Precious Metal ETFs: Avoid Overexposure After Gold & Silver Surge

Investors, Don’t Say ‘Yes’ to Investment in Gold-Silver ETFs: Experts

People have started investing in Gold and Silver ETFs for quite some time, but experts caution investors against overconcentration by limiting their exposure to around 10%.

What’s the reason behind the Surge?

Record ETF inflows: In June 2025, gold and silver ETFs collectively drew ₹4,085 cr, ₹2,080 cr into gold and ₹2,005 cr into silver. 

This investment was because of increased global uncertainty and growing acceptance of ETFs as investment tools.

Silver outshining gold: Over the past year, gold ETF returns hit 32% (approx), but silver outperformed.

Silver has delivered up to 18% in the past three months compared to gold’s 5%.

Domestic silver prices soared 21% (approx) in 3 months to a 14-year high, driven by industrial demand in solar and EV sectors.

Why Should You Limit the ETF Allocation to 10%?

According to U.S. financial advisors (e.g., CBS News), precious metals should represent no more than 10% (approx) of an overall portfolio.

This helps preserve balance and avoids crowding out income-generating assets like equities or bonds.

Risks of Overexposure of Gold-Silver ETFs

The following are the reasons for overexposure of Gold-Silver ETFs:

1. High volatility: Silver can swing more than twice as widely as gold. Historically, it has suffered steep drawdowns—once crashing nearly 88% from its 1980 peak and taking over two decades to recover  .

2. Poor crisis hedge: Unlike gold, silver often falls with equities during major market downturns, making it less reliable as a defensive asset .

3. No income generation: Both metals produce no yield, making them less suitable for income-focused portfolios  .

Should You Choose Gold, Silver, or Both?

Investors uncertain about which metal to pick can opt for combined gold-silver funds. These give fund managers the flexibility to dynamically balance allocations.

Combined funds suit hands-off investors, lower overall costs and taxes due to internal rebalancing  .

Separate funds appeal to those seeking active control over exposure to each metal.

Regulatory Changes on the Horizon

SEBI has proposed requiring asset managers to use domestic spot prices for gold and silver valuations in both physical and ETF formats, replacing the current LBMA benchmark plus discretionary premiums/discounts. 

Public feedback is open until 6 August 2025.

Benefits include: more consistent NAVs, greater transparency, reduced pricing discrepancies across AMCs  .

How Much Precious Metals Should You Buy Now?

Follow these guidelines to reorganise your portfolio weightage:

1. Limit total allocation to 10% (approx) of assets.

2. Choose metal based on personal goals: Gold for safe-haven protection; silver for growth/industrial exposure.

3. Use combined funds if you prefer a single-stop solution.

4. Prepare for volatility using a 7–10‑year investment horizon.

5. Monitor SEBI changes—the shift to domestic pricing may impact ETF NAVs and valuations.

Conclusion 

Gold and silver are riding a strong rally, but prudence is essential. While ETFs offer easy access, they come with volatility and valuation risks. 

By capping exposure, choosing the right fund structure, and staying informed about regulatory changes, investors can participate in this boom responsibly.

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