fluctuation shows how much volatility there is in silver at present and how delicate the market positioning is.
The selling intensified when CME Group increased margins on gold and silver futures for the third time in two weeks. Due to this, those trading with leverage had to cut their positions. Expectations of a strong dollar and a tough stance by the Federal Reserve also increased the pressure. According to Harish V, Head of Commodity Research, Geojit Investments, last week's sharp fall was due to Fed's tough signals, strong dollar and forced selling due to increase in CME's margins. Profit-booking after record high also further weakened the market.
Despite such a huge fall, fund managers believe that there may be opportunities for long-term investors. Provided that they invest slowly and systematically.
Satish Dondapati, Fund Manager, Kotak Mahindra AMC, says, at current levels, investing in silver ETFs can be considered from a long-term perspective. Although there may be fluctuations in the short term, the fundamental position of silver is strong in the long term. Shortage of supply and industrial and investment demand are in its favor.
He also cautioned that the amount of investment should be decided thoughtfully. Silver is a very volatile asset. Keep the share of precious metals in the total portfolio around 1520%. Aggressive investors can go for the upper part of this range, while cautious investors keep lower exposure. Akshat Garg, Research Head, Choice Wealth, says that the silver market is relatively small, hence the decline seems more sharp. In the last year, prices increased very rapidly and a very positive positioning was created. In such a situation, even a slight change in global signals brings correction. Silver reacts more quickly than gold, and its effect is immediately visible on the ETF.
Technically speaking, there are some signs of stability. Currently silver is trading in the demand zone of $7180. There is a hammer pattern around $64 and support near the 100-day EMA, which provides support in the long term.
Wealth managers are refusing to take decisions out of panic. Garg says, no need to panic. Fluctuations in silver are normal. A correction does not take away its long-term value, but it does serve as a reminder of how important correct position size is. His advice is to avoid lump sum investment. It is better to invest gradually, in installments, rather than chasing prices or reacting to daily movements. Silver is good for a supporting role in a portfolio, not a core holding.
Harish also says that bullion investors should remain patient and not react immediately to short-term fluctuations. It is important to keep an eye on the movement of the dollar and the next signals from the Fed. Overall, silver's industrial and monetary role supports it in the long term. If the prices sustain above $8085, then the path of recovery may open towards $100105. This means that opportunities may arise for those investors who missed the first rally. You just need to have the courage to bear the ups and downs.
