Exchange-traded funds (ETFs) for both gold and silver are considered as a safeguard against rising inflation and market downturns. In a nutshell, Gold ETFs are securities that track the price of domestic physical gold and are units representing real gold which can be in paper or demat form. It is possible to buy and sell gold ETFs like stocks, which is often more beneficial if you want to invest in physical gold. In Gold ETF, one gram of gold is equal to one unit and this unit is guaranteed by 99.5% pure physical gold. Whereas, a Silver ETF is an exchange-traded fund that invests up to 95% of its underlying assets in physical silver that tracks the price of silver on stock exchanges. Silver is in high demand across industries, investments and jewellery; As a result, its price is more sensitive to economic volatility than gold, making silver a more powerful hedge against inflation when economies are growing. However, due to its lower demand than silver, gold is less affected by economic slowdown. Both ETF categories help investors diversify their portfolios and reduce storage costs. However, some funds including Edelweiss Gold & Silver ETF and Motilal Oswal Gold & Silver ETF FOF invest in both asset classes. So let’s find out where investors should invest if they want to brighten their personal finances by investing in Gold or Silver ETFs during Diwali.
Difference Between Gold and Silver ETFs
Neeraj Bora, Founder, Saramount Business Advisors Pvt Ltd, said, “Though the composition of ETFs is similar for gold and silver, they each have some differences as an underlying commodity. Gold ETFs have better volumes on the exchanges and hence gold. The liquidity aspect is quite good in the case of ETFs. However, gold is more volatile than silver because its exploration and mining is expensive, unlike silver, which is more abundant in availability than gold in the past. The returns in gold ETFs in the U.S. are generally higher, which trade-off with the higher volatility that comes with gold. The demand for gold is higher due to the limited supply compared to silver. Given the similarity of gold and silver ETFs In context, the structure of the ETF is similar to that of the underlying commodity.”
What should be your investment strategy for Gold and Silver ETFs?
Utkarsh Sinha, managing director of Bexley Advisors, said, “Silver and gold have historically been one of the most correlated assets: investing in one is almost (though not strictly) the same as investing in the other. Historically, silver has Investments were more viable for smaller sized stamps, while gold was reserved for larger amounts. However, the advent of fractionally owned ETFs solves that challenge in a significant way. In an inflationary environment, the prices of both gold and silver have increased. Bullishness is seen – however, this does not automatically make them an ideal candidate for investment. The best way to invest for a retail investor is to have a diversified asset: ideally, long-term equities, debt and Some mix of dissimilar commodities. Unfortunately, many investors interpret buying gold and silver together as diversification, which is wrong – they are really two sides of the same coin.”
He adds that “the best option for most investors is mutual funds: you want to diversify a bit and buy some gold/silver ETFs, or better still, choose a fund that has underlying gold/silver investments.” If you have long term stocks, maybe this is not the time to liquidate it and buy gold/silver. Gain. And gold or silver can actually go up, but one should compare it to the upside potential of those equities. If you were in short-term and speculative assets or such as many crypto tokens, or a ‘hot-tip’ stock you bought that has crashed in value, the opposite The approach may work: it may be time to book your loss, recover what you can and invest in a long-term fund that can recover value and give top-notch returns.”
Which type of investors should bet on Gold and Silver ETFs?
Nidhi Manchanda, Certified Financial Planner, Head of Training, Research & Development, Fintu said, “Silver ETFs are very new in the Indian market, unlike Gold ETFs, which have been in the market for over a decade. Gold ETFs are suggested to go for Indian stocks because of their low correlation and effective hedge against inflation. On the other hand, silver is more volatile than gold and it is more of an industrial metal, so its demand depends on the demand for electronic gadgets, electric cars, solar power, batteries etc. Fears of an economic slowdown will affect silver and thus are already exempted to some extent. Hence, it can be considered comparatively risky as an investment at the present time. For these reasons, moderate to conservative investors may avoid silver ETFs as an investment. Instead it is suggested to invest up to 10% of the portfolio in this Diwali Gold ETF.”
Gold Vs Silver ETFs: Where To Invest This Diwali Season?
Vivek Banka, Founder Team, Goalteller said, “This Diwali, we advise investors to look at Gold ETFs/Sovereign Gold Bonds as an investment option for up to 3-5% of their financial portfolio for several reasons – 1) Entire portfolio as a diversification, 2) We believe gold as a whole crypto saga could be a dark horse for the next 12m, which investors blew up as the next safe haven is (temporarily at least) and in case of geopolitical tensions gold flow may resume. Intensifying. Recently a lot of Silver STFs have also been launched, however, we are going to use our recommended vehicle. stick to gold as silver is more volatile and is also tied to industrial activity/uses (which of course could indicate well in the long term, however as a safety haven we prefer gold ).”
Nehal Mota, co-founder of Finovate said, “Should gold be an essential part of an investment portfolio? Between Jan-22 and Aug-22, MCX Gold gave 5.5% returns against 2.3% for Nifty and 1.1% for CRISIL Bond index. But this is not the reason to buy gold. Gold provides a hedge against difficult macroeconomic conditions and geopolitical risks. Depending on your standard of living, a portfolio allocation of 5%-15% in gold is reasonable. Sona was a star performer in tough years like 2008, 2010, 2019 and 2020. Gold prices are influenced by demand for jewellery, demand for ETFs, central bank demand, etc. But, the 2 major factors driving gold prices are the dollar and elevated macroeconomic/geopolitical risks. ,
She further said that “bars/coins (ex-jewellery) like physical gold are difficult to maintain and store. Sovereign gold bonds guarantee safety and fixed interest. However, they are liquid and not available on tap. Its Instead, Gold ETFs are easily bought and sold on stock exchanges; kept in a demat account at a lower cost. Can one buy Silver ETFs instead of Gold ETFs? Their economics are different as gold is a pure precious metal Whereas silver is a precious and industrial metal. However, the global volatility is on average 1.8 times that of silver ETFs. Therefore, for mitigating portfolio risk, gold ETFs are best suited to the bill.”
Nitin Rao, Head Products & Offers, Epsilon Money Mart said, “On the auspicious occasion of Dhanteras, investors buy precious metals like gold and silver. In earlier times only physical form was available to investors but as the markets are evolving Indian investors have various options to invest in gold and silver through ETFs, funds and bonds. Silver ETFs were launched earlier this year as an investment option. Exposure to these commodities provides diversification benefits to investors. Gold is a precious metal and has historically provided a hedge against inflation. Whereas silver is mostly a base metal which also has industrial uses. An ideal exposure to the commodities in your portfolio should be around 5%-7%, depending on your investment horizon and risk profile. Instead of looking at the risks of gold and silver individually, investors have the option of investing in funds that offer investments in both commodities through a single fund. Investments in gold and silver are managed dynamically by the fund manager.”
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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