Why Gold and Silver ETFs Trade at Different Prices Despite Tracking Same Metals
Gold and silver ETFs trade at different prices despite tracking the same metals due to structural factors rather than performance differences. Price variations include silver ETFs ranging from Rs. 31.23 to Rs. 306.55 and gold ETFs from Rs. 131.51 to Rs. 132.42 per unit. Key factors causing these differences include unit structure and NAV design, expense ratios ranging from 0.40-0.56% for silver and 0.59-0.70% for gold ETFs, tracking errors between 0.23-0.58%, and supply-demand dynamics affecting market prices.
*this image is generated using AI for illustrative purposes only.
Gold and silver ETFs have gained popularity among Indian investors for combining stock market convenience with precious metals exposure. However, investors often find it puzzling that ETFs tracking the same underlying metal trade at significantly different prices, leading to confusion about fund performance and value.
Current ETF Price Variations
The price differences across ETFs tracking identical metals are substantial and immediately noticeable to investors:
| Silver ETFs: | Price per Unit |
|---|---|
| Nippon India Silver ETF: | Rs. 292.73 |
| ICICI Prudential Silver ETF: | Rs. 306.55 |
| Zerodha Silver ETF: | Rs. 31.23 |
| Gold ETFs: | Price per Unit |
|---|---|
| SBI Gold ETF: | Rs. 131.51 |
| HDFC Gold ETF: | Rs. 131.88 |
| ICICI Prudential Gold ETF: | Rs. 132.42 |
These price variations do not indicate superior or inferior performance but reflect fundamental structural differences in fund design.
Understanding ETF Unit Structure and NAV
ETF unit prices differ fundamentally from spot metal prices. Each unit represents a specific portion of the underlying metal held by the fund, with Net Asset Value (NAV) per unit reflecting this exposure. The NAV depends on several critical factors:
- Number of units created at fund launch
- Total assets under management
- Metal exposure per unit designed by the fund
For example, ICICI Prudential Silver ETF may have similar percentage performance to Nippon India Silver ETF, but the NAV per unit differs because ICICI structured its ETF units with higher metal exposure per unit. This structural difference explains why absolute unit prices vary significantly while tracking the same commodity effectively.
Impact of Supply and Demand Dynamics
ETFs trade like stocks on exchanges, making them subject to supply and demand pressures that can cause temporary deviations from NAV. When heavy buying occurs, ETF prices may rise above NAV, creating premiums. Conversely, selling pressure can push prices below NAV, creating discounts.
These market dynamics occur because creation and redemption of units by authorized participants may not happen instantly. If large numbers of investors rush to buy Nippon India Silver ETF on a single day before additional units are created, the market price can spike above NAV. Less liquid ETFs typically experience larger temporary gaps between market price and NAV compared to highly liquid funds.
Expense Ratios and Cost Differences
Expense ratios significantly impact long-term returns and contribute to price variations between ETFs tracking identical metals:
| Silver ETF Expense Ratios: | Rate |
|---|---|
| ICICI Prudential Silver ETF: | 0.40% |
| Nippon India Silver ETF: | 0.56% |
| Gold ETF Expense Ratios: | Rate |
|---|---|
| HDFC Gold ETF: | 0.59% |
| SBI Gold ETF: | 0.70% |
These cost differences, combined with minor benchmark tracking deviations, result in slight NAV growth variations over time, even though both ETFs closely reflect their respective metal's performance.
Tracking Error Analysis
Tracking error measures how closely an ETF follows its underlying metal's performance over time. Even ETFs holding the exact commodity may deviate slightly from benchmarks due to fund expenses, timing differences in price calculations, currency fluctuations, and operational inefficiencies:
| ETF Tracking Errors: | Rate |
|---|---|
| ICICI Prudential Silver ETF: | 0.50% |
| Nippon India Silver ETF: | 0.58% |
| SBI Gold ETF: | 0.23% |
| HDFC Gold ETF: | 0.28% |
Lower tracking errors indicate more accurate benchmark following, explaining why some ETFs may move slightly differently relative to international metal prices despite effectively reflecting the same metal's performance.
Benchmark vs. Spot Price Differences
ETFs track benchmark reference rates rather than spot market prices, creating another source of price variation. Silver ETFs in India typically use global silver prices in USD converted to INR at prevailing exchange rates. This means even if silver rises 1% globally, Nippon India Silver ETF might show 0.98% growth while ICICI Prudential Silver ETF could show 1.02%, depending on timing, benchmark sources, and minor tracking errors.
Gold ETFs follow similar patterns, tracking international gold prices with slight variations based on benchmark calculations and currency conversions applied. Additionally, market liquidity affects ETFs, causing minor intraday deviations from NAV that are normal market behavior rather than mispricing indicators.
The price differences between ETFs tracking identical metals stem from structural factors including unit design, NAV calculations, expense ratios, and tracking methodologies rather than performance quality. Investors should focus on tracking accuracy and associated costs rather than absolute unit prices when selecting ETFs, as percentage returns relative to the underlying metal matter more than per-unit pricing.
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