Stock market crash may trigger a sharp correction in gold, silver rates; here’s how
With the Indian stock market swinging between gains and losses, volatility remains elevated amid persistent geopolitical risks and foreign capital outflow. A disappointment from the Union Budget 2026 and an overall weak December quarter (Q3FY26) results of Indian corporates may trigger a significant correction in equities. Experts believe such a correction could have a cascading effect on other asset classes, and even gold and silver prices may see double-digit declines in the event of a stock market crash.
For many new retail investors, the stellar rise in gold and silver prices over the past year has challenged the long-held belief that equities are the best asset class for long-term investment.
While the Indian stock market benchmark, the Nifty 50, has delivered a subdued 8% return over the last year (up to the January 23 close), domestic spot silver prices have soared by nearly ₹2.26 lakh, or 250%, per kg over the same period. Domestic gold prices have jumped by nearly ₹74,500, or 94%, over the last year.
Market ripe for a deeper correction?
Heightened geopolitical risks, heavy foreign capital outflows, and mixed corporate earnings are weighing on market sentiment. The Nifty 50 has fallen about 5% from its record high, and experts see the possibility of another 5–10% correction if the upcoming Budget fails to reinvigorate growth momentum and an India–US trade deal remains in limbo.
The India VIX index, which captures market volatility, has spiked 60% in January so far, hovering above the 15 level. Historically, when the India VIX stays in the zone of 15 – 16, the domestic market sees sharp directional moves and elevated option premiums.
But the spike in India VIX could be attributed to the caution ahead of the Budget also.
“Historical data shows that India VIX tends to rise 3–4 weeks ahead of the Budget, as participants adjust positions in anticipation of policy outcomes rather than reacting on the event day itself,” according to brokerage firm Anand Rathi.
Market participants appear nervous about the evolving geopolitical and geoeconomic scenarios. The uncertainty over US policies has increased after the US reimposed tariffs on South Korea. Reports suggest that key figures in the US administration are blocking the India–US trade deal.
“It is possible that the US may impose additional non-trade conditions on India, beyond tariffs, which could complicate negotiations further. This geopolitical uncertainty is a serious negative market sentiment,” said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
Can a stock market crash trigger a correction in gold and silver prices, also?
Experts see the possibility of a significant correction in gold and silver prices in case of a stock market crash, as sharp equity sell-offs can trigger liquidity-driven selling across asset classes. In simple words, investors who are sitting at significant gains in gold and silver may feel tempted to book profits in precious metals and deploy that money to equities available at cheaper valuations.
Gold and silver are currently in a bubble, driven largely by ETF inflows. ETFs require physical metal backing, which has pushed prices higher. Many retail investors have been rushing into gold and silver ETFs.
“If there is a major correction in equities, investors may liquidate precious metals to move back into stocks, leading to a sharp correction in gold and silver as well. A correction in precious metals is overdue, and that money could eventually rotate back into equity markets,” said Vijayakumar.
However, that correction in the gold and silver rates may not be durable, as both metals have strong positive factors, including geopolitical and geoeconomics risks, US tariff-related uncertainties, central bank buying and strong industrial demand, in the case of silver.
“A major crash in gold and silver, directly triggered by an equity market crash, looks unlikely. The current bull run in bullion is driven largely by global factors rather than domestic ones,” Ajit Mishra, SVP of Research at Religare Broking, said.
However, Mishra added that ETF participation has introduced liquidity risks.
“We have seen instances where a sharp single-day decline in silver triggered massive selling in ETFs due to demand-supply mismatches and liquidity issues. Investors may book profits in gold and silver ETFs to reallocate to equities, which could cause some correction. However, I do not see a major structural challenge for bullion at this stage,” said Mishra.
According to brokerage firm Kotak Securities, a stock market crash may temporarily drag silver rates down by 25–30%, triggered by forced liquidation across assets.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
