Millions of investors who entered gold and silver exchange-traded funds (ETFs) towards the tail end of the rally are now staring at steep losses, as prices of both precious metals have corrected sharply in recent weeks.

Investor interest in gold and silver ETFs had been building steadily through 2025, stoked by a strong price rally and attractive recent returns. Volatility in equity markets further nudged investors towards these relatively niche fund categories.

Participation peaked in January, when combined inflows into gold and silver ETFs hit a record ₹33,500 crore. The month also saw a sharp rise in new account openings, signalling a spike in retail participation. Nearly 2.8 million net accounts were added, a trend experts credited to growing awareness of diversification as well as momentum-driven investing.

However, the trend reversed soon after.

Prices of both metals began declining in February, with the correction deepening in March amid the US-Iran conflict. Domestic gold prices have fallen over 20 per cent from their January 29 peak, while silver has dropped by around 40 per cent over the same period.

According to experts, while rising prices tend to attract momentum-driven inflows, the recent spike in gold and silver ETFs cannot be explained by return chasing alone.

“While some portion of this can be attributed to momentum chasing, especially given the historic price rise in silver and gold, it may not be the only reason. One must keep in mind that the past 18 months or so have been relatively weak for equity markets, alongside increased geopolitical tensions that have impacted both domestic and global economies. In times of turmoil, gold acts as a natural hedge and a safe-haven asset,” said Thomas Stephen, associate director and head — Preferred, Anand Rathi Share and Stock Brokers.

“If one is thinking truly long-term and looking at these avenues purely from a diversification perspective, then it is still fine to have entered at those prices. Ideally, both metals in combination should not exceed 10 per cent of an overall portfolio,” he added.

Manish Bhandari, chief executive officer and portfolio manager at Vallum Capital Advisors, said the diversification trend could pick up again once geopolitical tensions ease.

“The current decline appears driven by expectations of higher energy prices, which could push intermediate-term inflation up and delay long-anticipated rate cuts, sapping near-term enthusiasm for non-yielding assets like gold. At the same time, the US looks set to emerge as a key beneficiary of global energy dislocation, drawing capital into dollar assets and away from bullion. However, as geopolitical tensions ease and war-related risk premia fade, gold may regain favour as investors refocus on long-term diversification,” he said.