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Informist, Thursday, Oct. 16, 2025

 

By Ashutosh Pati

 

MUMBAI – An acute shortage of silver in India's physical market has coincided with rising demand during the festival season, pushing domestic prices much higher than international benchmarks. The shortage of physical metal also led to a rise in premiums commanded by silver exchange-traded funds, which are backed by physical silver. With several funds halting new investments in their ETFs, the premium has already decreased, but it could take up to a month, or at least until after Diwali, for the premiums on domestic prices to stabilise, analysts said.

 

The premiums on silver ETFs have eased and silver ETFs across the major fund houses in India fell 6-8% Thursday. However, the premiums on domestic silver prices will only cool once there is a sufficient supply of the metal in the market, analysts said. Mutual funds, including Kotak Mahindra Mutual Fund, UTI Mutual Fund, and SBI Mutual Fund, have temporarily suspended new lump-sum investments in their respective silver ETF Fund of Funds due to concerns about liquidity in the physical silver market.

 

"It will take some time (for premiums to stabilise). ETF premiums are back to only 2% to 3%. But I think it will take one and a half months or more (for premiums to stabilise)," Manav Modi, assistant vice president at Motilal Oswal Financial Services Ltd., said.

 

Meanwhile, the Centre has restricted the imports of silver and unstudded jewellery from certain ASEAN countries till the end of the current financial year, exacerbating the shortage. India's silver imports in Jan-Aug fell over 61% to 1,808.9 tonnes, data from the Directorate General of Commercial Intelligence and Statistics showed.

 

"... the government's recent decision to restrict imports of plain silver jewellery during the festive season, aimed at protecting domestic manufacturers and jobs, has unintentionally tightened supply further," Riya Singh, research analyst, commodities and foreign exchange at Emkay Global Financial Services Ltd., said.

 

The silver market is experiencing a short squeeze in both India and global markets, making it increasingly difficult to secure supplies. Silver stocks are at multi-month lows in the London bullion market due to a surge in shipments to the US after the metal's inclusion in a draft US critical minerals list in September. "It (fall in premiums) depends on how and when the new supply hits the market and what new country or participant we move into for the new delivery," Modi said.

 

Ajay Kedia, director at Kedia Advisory, believes the premium in domestic prices will ease after Diwali, which is on Tuesday. Kedia expects supplies to gradually get back to normal once the festival is over.

 

COMEX silver prices have surged around 13% since the beginning of this month, while prices on the domestic bourse have risen nearly 16%. At 1403 IST, the most-active December silver contract on the domestic bourse was 0.9% higher at INR 163,654 per kg after touching a new record high of INR 164,660 per kg and the December silver contract on COMEX was trading 1.3% higher at $52.06 per ounce after surging to a record high of $52.76 per ounce.

 

Adding further tailwinds to prices is the sustained supply deficit in the global market. The global silver market is expected to be in a deficit for the fifth consecutive year at 117.6 million ounces in 2025, according to the Silver Institute. Total demand is projected to fall slightly to 1.15 billion ounces and the supply of the metal is estimated to rise by 1.5% to 1.05 billion ounces, led by higher mine production. The global silver market was in a deficit of 148.9 million ounces in 2024 and 184.3 million ounces in 2023.

 

Demand for silver, which is both a precious metal and an industrial metal, has been firm from investors as well as industrial users. The ongoing festival season in India has led to a rise in purchases of coins and bars, according to a jeweller from Mumbai's Zaveri Bazaar. The supply crunch is causing delays in the delivery of physical silver to jewellers, he said.

 

Portfolio diversification and speculation are also playing a role. There is diversification from institutions that are looking to change their portfolios and then there are the speculators who take the risk to profit from short-term volatility in the market, Anindya Banerjee, senior vice president for commodity and currency at Kotak Securities, said. 

 

"They look at how much is the demand from the industrial, how much is the demand from the diversifier and then they speculate on the value. So, from time to time, who will have the upper hand depends on the price. Right now, it is the speculators who are driving the price," Banerjee said.

 

Even though fundamentals for the white metal remain firm and show a bullish trend, analysts advised caution to new investors as the market is overheated. They suggest staggered investments in silver. "Prices are too much elevated, we recommend a cautiously optimistic stand," Jigar Trivedi, senior research analyst at Reliance Securities, said. "The technical pullback is not ruled out. One can invest, but in instalments," Trivedi said.

 

With rising prices and acute shortage, the London silver market was in a "state of seizure," said an analyst, commenting on the global hub. Bank of America sees silver prices rising to $65 per ounce in a few months, according to media reports.

 

In these circumstances, it is very difficult to gauge when there will be a correction in prices, Motilal Oswal's Modi said. "It could happen that once the new supply hits, when the premiums in physical ease off, that could have a natural pressure on prices," he said. But till the premiums are elevated, "I don't think there could be that ease off in the prices," the analyst added.  End

 

US$1 = INR 87.82

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Saji George Titus

 

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