Authored by Anil Ghelani, CFA, Head of Passive Investments and Products at DSP Asset Managers
The government’s decision to restrict imports of silver bars and certain semi-manufactured silver products has brought fresh attention to the potential impact on domestic silver supply, pricing, and investment products linked to the metal.
Under the revised policy notified by the Directorate General of Foreign Trade (DGFT), imports of silver and related alloys have been shifted from the “free” category to “restricted,” requiring importers to obtain government licences with immediate effect.
The move has sparked discussions across the bullion and investment industry on how the changes could affect silver availability, Silver ETFs, and broader market dynamics.
The impact on Silver ETFs remains a wait-and-watch situation for now. Supply conditions are currently comfortable, but there is still limited clarity on the exact implications of moving Silver Bars from the “free” to the “restricted” category.
It is our understanding that the change could potentially affect overall silver imports, including industrial usage, and not just investment demand through bars or ETFs.
If the change is largely procedural and involves additional approvals before importing silver, the market is likely to adjust gradually as the approval process becomes clearer over time.
However, the situation is still evolving. RBI-authorised banks, which are among the primary suppliers of bars used by Silver ETFs, are currently awaiting more operational clarity. As a result, the impact on spot silver prices - to which Silver ETF prices are linked - will depend on further guidance from the DGFT and RBI, along with how smoothly supply channels function in the coming weeks.
If sourcing challenges for silver bars increase over time, Silver ETFs could potentially trade at a premium to their NAV. Similar situations have been seen in some international ETFs where fresh unit creation became difficult because of constraints in procuring the underlying asset.
That said, it is still too early to draw firm conclusions, especially since the extent of any supply disruption is not yet clear and demand has remained moderate over the past couple of weeks.
Globally, we do not expect this announcement to materially impact silver prices, which are likely to continue being driven by broader international factors.
In the domestic market, spot silver prices, which were trading at a discount to MCX futures prices last week, could move to a premium from today onward.
At the same time, MCX futures trading is expected to continue with normal deliveries, as there is adequate silver stock available against existing open contracts. Given MCX’s settlement and risk management mechanisms, there should not be any shortage or supply-related disruption for open futures contracts at expiry.
