Why Do Gold and Silver ETFs Trade at Different Prices Despite Tracking Their Respective Metals?

Synopsis: Gold and silver ETFs trade at different prices respectively, due to variations in unit structure, NAV, expense ratios (0.40–0.56% for silver, 0.59–0.7% for gold), tracking error, and short-term supply-demand dynamics, while all aim to closely follow their respective metal’s performance.

Investing in gold and silver through ETFs has become a popular choice for many Indian investors because it combines the convenience of stock market trading with exposure to precious metals. Yet, a common source of confusion is the wide variation in prices of ETFs tracking the same metal. 

For instance, in silver, Nippon India Silver ETF is trading at Rs. 292.73, ICICI Prudential Silver ETF at Rs. 306.55, and Zerodha Silver ETF at Rs. 31.23 per unit. Similarly, in gold, SBI Gold ETF trades around Rs. 131.51 per unit, HDFC Gold ETF at Rs. 131.88, and ICICI Prudential Gold ETF at Rs. 132.42. On the surface, it may seem puzzling that different ETFs tracking the same underlying metal can have such divergent prices.

ETF Unit Price Is Not the Metal Price

The first thing to understand is that ETF unit price is not the same as the spot price of gold or silver. Each unit represents a portion of the underlying metal held by the fund, and the Net Asset Value (NAV) per unit reflects this exposure. NAV depends on several factors, including how many units were created when the fund was launched and the total assets under management. 

Therefore, the absolute per-unit price of an ETF can vary significantly from fund to fund, even though they are all tracking the same commodity. For example, Nippon India Silver ETF and ICICI Prudential Silver ETF may have very similar performance in percentage terms, but the NAV per unit differs because ICICI created its ETF units with slightly higher metal exposure per unit.

The same principle applies to gold ETFs. SBI Gold ETF may trade at Rs. 131.51 per unit, while ICICI Prudential Gold ETF trades slightly higher at Rs. 132.42. This difference does not indicate that one fund is more expensive or underperforming the other. It is merely a reflection of the fund design and unit structure. Investors often mistake a higher unit price for a higher cost, but what matters is the percentage return relative to the underlying metal, not the absolute unit price.

How Demand and Supply Affect ETF Prices

Even though ETFs are designed to track gold or silver, their market prices are also influenced by supply and demand dynamics. When an ETF experiences heavy buying, the price may rise slightly above its NAV, creating a small premium. Conversely, when selling pressure dominates, the price can fall below NAV, creating a discount.

This happens because ETFs trade like stocks on exchanges, and the creation and redemption of units by authorized participants (APs) may not happen instantly, causing temporary gaps between market price and NAV.

For example, if a large number of investors rush to buy Nippon India Silver ETF on a single day, but the fund hasn’t yet created additional units, its market price can spike slightly above the NAV. The opposite can happen if selling pressure dominates, or if the ETF is less liquid. Gold ETFs, such as SBI Gold ETF or HDFC Gold ETF, behave similarly, though high liquidity in popular funds usually keeps premiums and discounts very small, while smaller or niche ETFs can see larger temporary gaps.

In essence, while NAV determines the intrinsic value of an ETF unit, short-term market forces of demand and supply play a role in shaping the price investors actually pay on the exchange. This is another reason why different ETFs tracking the same metal can trade at different prices at any given moment.

Tracking Accuracy and Expense Ratios

While the per-unit price may vary, the efficiency of tracking the underlying metal and the associated costs are far more important for investors. ETFs are designed to follow a benchmark, such as the global silver price in USD converted to INR for silver ETFs, or the international gold price for gold ETFs.

However, each fund may achieve this with slightly different effectiveness. For instance, ICICI Prudential Silver ETF has a lower expense ratio of 0.40 percent compared to Nippon India Silver ETF’s 0.56 percent. These small differences can influence long-term returns more than the absolute price of the ETF unit.

Similarly, in gold ETFs, HDFC Gold ETF has an expense ratio of around 0.59 percent, whereas SBI Gold ETF charges slightly more at 0.7 percent. Over time, these cost differences, combined with minor deviations in tracking the benchmark, can result in slight variations in NAV growth, even though both ETFs reflect gold’s performance closely. This is why investors should focus on tracking efficiency and costs, rather than simply comparing the market price of ETF units.

Tracking Error

Tracking error measures how closely an ETF follows the performance of its underlying metal over time. Even if a silver or gold ETF holds the exact commodity, its returns may slightly deviate from the benchmark due to factors like fund expenses, timing differences in price calculation, currency fluctuations, and small operational inefficiencies. 

For example, ICICI Prudential Silver ETF has a lower tracking error (~0.50 percent) compared to Nippon India Silver ETF (~0.58 percent), meaning ICICI follows silver’s benchmark more closely. 

Similarly, in gold ETFs, SBI Gold ETF (~0.23 percent) and HDFC Gold ETF (~0.28 percent), which can cause them to move slightly differently relative to international gold prices, even though both are effectively reflecting gold’s performance. Tracking error is therefore an important metric for investors to assess how accurately an ETF delivers the returns of the underlying metal.

Why Do Spot Prices and ETF Prices Differ?

Many investors check the spot price of silver or gold on Google or MCX and expect ETFs to move in perfect sync. In reality, ETFs track a benchmark reference rate, which may differ slightly from spot market prices. For example, the benchmark for silver ETFs in India typically uses the global silver price in USD, converted to INR at the prevailing exchange rate.

As a result, even if silver rises by 1 percent globally, Nippon India Silver ETF might show a 0.98 percent rise, while ICICI Prudential Silver ETF could show 1.02 percent, depending on timing, benchmark source, and minor tracking errors.

For gold ETFs, the same applies. SBI Gold ETF and ICICI Prudential Gold ETF track the international gold price, but their movements can vary slightly depending on how the benchmark is calculated and the currency conversion applied. Additionally, ETFs are subject to market liquidity, which can cause minor intraday deviations from NAV. These differences are normal and do not indicate mispricing, but they do explain why ETFs with the same underlying metal can trade at different prices at any given moment.

In conclusion, different ETFs trade at different prices primarily because of unit structure, NAV per unit, and fund design, not because one fund is inherently better or more expensive than the other. What truly matters for investors is the ETF’s ability to track the metal accurately over time and the associated cost of holding the fund, including expense ratio and tracking error. By focusing on these factors rather than the per-unit price, investors can make informed decisions and avoid being misled by apparent price differences.

Whether it is Nippon India Silver ETF versus ICICI Prudential Silver ETF, or SBI Gold ETF versus HDFC Gold ETF, the underlying principle remains the same: absolute price is just a number; performance relative to the metal is what counts.

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