Gold ETFs crash 16% on a stronger dollar, silver ETFs follow suit. What should investors do?

Gold and silver continued their sharp sell-off on MCX, with futures down 6% at the Feb. 1 open, dragging gold ETFs down as much as 16% in early Friday trading.Gold futures for April delivery fell 6% – down Rs 9,140 per 10 gram – to open at Rs 1,43,205, a sharp three-session decline of nearly Rs 50,000 per 10 gram (26%) from the recent record high of Rs 1,93,096.

Profit-taking and a strengthening US dollar emerged as the main drivers of the sharp correction.Baroda BNP Paribas Gold ETF, Edelweiss Gold ETF and Motilal Oswal Gold ETFs fell up to 16% on Budget day. The LIC MF Silver ETF fell 15% over the same period.

Ponmudi R, CEO of Enrich Money, a SEBI-registered online trading and wealth technology company, said caution is warranted in the near term due to the dollar’s strength and volatility, but medium to long-term forecasts remain firmly optimistic.

On Friday, silver fell as much as 27% (Rs 1,07,968), marking the biggest single-day crash ever and pushing prices back below the Rs 3 lakh mark – just a day after the metal rose to a record high of Rs 4 lakh.

Gold prices fell to 12%, or Rs 20,514, in a single day on January 30, marking the worst one-day rout since March 2013, when prices on the MCX had fallen 9%. The fall in bullion prices came after US President Donald Trump appointed Kevin Warsh as the new chairman of the Federal Reserve, sparking the dollar’s strongest one-day rally since May last year. The rise pushed the US Dollar Index back above 97, as concerns about the central bank’s independence eased.

What should investors do?

Tapan Patel, fund manager-Commodities at Tata Asset Management said that for those who already have an allocation, the decision to hold or rebalance should be guided by the gold-silver ratio and as the ratio moves towards 50, investors could consider booking partial gains to reallocate them to more stable assets like gold ETFs, keeping the portfolio in line with their long-term risk appetite.

While silver’s dual role as a precious metal and an industrial metal positions it as a powerful return enhancer, its historical volatility suggests that retail investors should approach the recent rally with caution. Rather than a core hedge, silver is currently best suited for tactical exposure or as a specialized part of a diversified portfolio, Patel said.

Ponmudi R further said that near-term choppiness may persist amid dollar dynamics, but disciplined buying on dips, guided by key supports and channel integrity, should determine the next leg higher in this secular bull market into 2026.

(Disclaimer: Recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of The Economic Times)