Gold and Silver ETFs Crash 16%: What Caused the 2026 Rout?

A Sudden Reversal in Precious Metals

Gold and silver exchange-traded funds (ETFs) experienced a historic sell-off on February 1, 2026, with some funds plunging as much as 16% in a single session. The sharp correction came after a record-breaking rally in precious metals, catching many investors off guard and wiping out significant gains. The dramatic downturn rippled through the domestic market, mirroring a brutal rout in global commodity prices and raising questions about the sustainability of the recent bull run.

The Scale of the Sell-Off

The carnage was widespread across gold-backed ETFs on the National Stock Exchange (NSE). Baroda BNP Paribas Gold ETF was among the worst hit, plummeting 16%, while Edelweiss Gold ETF tanked 15.9%. Other prominent funds, including Motilal Oswal Gold ETF, ICICI Prudential Gold ETF, and Zerodha Gold ETF, registered sharp declines ranging from 12% to 15%. The sell-off erased weeks of gains in a matter of hours, reflecting the sudden shift in market sentiment.

Silver ETFs faced even deeper cuts. Nippon India Silver ETF fell by 11.8%, while others like Bandhan Silver ETF and HDFC Silver ETF dropped between 3% and 8.5%. The broader market impact underscored the high volatility inherent in precious metals, particularly after periods of rapid appreciation.

Carnage in the Futures Market

The crash in ETFs was a direct reflection of turmoil in the futures market. On the Multi Commodity Exchange (MCX), gold futures for February delivery plummeted nearly 6% to a low of ₹1,43,205 per 10 grams. This followed a staggering 12% drop the previous day. In total, gold prices fell by more than ₹37,574 from their recent peak of ₹1,80,779 per 10 grams.

Silver futures saw an even more dramatic collapse. After shedding approximately 26.5% on Friday, March delivery contracts fell another 6% on February 1 to trade at ₹2,74,410 per kg. This marked a decline of over ₹1.45 lakh per kg in just three trading sessions from a lifetime high of ₹4,20,048 per kg.

What Triggered the Historic Plunge?

Market analysts attribute the sudden crash to a confluence of global factors, primarily stemming from the United States. The main trigger was the nomination of Kevin Warsh as the next US Federal Reserve Chair. This fueled widespread speculation that the central bank would adopt a more hawkish monetary policy, leading to higher interest rates.

A hawkish stance typically strengthens the US dollar, making dollar-denominated commodities like gold and silver more expensive for holders of other currencies. Consequently, the US Dollar Index saw a sharp rebound, putting immediate pressure on precious metal prices. The rapid reversal was amplified by massive profit-booking from traders who had ridden the powerful rally to its peak.

A Warning on Risk Management

The extreme volatility prompted commentary from market leaders. Zerodha's founder and CEO, Nithin Kamath, described the event as "rare," noting that such violent market moves can render standard risk management strategies ineffective. He highlighted that traders could lose more than their entire initial margin in such scenarios.

Kamath compared the situation to when crude oil prices turned negative during the COVID-19 pandemic, cautioning that what happened in commodities could also occur in equities, as seen during the 2008 financial crisis. He urged investors to trade only with capital they could afford to lose, emphasizing that a decade of successful trading can be wiped out in a single day without proper risk controls.

A Correction or a Trend Reversal?

Despite the sharp fall, many analysts view the event as a market correction rather than a fundamental reversal of the long-term trend. The preceding rally was fueled by persistent geopolitical uncertainties and economic concerns, which drove safe-haven demand. Silver's surge was also supported by a tight physical market and record industrial demand.

Experts suggest that the core drivers for holding precious metals remain intact. However, they advise a cautious and disciplined approach in the face of heightened volatility. Rather than making large, lump-sum investments to "buy the dip," a strategy of staggered purchases or Systematic Investment Plans (SIPs) is recommended to mitigate timing risk.

Conclusion

The dramatic crash in gold and silver ETFs on February 1, 2026, served as a stark reminder of the inherent volatility in commodity markets. The sell-off was primarily triggered by a shift in expectations for US monetary policy, a stronger dollar, and significant profit-taking after a historic rally. While the long-term case for precious metals may still hold, the event underscores the critical importance of robust risk management and a disciplined investment strategy for navigating such turbulent periods.