Silver

10.1 The Bullion Twins – Gold and Silver in Sync?

Varun: Isha, I have noticed that when gold moves, silver often follows. Are they really that closely linked?

Isha: That’s a great observation. Gold and silver do share a strong correlation, but silver tends to be more volatile.

Varun: So traders use both together?

Isha: Exactly. Some even use pair trading strategies—buying one and selling the other when their prices diverge. Let’s look at how they’ve behaved recently.

Gold and Silver, India’s most beloved precious metals are often assumed to move in tandem. This belief has given rise to strategies like pair trading, where traders exploit temporary divergences between two correlated assets. But does this assumption hold true in today’s market?

Let’s investigate using fresh data from October 2025.

Latest Market Snapshot (October 21, 2025)

Both metals have surged this month, driven by:

• Festive demand (Dhanteras & Diwali)
• A weakening US dollar
• Global safe-haven buying amid geopolitical uncertainty

Correlation Check: Do Gold and Silver Still Move Together?

Using 30-minute intraday data over the past 3 months (over 1,000 data points), the correlation coefficient between normalized gold and silver prices is approximately: 0.71

This confirms a strong positive correlation, meaning gold and silver generally move in the same direction. However, silver continues to show greater volatility, often amplifying gold’s moves.

What This Means for Traders

• Goldoffers stability and smoother price action
• Silverprovides sharper swings and higher short-term trading potential
• Pair trading setups remain viable, especially when short-term divergence occurs.

Gold vs Silver – Latest Price Comparison Table (Intraday Snapshot)

 Key Observations

• Goldshowed steady intraday gains, rising from ₹1,28,005 to ₹1,30,588
• Silversurged more aggressively, climbing from ₹1,57,240 to ₹1,70,415
• Normalized valuesconfirm silver’s stronger momentum relative to gold
• Correlation coefficient(based on normalized values): ~0.71, indicating a strong positive relationship

Gold and Silver – Correlation, Strategy, and the Bullion Twins

Intraday Correlation: A Strong Link

Recent analysis using 30-minute intraday data from October 2025 reveals a correlation coefficient of 0.71 between normalized gold and silver prices. That’s a strong positive relationship, especially for two separate commodities.

This means that on an intraday basis, gold and silver tend to move in the same direction—though not perfectly. Silver often amplifies gold’s moves, making it the more volatile of the two.

What Does This Mean for Traders?

A correlation of 0.71 opens the door to pair trading strategies:

• Go long on gold and short on silver, or vice versa
• This creates a hedged position, reducing exposure to broad market risk
• The goal is to profit from relative movement, not absolute direction

This is just a conceptual framework. Executing pair trades requires deeper analysis—liquidity, margin, contract alignment, and divergence thresholds must be considered. We’ll explore this in detail in a future module.

Visual Insight: Normalized Price Comparison

Using normalized values (starting both series at 100), the intraday chart shows:

• Gold and silver prices track each other closely, though silver exhibits sharper swings
• Visually, the correlation may not appear tight—but the actual data confirms the relationship

End-of-Day Correlation: Even Stronger

According to a recent quarterly survey by Thomson Reuters, the EOD correlation between gold and silver averages around 0.80. This reinforces their reputation as the Bullion Twins.

Why is this important?

• Both metals are viewed as safe havens during global uncertainty
• Events like wars, recessions, or currency shocks tend to drive parallel rallies in gold and silver
• Traders and investors often treat them as interchangeable hedges in crisis scenarios

Silver and Oil: A Volatile Relationship

Unlike gold, silver’s correlation with crude oil is highly erratic. While both are industrial commodities, their price drivers differ:

• Oil reacts to supply shocks, OPEC decisions, and geopolitical tensions
• Silver responds to monetary policy, inflation, and industrial demand

10.2 The Silver Basics

Varun: Isha, gold gets all the attention, but silver seems to be moving fast lately. What’s driving that?

Isha: Silver’s demand is booming, especially from industries like solar panels and electric vehicles. But supply hasn’t kept up.

Varun: So there’s a shortage?

Isha: Yes, and that’s pushing prices higher. Let’s break down the global supply-demand numbers and see what’s really happening.

Silver continues to be a critical industrial and investment commodity in 2025. According to the World Silver Survey, global silver demand has reached approximately 1,229 million ounces, marking a new high. The largest contributor to this demand is industrial fabrication, which accounts for around 680.5 million ounces. This growth is largely driven by expanding sectors such as solar energy, electric vehicles, and electronics manufacturing. India has also seen a notable rise in silver consumption, particularly through physical investment and jewelry demand, which surged during the festive season.

