China Silver Fund Plunges 10% After Bull Run Warnings
The UBS SDIC Silver Futures Fund LOF in China experienced a dramatic 10% decline, hitting its daily limit down after weeks of unsustainable gains. The fund had surged 220% year-to-date, significantly outpacing the 128% rise in Shanghai Silver Futures. The fund's premium over its underlying assets reached 62%, prompting warnings from the fund manager. In response, UBS SDIC implemented stricter controls on new subscriptions, reducing the limit for Class C shares from ¥500 to ¥100. This reversal follows a global rally in precious metals, with spot silver reaching a record high of $72.70 per ounce.
*this image is generated using AI for illustrative purposes only.
China's only pure-play silver fund experienced a dramatic reversal on Thursday, declining by its maximum daily limit of 10% and ending a frenzied bull run that had prompted unprecedented warnings from its manager. The UBS SDIC Silver Futures Fund LOF's sharp decline followed weeks of gains that the fund manager had flagged as "unsustainable," driven by rising global interest in precious metals.
The fund's dramatic performance has been fueled by a spectacular rally in global silver prices. Spot silver reached a record high of $72.70 per ounce on Wednesday and is currently on track for its best annual performance since 1979. This surge has been part of a broader precious metals rally that included gold, platinum, and palladium, with the momentum gaining further strength from a historic short squeeze in October.
Fund Performance and Premium Concerns
The silver fund's performance has significantly outpaced its underlying assets, creating concerning valuation gaps:
| Metric | Performance | Details |
|---|---|---|
| Fund Gains | 220% | Year-to-date performance |
| Shanghai Silver Futures | 128% | Underlying asset performance |
| Premium (December start) | 7% | Initial premium level |
| Premium (Wednesday) | 62% | Peak premium before decline |
This substantial premium over the value of underlying assets—silver contracts on the Shanghai Futures Exchange—has been a primary concern for fund managers, who have repeatedly warned investors about the danger of steep losses should silver futures reverse.
Regulatory Response and Restrictions
After the fund hit its upward limit of 10% for three consecutive days this week, UBS SDIC Fund Management Co implemented stricter controls on Wednesday evening. The company announced significant restrictions on new subscriptions to Class C shares, which are typically the preferred vehicle for short-term investments.
| Parameter | Previous Limit | New Limit | Effective Date |
|---|---|---|---|
| Class C Subscriptions | ¥500 | ¥100 ($14.25) | December 26 |
UBS SDIC also repeated multiple earlier warnings about the fund's high premium over its underlying assets, emphasizing the potential for significant losses if market conditions reverse.
Broader Market Impact
The silver fund's situation reflects broader trends in Chinese precious metals investments. Other Chinese funds linked to gold, platinum, and palladium have also experienced substantial gains and prompted similar warnings to investors. The intense investor interest in precious metals has created a challenging environment for fund managers trying to balance investor enthusiasm with prudent risk management.
The fund's decline on Thursday was expected to help reduce the dangerous premium levels, as the fund's value decreased while futures continued to extend gains. However, UBS SDIC declined to provide additional comments on the situation, leaving investors to monitor how the premium adjusts in coming trading sessions.
The UBS SDIC Silver Futures Fund has gained an impressive 220% amid a global precious metals rally. However, the fund manager's decision to tighten subscription rules and warn of unsustainable gains has led to the fund hitting its daily limit decline of 10%. This sudden reversal highlights the volatility and risks associated with such specialized investment vehicles, particularly when they trade at significant premiums to their underlying assets.
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