Silver markets witnessed significant volatility on January 22, with silver ETFs experiencing dramatic declines that far exceeded the drop in underlying futures contracts. While MCX silver futures fell 4%, major silver ETFs crashed between 20-24%, highlighting a stark divergence in performance.

MCX Silver Futures Decline on Eased Tensions

Silver futures on the Multi-Commodity Exchange dropped 4% to ₹305,753 per kilogram on Thursday, driven by reduced geopolitical tensions and US dollar strength. The decline followed US President Trump's decision to back down from new tariff threats and proposals to annex Greenland by force, which dampened safe-haven demand for precious metals. From its all-time high, MCX silver rates are now lower by almost ₹30,000.

Silver ETFs Experience Severe Correction

The impact on silver ETFs was far more pronounced than the underlying futures market:

Understanding the Performance Divergence

The sharper decline in silver ETFs compared to MCX silver futures reflects the unwinding of speculative premiums rather than fundamental weakness. According to Harshal Dasani, Business Head at INVasset PMS, Indian silver had moved into speculative premium territory ahead of the Budget, driven by expectations of import duty changes.

Over recent sessions, MCX silver had significantly outperformed COMEX due to Budget-related expectations. At its peak, Indian silver traded near $107 per ounce, representing an unusually wide premium of almost $13 above the COMEX price of around $94. This premium was largely sentiment-driven rather than based on physical market tightness.

ETF Premium Dynamics and Market Correction

Despite the sharp declines, most silver ETFs continue trading at premiums to their net asset values. These premiums had built up due to:

• Rumors of import duty hikes in the upcoming Union Budget
• Speculative buying by investors
• Expectation-driven sentiment rather than physical market fundamentals

Dasani explained that silver ETFs, priced off domestic spot benchmarks while reflecting investor flows and arbitrage pressures, tend to react faster during premium collapse phases. When retail investors rush to book profits, ETF units face additional selling pressure even as MCX futures stabilize.

Investment Outlook and Strategic Considerations

Justin Khoo, Senior Market Analyst - APAC at VT Market, views the ETF correction as profit-taking and risk-rebalancing amid rallying equity markets. He notes that structural drivers including central bank accumulation, long-term demand, and inflation hedging remain intact.

For investors, Khoo suggests that disciplined participants may view this correction as a strategic accumulation opportunity, while cautioning against aggressive short-term speculation given ongoing volatility. The correction appears technical rather than fundamental, with spot gold and silver maintaining historically elevated levels.

Goldman Sachs has increased its end-2026 gold price forecast to $3,400.00 per ounce, representing a $500.00 upward revision from its previous target of $2,900.00 per ounce. The investment bank attributes this bullish outlook to continued diversification into gold by private-sector buyers and emerging market central banks seeking to hedge against global policy risks.

Key Forecast Revisions

The brokerage's updated projections reflect several market dynamics that have supported gold's performance:

Market Performance and Drivers

Goldman Sachs expects private sector diversification buyers to maintain their gold holdings throughout 2026, effectively raising the baseline for price forecasts. In a note dated Wednesday, the brokerage stated that these purchases, which hedge global policy risks, have driven upside surprises to previous price forecasts.

The investment bank anticipates Western ETF holdings will rise as the U.S. Federal Reserve is likely to implement a 50.00 basis point reduction in the funds rate during 2026. Additionally, Goldman expects central bank buying to average 60.00 tonnes in 2026, driven by emerging market central banks continuing their reserve diversification strategies.

Risk Factors

Despite the optimistic forecast, Goldman Sachs identified potential downside risks to gold prices. The brokerage noted that a sharp reduction in perceived risks around the long-run path for global monetary policy could pose downside pressure if it leads to liquidation of macro policy hedges. This scenario would represent a shift away from the current trend of using gold as a hedge against policy uncertainty.

Market Outlook

The revised forecast reflects Goldman Sachs' assessment that structural demand from both institutional and central bank buyers will continue supporting gold prices. The combination of expected Federal Reserve rate cuts and ongoing geopolitical uncertainties appears to underpin the investment bank's bullish stance on the precious metal through 2026.