Silver ETF Plummet 16% as MCX Futures and Global Sell-off Rattle Investors

New Delhi, February 5, 2026: The precious metals market witnessed a dramatic “flash crash” this week, sending shockwaves through the exchange-traded fund (ETF) ecosystem. Silver ETFs bore the brunt of the volatility, with some domestic funds plunging up to 16% in a single session. This downward spiral followed a sharp 6% drop in silver futures on the Multi Commodity Exchange (MCX), mirroring a broader global retreat from safe-haven assets.

Gold was not spared from the carnage, although its decline was relatively more contained. Gold ETFs saw a drop of approximately 5%, as futures for the yellow metal also faced significant selling pressure.

The Anatomy of the Crash: Why are Metals Bleeding?

The sudden reversal in the fortunes of “white and yellow metals” comes after a period of historic highs. Analysts point to a “perfect storm” of macroeconomic triggers and technical factors:

• The “Warsh” Effect: The nomination of Kevin Warsh as the next U.S. Federal Reserve Chair by President Donald Trump has unnerved bullion markets. Known for his hawkish stance on inflation, Warsh’s potential leadership suggests a slower pace of interest rate cuts, which traditionally strengthens the U.S. dollar and weakens non-yielding assets like gold and silver.
• Surging Margin Requirements: The CME Group (and subsequently MCX) recently hiked margin requirements for metal futures. For silver, margins jumped from 11% to 15%, forcing leveraged traders to liquidate positions rapidly to meet capital requirements, thereby accelerating the price collapse.
• Profit Booking at Peak Levels: Both metals were in “overbought” territory after a parabolic rally in January. Silver had touched a record near ₹4,20,000 per kg on MCX before the correction began, making it a prime candidate for aggressive profit-taking.
• Stronger Greenback: The U.S. Dollar Index (DXY) surged above the 97.5 mark, making precious metals more expensive for holders of other currencies and dampened demand.

Impact on ETFs: A Liquidity and Sentiment Shock

For retail investors, the impact was felt most acutely in the NAV (Net Asset Value) of ETFs. Unlike physical bullion, ETFs offer high liquidity, but this also means they capture intraday volatility with brutal efficiency.

To curb the panic, the Bombay Stock Exchange (BSE) imposed a 20% circuit limit on gold and silver ETFs. This move was designed to prevent a total “meltdown” and protect investors from extreme price swings driven by algorithmic trading and fear-based selling.

Is the Bull Run Over?

Despite the carnage, many commodity experts view this as a “healthy correction” rather than a trend reversal.

“The recent flash crash is a necessary cooling of overbought markets. The structural bull case for silver—driven by industrial demand in AI data centers and solar energy—remains intact,” says a senior research analyst.

While gold remains the ultimate hedge against geopolitical uncertainty (specifically ongoing U.S.-Iran tensions), silver is expected to remain more volatile due to its dual role as both a precious and an industrial metal.

Guidance for Investors

Financial advisors are urging caution, suggesting that investors avoid “chasing the dip” with lump-sum amounts. Instead, a staggered entry (SIP) into gold and silver ETFs is recommended to average out costs during this period of heightened volatility.