Silver’s shining run, but don’t forget to mind festive premium

There are many who think that the ongoing silver rally may not just be a festive sparkle anymore-silver prices in the Indian market are on a major upward streak! Imagine your grandmother’s small silver idols, kept for puja. Just a few months ago, they felt like a steady, traditional asset. Today, if you checked the price, you’d likely be amazed! The white metal is reaching historic highs, and here’s the simple breakdown of why and what you should do.

But why is the price soaring in the first place?

The silver rally actually is a classic ‘demand-supply crunch,’ but amplified by more unique factors than one:

Industrial Thirst (The Electric Car Factor): Silver is a key component in high-tech industries—think solar panels, electric vehicle batteries, and electronics. It’s the best conductor on the planet! As the world rapidly shifts towards green energy and technology, the global demand for industrial silver is booming. It’s like everyone suddenly needs silver for the future.

Festival Fever (The Shagun Factor): With Dhanteras and Diwali approaching, Indians are buying silver for good fortune. This massive, concentrated demand creates a short-term scramble for physical metal.

The Gold-Silver Link (The Safe Haven Factor): Just like its cousin gold, silver is viewed as a safe haven against global economic uncertainty and a weakening Rupee. When things feel shaky worldwide, people flock to precious metals.

Domestic Shortage (The Empty Shelf Factor): Due to strong domestic demand and limited imports, there’s a temporary, severe shortage of physical silver in India. This lack of supply has pushed the local price up to a significant premium—meaning we’re currently paying much more than the global rate for the same piece of silver.

The next question is: What should the investors do then?

This is of course the tricky part! One should take a balanced view. More importantly, investor profile is of utmost importance in this case. There can be different types of investors. Experts are of the view that Long-Term SIP Investor should continue his/her SIPs in Silver ETFs/FoFs, but avoid lumpsum for now. They should think of it like buying their favourite snack on a festival day.

The price is hiked today due to the rush. One may keep buying a little bit every month (SIP) to average one’s cost, but one should not empty one’s wallet buying a massive batch right now. They must remember that Patience is a virtue. Silver has strong long-term fundamentals due to its industrial demand. So one may not worry about the temporary high.

The New/Lumpsum Buyers, on their parts, should wait it out. Right now, many Silver ETFs are trading at a significant premium (5%-12%) over their actual value because of the physical shortage. It’s like paying Rs112 for a Rs100 note. Some funds have even temporarily stopped accepting fresh lumpsum money to protect you from this over-payment.

One should not chase the rally and wait for the festival demand to subside and the domestic premium to cool down and normalise.

The Physical Buyer, on his/her part, (Jewellery/ Coin) may buy only what he/she needs for the festival. One must remember that one is paying a high premium and the usual making charges. If one is buying only for investment, other formats might be better for now. Separating investment from tradition would be a good idea. Buy for tradition, but postpone bulk investment in physical form.

At the end of the day, wise investors must remember that the structural story for silver is very bullish due to its growing industrial role. However, the current Indian price has an extra ‘hype premium.’ Experts feel that it’s better to be smart and not get caught up in the frenzy and end up paying a hefty premium that will vanish once supply improves. Invest with wisdom, not emotionally may be the right mantra.