On the supply side, global mine production has increased only marginally, reaching 819.7 million ounces, a growth of just 0.9% year-on-year. When combined with recycled silver and government sales, the total supply still falls short of meeting global demand. This has resulted in a market deficit of 148.9 million ounces, continuing a multi-year trend of supply shortfalls. While some temporary relief came from the release of stockpiles by the London Bullion Market Association (LBMA), the structural gap between supply and demand remains unresolved.

Silver prices have reflected this imbalance. The average price in early 2025 was around $28.27 per ounce, the highest since 2012. By October, prices had surged to nearly $54.50 per ounce, before correcting slightly due to speculative excess and temporary oversupply. In India, silver prices doubled within five months, peaking at ₹2 lakh per kg, driven by strong retail demand and investment interest. However, analysts have cautioned that prices may face short-term pressure due to the LBMA’s intervention and seasonal supply adjustments.

World Silver Supply and Demand – 2025 (in million ounces)

This data reflects a continued deficit in the silver market, driven by record-high industrial demand especially from solar and electronics and relatively stagnant mine production. Because silver demand is strong and supply often falls short, it creates good opportunities for trading silver as a commodity. But that brings up an important question, who actually decides the price of silver? Just like gold, silver prices are set in London by a group of major banks that come together to agree on a benchmark rate. This process is known as the London Silver Fix, and it happens twice a day. These rates are used worldwide as a reference for trading, investing, and settling contracts.

10.3 Silver Contracts on MCX – Overview

Varun: Isha, I’m thinking of trading silver on MCX. Are the contracts similar to gold?

Isha: Mostly, yes. But silver has more variants—like Silver Mini, Micro, and 1000—with different lot sizes and margins.

Varun: That sounds flexible. Which one should I start with?

Isha: Depends on your capital and strategy. Let me show you how each contract works so you can decide.

Varun: Isha, now I’m thinking of trading silver on MCX. Are the contracts similar to gold?

Isha: Mostly, yes. But silver has more variants, like Silver Mini, Micro, and 1000, with different lot sizes and margins.

Varun: That sounds flexible. Which one should I start with?

Isha: Depends on your capital and strategy. Let me show you how each contract works so you can decide.

MCX offers four types of silver futures contracts, each designed to suit different trading volumes and margin capacities. The key difference between them lies in the lot size, which directly affects the contract value, margin requirement, and profit or loss per tick.

Here’s a breakdown of the available contracts:

Among these, the Silver (30 kg) and Silver Mini (5 kg) contracts are the most actively traded. They offer better liquidity and tighter spreads, making them popular choices for both retail and professional traders.

When you view silver prices on MCX or your trading platform, the rate displayed is for 1 kilogram of silver. This quoted price already includes import duties, taxes, and other applicable charges, so it reflects the landed cost of silver in India.

Let’s take a closer look at how the main Silver contract works.

Silver futures are quoted per kilogram, so when you see the price on your trading platform, it reflects the rate for 1 kg of silver. This quoted price includes all applicable duties, taxes, and import costs. For example, if the current price of the Silver February Futures is ₹75,000 per kg, and the contract size is 30 kg, the total contract value would be:

Contract Value = 30 × ₹75,000 = ₹22,50,000

To trade this contract, you need to maintain a margin, which is typically around 5% of the contract value. So, in this case, the margin requirement would be approximately ₹1,12,500. This margin allows you to take a position without paying the full contract value upfront.

Now, let’s calculate the profit or loss per tick. A tick is the minimum price movement, usually ₹1. The formula is:

P&L per tick = (Lot Size / Quotation Unit) × Tick Size = (30 kg / 1 kg) × ₹1 = ₹30

This means every ₹1 movement in price results in a gain or loss of ₹30 per contract.

Contract Expiry and Liquidity

Silver contracts on MCX typically expire on the 5th of the contract month. At any given time, multiple contracts are available for trading—such as April, June, August, and November. The most liquid contract is usually the one closest to expiry. So, if you’re trading in March, the April contract would likely have the highest volume and tightest spreads.

Settlement and Delivery

Unlike equity derivatives, which are settled in cash, commodity futures are settled through physical delivery. If you hold a position in the Silver (30 kg) contract and choose to take delivery, you’ll receive 30 kg per lot. For example, holding 5 lots means you’ll be eligible for 150 kg of silver. However, to opt for delivery, you must express your intent at least four days before expiry—typically between the 1st and 4th of the expiry month.

It’s important to note that physical delivery is mandatory for the Silver (30 kg) contract. In contrast, Silver Mini and Silver Micro contracts offer flexibility, you can either take delivery or let them expire and settle in cash.

