The Nifty Metal index is experiencing significant pressure as global commodity markets witness sharp volatility driven by the annual rebalancing of major commodity indices. This technical adjustment is triggering large-scale fund reallocations across precious metals, energy, and industrial metals, creating widespread selling pressure across the metals sector.

Index Rebalancing Drives Precious Metals Correction

According to Mohammed Imran, Commodity Analyst at Mirae Asset Sharekhan, precious metals have entered a corrective phase with further downside expected due to mean reversion in index weightages. The Bloomberg Commodity Index rebalancing reveals the scale of adjustment needed:

"Silver could see sharper pressure compared to gold," Imran noted, projecting that Comex silver may test support levels near $70.00. The rebalancing exercise is expected to continue pressuring precious metals as passive tracking funds adjust their allocations.

Energy Sector Shows Mixed Outlook

While precious metals face headwinds, the energy basket presents a more nuanced picture. The index rebalancing has reduced exposure to US benchmarks like WTI crude and natural gas, but increased Brent crude's weightage:

This shift could provide selective support to Brent prices in the near term, according to Imran's analysis.

Industrial Metals Face Mixed Pressures

Copper, despite rallying more than 40.00% since early 2025, may see near-term correction due to index adjustments, even as its weightage rises to 6.36% in 2026. Imran expects prices to cool towards the 13,000 level in coming weeks.

However, structural factors remain supportive for copper:

Aluminium and Zinc Diverge

Among other industrial metals, aluminium appears better positioned for 2026. Despite China capping production at around 45.00 million tonnes, new Indonesian capacity could add 500,000-600,000 tonnes this year. Substitution demand from expensive copper and steady global consumption could push aluminium into a deficit of 200,000-300,000 tonnes.

Zinc faces a different trajectory. After recent European tightness pushed prices into backwardation, rising Chinese exports have eased supply concerns. With the market now in contango, Imran expects zinc prices to drift lower towards 2,900 in coming months.

Market Outlook and Investment Implications

Analysts caution that near-term volatility driven by technical rebalancing may continue affecting the Nifty Metal index and broader commodity markets. However, underlying demand-supply dynamics will remain the key driver for commodity prices in 2026. The current correction, while significant, appears largely technical in nature rather than reflecting fundamental deterioration in metals demand.

Silver prices experienced dramatic volatility on January 7, with MCX futures crashing over ₹8,000 per kilogram from an intraday record high as profit booking intensified ahead of key US economic data and Federal Reserve decisions. The March expiry futures dropped over 3% to ₹2,51,720 per kilogram after touching a fresh record of ₹2,59,692 per kilogram earlier in the session.

Intraday Volatility and Record Movements

The silver market witnessed unprecedented swings during the trading session:

Spot silver also declined 2.30% to $79.40 per ounce, retreating from its all-time high of $83.62 hit on December 29. Despite the recent pullback, silver recorded its strongest annual performance, soaring over 147% amid rising industrial and investor appetite.

Market Drivers and Fed Outlook

The sharp decline came as the US dollar hovered near a more than two-week high, making greenback-priced metals more expensive for other currency holders. Federal Reserve officials remain divided on monetary policy direction, with Governor Stephen Miran advocating for aggressive rate cuts while Richmond Fed President Thomas Barkin emphasized data-dependent "finely tuned" adjustments.

Kaynat Chainwala, AVP Commodity Research at Kotak Securities, noted that "December FOMC minutes suggest officials remain divided on timing and scale of rate cuts." Wall Street is currently pricing in two benchmark interest rate cuts for the year, with investors closely watching ADP employment data and Friday's non-farm payroll report for monetary policy clues.

ETF Performance and Technical Outlook

Despite the volatility, market experts maintain a bullish long-term outlook. Peter McGuire, CEO of Trading.com Australia, expects silver to reach $90-95 by month-end with potential to approach $100 in the first quarter. However, he warned of sharp pullbacks of 6-8% in single trading sessions before renewed upward momentum.

Geopolitical Factors and Supply Dynamics

Chainwala highlighted that "Silver's surge was buoyed further by China's silver export controls and Trump's threats to resource-rich nations like Greenland, Cuba, and Mexico following strikes on Venezuela, underscoring intensifying competition for critical resources." The risk premium from US-Venezuela tensions has enhanced the safe-haven appeal of precious metals.

The underlying fundamentals remain supportive with structural supply-demand imbalances, constrained mine output, and rising industrial usage from technology and renewable energy sectors continuing to drive long-term demand for the white metal.