Precious Metal Funds Witness Sharp Selling as Investors Shift Towards Equities; Analysts Continue to Recommend Long-Term Accumulation

Gold and silver exchange-traded funds (ETFs) witnessed broad-based selling on Thursday as international precious metal prices remained under pressure due to a stronger US dollar, rising expectations of additional interest rate hikes by the US Federal Reserve, and easing geopolitical tensions that reduced demand for traditional safe-haven assets.

Silver ETFs emerged as the biggest losers, falling by more than 4%, while gold ETFs declined by up to 2.5% during morning trade. The weakness followed a sharp correction in global bullion prices, with investors increasingly rotating capital into equity markets amid improving global risk sentiment and falling crude oil prices.

Despite the near-term volatility, market experts maintain that the long-term investment case for precious metals remains intact, recommending investors use corrections to gradually accumulate positions rather than exit the asset class.

International Gold and Silver Prices Remain Under Pressure

Global bullion markets continued to trade lower on Thursday, extending losses recorded earlier this week.

At the latest available levels:

• Spot Gold: $3,989.01 per ounce, down 0.04%

• Spot Silver: $57.37 per ounce, down 1.07%

In the domestic bullion market:

• Gold: ₹12,087 per gram, down 0.13%

• Silver: ₹1,73,619.64 per kilogram, down 1.29%

Gold hovered near its lowest level in nearly eight months, while silver slipped to its weakest level since December, reflecting subdued investor demand for precious metals across global markets.

Stronger US Dollar Becomes the Biggest Headwind

The primary factor weighing on gold and silver prices has been the appreciation of the US dollar.

The US Dollar Index (DXY) strengthened to around 101.5, its highest level in nearly a year, making dollar-denominated commodities more expensive for overseas buyers.

Historically, gold and the US dollar share an inverse relationship. When the dollar strengthens, demand for bullion generally weakens as international investors find precious metals relatively more expensive.

At the same time, expectations that the US Federal Reserve could continue raising interest rates later this year have further dampened sentiment.

Higher interest rates increase the attractiveness of fixed-income assets while reducing the appeal of non-interest-bearing investments such as gold and silver.

Easing Middle East Tensions Reduce Safe-Haven Demand

Another major reason behind the correction is the significant improvement in geopolitical sentiment.

Recent easing of tensions in the Middle East has reduced the urgency for investors to hold defensive assets.

Simultaneously, Brent crude oil prices have retreated below $70 per barrel, easing inflation concerns and improving the outlook for the global economy.

As geopolitical risks subside and economic confidence improves, investors typically reduce allocations to safe-haven assets like gold and increase exposure to equities and other growth-oriented investments.

AI-Driven Equity Rally Draws Investor Capital

Analysts also attribute the decline in precious metal ETFs to a global shift in investment preferences.

The ongoing rally in technology stocks, fuelled by optimism surrounding artificial intelligence (AI), has attracted fresh capital into global equity markets.

Improving earnings expectations for technology companies, combined with stronger performance in major stock indices, have encouraged investors to rotate funds away from defensive asset classes.

The movement reflects a broader "risk-on" market environment, where investors favour growth assets over capital preservation.

Silver ETFs Register the Sharpest Declines

Silver exchange-traded funds recorded significantly steeper losses than gold ETFs.

Among the worst-performing silver ETFs were:

• Mirae Asset Silver ETF (-4.34%)

• DSP Silver ETF (-4.31%)

• Nippon India Silver ETF (-4.30%)

• SBI Silver ETF (-4.27%)

• Tata Silver ETF (-4.25%)

• Motilal Oswal Silver ETF (-4.22%)

• Kotak Silver ETF (-4.21%)

• UTI Silver ETF (-4.20%)

• ICICI Prudential Silver ETF (-4.15%)

• Aditya Birla Sun Life Silver ETF (-4.14%)

Other silver funds, including Zerodha Silver ETF, Edelweiss Silver ETF, 360 ONE Silver ETF, Angel One Silver ETF and Bandhan Silver ETF, also traded sharply lower.

Silver tends to experience greater volatility because it serves a dual role as both a precious metal and an industrial commodity. Weak industrial demand expectations, combined with lower investment demand, often result in sharper price swings than gold.

Gold ETFs Also Witness Broad-Based Selling

Gold ETFs remained under pressure across the board, though the magnitude of losses was relatively lower than silver.

Leading gold ETFs posting declines included:

• Kotak Gold ETF

• Bandhan Gold ETF

• Groww Gold ETF

• Baroda BNP Paribas Gold ETF

• DSP Gold ETF

• Edelweiss Gold ETF

• SBI Gold ETF

• Nippon India Gold BeES

• HDFC Gold ETF

• ICICI Prudential Gold ETF

• Tata Gold ETF

• Motilal Oswal Gold ETF

• UTI Gold ETF

• Aditya Birla Sun Life Gold ETF

• LIC MF Gold ETF

• HSBC Gold ETF

Most gold ETFs declined between 1.75% and 2.5%, reflecting broad-based selling across the precious metals segment.

Technical Outlook Remains Weak in the Near Term

Commodity analysts believe that technical indicators continue to suggest caution.

Gold is currently trading below the psychologically important $4,000 per ounce mark, while silver remains below key resistance levels.

The breakdown below these technical levels has encouraged traders to continue booking profits and reducing exposure until stronger support emerges.

Near-term price direction will largely depend on macroeconomic developments and central bank commentary.

Key Global Triggers Investors Should Watch

Several upcoming events are expected to influence precious metal prices over the coming weeks.

Key factors include:

• US inflation (CPI and PCE) data.

• Federal Reserve policy meetings.

• Movement in the US Dollar Index.

• Treasury bond yields.

• Global geopolitical developments.

• Central bank gold purchases.

• Global manufacturing activity.

• Crude oil price movements.

These indicators will shape expectations regarding future interest rates and, consequently, the direction of gold and silver prices.

Why Analysts Still Prefer Gold for Long-Term Portfolios

Despite the recent correction, investment experts continue to recommend maintaining strategic exposure to gold.

Gold remains an important portfolio diversifier because it offers protection against:

• Inflation.

• Currency depreciation.

• Financial market volatility.

• Geopolitical uncertainty.

• Systemic economic risks.

Rather than attempting to time short-term market movements, analysts recommend investing gradually through Systematic Investment Plans (SIPs) or staggered purchases during periods of correction.

Silver also remains attractive over the long term due to its increasing use in renewable energy, electric vehicles, solar panels, electronics and industrial manufacturing, although investors should be prepared for higher price volatility.

Equity Markets Outperform Defensive Assets

While bullion prices remained weak, Indian equities traded firmly in positive territory.

The BSE Sensex gained more than 525 points, while the Nifty50 advanced around 143 points, supported by falling crude oil prices, positive global market cues and broad-based buying across automobiles, banking and industrial stocks.

The contrasting performance highlights the current preference among investors for growth-oriented assets over traditional defensive investments.

Outlook

The correction in gold and silver ETFs reflects changing global market dynamics rather than a deterioration in the long-term fundamentals of precious metals. A stronger US dollar, expectations of additional Federal Reserve rate hikes, easing geopolitical tensions and improving investor appetite for equities have combined to pressure bullion prices in the short term.

However, analysts believe gold continues to serve as an effective hedge against inflation, currency fluctuations and future geopolitical uncertainty, while silver retains significant long-term demand potential due to its dual role as both a precious and industrial metal. For long-term investors, the current correction may provide an opportunity to gradually accumulate high-quality gold and silver ETFs as part of a diversified investment portfolio.