China's only dedicated silver investment fund witnessed a dramatic crash on Thursday, falling by the maximum permitted daily limit of 10%. This sharp decline effectively halted a spectacular bull run that had forced the fund's manager to issue an unusual series of cautionary statements to investors.
A Frenzied Rally Meets a Sudden Halt
The UBS SDIC Silver Futures Fund LOF experienced this abrupt drop following weeks of significant gains. The fund's management had previously labelled these rapid increases as "unsustainable." The surge was part of a broader global rush into precious metals, with spot silver itself reaching a historic peak of $72.70 per ounce on Wednesday. This price level puts silver on course for its most impressive annual performance in over four decades, since 1979.
Manager Takes Action to Cool Investor Mania
In response to the overheating market, UBS SDIC Fund Management Co. implemented stricter controls. The action came after the fund hit its upward price limit of 10% for three consecutive days earlier this week. On Wednesday evening, the firm announced it would slash the subscription limit for its Class C shares, which are popular with short-term traders. From December 26, new investments in these shares will be capped at 100 yuan, a substantial reduction from the previous limit of 500 yuan.
The company also reiterated its earlier alerts regarding the fund's dangerously high premium. This premium, which represents the difference between the fund's trading price and the value of its underlying silver contracts on the Shanghai Futures Exchange, had ballooned to nearly 62% by Wednesday. This was a massive jump from just 7% at the beginning of December. UBS SDIC warned that such a high premium exposed investors to the risk of severe losses if the price of silver futures turned downward.
Broader Context of the Precious Metals Boom
Silver has been a focal point of intense investor speculation within the precious metals sector. The global spot price rally gained extra momentum from a historic short squeeze event that occurred in October. Other metals like gold, platinum, and palladium have also seen significant spikes. In China, several other funds linked to these commodities have recorded substantial gains, accompanied by similar warnings from their managers about market volatility and overvaluation.
The performance metrics highlight the extremity of the situation. While the UBS SDIC silver fund has soared by almost 220% this year, the Shanghai-traded silver futures it tracks have increased by roughly 128%. The fund's steep decline on Thursday was expected to narrow the extreme premium over its net asset value, especially as silver futures continued to extend their gains. UBS SDIC declined to provide further comment on the day's events.