Mapping to Spot Markets

Based on the most recent data available from MCX and industry sources as of October 2025, here is the updated commodity mapping with unit and delivery location:

Latest MCX Commodity Mapping – 2025

• Every commodity traded on MCX is linked to a specific delivery location, which serves as its reference spot market. This mapping ensures that, at the time of expiry, the futures price converges with the spot price of the designated city. For example, the SILVER1000 contract is mapped to New Delhi, while SILVERMIC is linked to Ahmedabad. Similarly, SOYABEAN is mapped to Indore, and TIN settles against the spot price in Mumbai. These locations are not arbitrary—they reflect the most active physical markets or delivery centers for each commodity.
• Unlike equities, where both spot and futures trade on the same centralized exchange, commodities operate across multiple regional markets. To avoid discrepancies and ensure smooth settlement, MCX assigns a specific city to each contract. Upon expiry, the futures price aligns with the prevailing spot rate in that mapped location, ensuring consistency and transparency in pricing.
• This mapping is especially important for traders who intend to take physical delivery, as the location determines where the commodity will be delivered. It also affects logistics, warehousing, and cost considerations for hedgers and institutional participants.
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10.4 Exploring Other Silver Contracts on MCX

Varun: Isha, I’ve understood the main silver contract. But what about the smaller ones—Mini, Micro, and 1000?

Isha: Good question. These are great for retail traders. Lower margins, smaller lot sizes, and flexible delivery options.

Varun: So I can trade silver without committing huge capital?

Isha: Exactly. Let’s compare them side by side so you can pick the one that fits your style.

Once you’re familiar with the main Silver (30 kg) contract, understanding the other silver variants on MCX becomes straightforward. These contracts differ primarily in lot size, which directly affects the margin requirement and delivery options.

Here’s a summary of the current margin structure and settlement choices:

As expected, the smaller lot contracts require significantly lower margins compared to the full-sized Silver contract. This makes them more accessible for retail traders who want exposure to silver without committing large capital.

Trading Approach

• Silver, like gold, is influenced by a wide range of global factors, industrial demand, currency movements, interest rates, and geopolitical developments. Tracking these fundamentals daily can be challenging and often unnecessary for short-term traders.
• Most active traders prefer using technical analysis to identify entry and exit points. Chart patterns, volume indicators, and momentum oscillators are commonly used to trade silver futures across all contract sizes.
• For those inclined toward data-driven strategies, quantitative techniques like pair trading offer an alternative. This involves identifying price relationships between two correlated assets such as Silver and Gold and trading based on deviations from their historical spread. We’ll explore this strategy in detail in a separate module.

10.5 Key Takeaways

• Gold and silver show strong correlation, with silver often amplifying gold’s price movements.
• Silver is more volatile than gold, offering greater short-term trading opportunities.
• Pair trading strategies can be used when gold and silver prices diverge temporarily.
• Silver demand is driven by industrial use, especially in solar energy, electronics, and EVs.
• Global silver supply is lagging, creating a persistent market deficit and upward price pressure.
• India’s silver consumption is rising, fueled by festive demand and physical investment.
• MCX offers four silver contracts—Silver, Mini, Micro, and 1000—each with different lot sizes and margins.
• The standard Silver contract (30 kg) requires higher margin and is settled via physical delivery.
• Smaller contracts like Mini and Micro are more accessible and offer cash or physical settlement options.
• Each silver contract is mapped to a delivery city, ensuring futures prices align with local spot markets at expiry.

10.6 Fun Activity

You’re a trader preparing to enter the silver market on MCX. Based on your capital, risk appetite, and trading goals, choose the most suitable silver contract. Then, calculate your margin and profit potential.

Scenario:

You have ₹20,000 in trading capital and want to trade silver during the festive season. You’re considering these options:

Questions:

1. Which contracts can you afford to trade with ₹20,000?
2. If silver moves up ₹10 per kg, what is your profit for each contract?
3. Which contract offers the best balance of affordability and impact for your capital?
4. If you expect high volatility and want to limit risk, which contract would you choose and why?

Answer Key:

1. You can afford:

• Silver Mini (₹16,850)
• Silver Micro (₹3,420)
• Silver 1000 (₹3,550) (Silver 30 kg is too expensive)
  2. Profit for ₹10 move:
• Silver Mini: ₹5 × 10 = ₹50
• Silver Micro: ₹1 × 10 = ₹10
• Silver 1000: ₹1 × 10 = ₹10
  3. Silver Mini offers the best balance—affordable within ₹20,000 and gives meaningful exposure.
  4. For high volatility and low risk, Silver Micro is ideal—small lot size, low margin, and manageable P&L swings.