China’s only pure-play silver investment fund witnessed a sharp fall on Thursday after authorities moved to curb speculative trading that had driven prices to unsustainable levels. The UBS SDIC Silver Futures Fund LOF plunged by the maximum daily limit of 10%, snapping a powerful rally that had gripped investors over the past few weeks.
The sharp correction came a day after the fund manager announced a series of restrictive measures aimed at cooling excessive inflows and protecting retail investors from steep losses.
Frenzied Rally Sparks Regulatory Action
The fund had surged relentlessly in recent sessions, hitting its upper circuit of 10% for three consecutive trading days, fuelled by rising global silver prices and speculative interest in precious metals.
Silver has been one of the best-performing commodities in 2025, driven by strong industrial demand, geopolitical uncertainty, and a surge in investor interest following a short squeeze earlier this year. Global spot silver prices touched a historic high of $72.70 per ounce, marking their strongest annual performance since 1979.
However, fund managers repeatedly warned that the rally was becoming detached from fundamentals.
Restrictions Announced to Curb Speculation
Late Wednesday evening, UBS SDIC Fund Management Co., which manages the silver fund, announced new restrictions on fresh investments.
Key measures included:
- Limiting new subscriptions for Class C units to 100 yuan ($14.25) per investor
- Reducing exposure to speculative inflows
- Reiterating warnings about excessive premiums over net asset value (NAV)
Earlier, investors were allowed to invest up to 500 yuan per transaction.
The fund house said the move was necessary to prevent irrational trading behavior and protect investors from sharp downside risks.
Premium Levels Raised Red Flags
According to fund disclosures, the silver fund had been trading at a significant premium to its underlying assets, which primarily consist of silver futures listed on the Shanghai Futures Exchange.
Market analysts warned that such premiums could quickly evaporate if sentiment turned negative, leading to sudden losses for retail investors.
“Once prices detach from fundamentals, corrections can be brutal,” a commodities analyst based in Shanghai said. “The warning signs were clear — this rally was being driven more by speculation than by demand.”
Global Silver Rally Adds Fuel
The frenzy in China mirrored a broader global rally in silver markets. Prices surged amid:
- Strong industrial demand from clean energy and electronics
- Investor interest in precious metals as a hedge against inflation
- Supply concerns and tightening inventories
- Increased speculative activity following October’s short squeeze
However, analysts caution that silver remains highly volatile and prone to sharp reversals.
Fund Manager Issues Caution to Investors
UBS SDIC reiterated that investors should remain cautious and understand the risks associated with leveraged commodity exposure.
In a statement, the fund house said:
“The current premium level carries substantial downside risk. Investors should make rational decisions and avoid chasing short-term gains.”
The firm also noted that silver prices could fluctuate sharply depending on global interest rates, dollar movement, and macroeconomic data.
Market Reaction and Outlook
Following the announcement, trading volumes dropped sharply, and the fund hit its lower trading limit during Thursday’s session.
Market participants believe further volatility is likely in the near term as speculative money exits the market.
Analysts say that while silver’s long-term fundamentals remain intact due to industrial demand, short-term price movements will depend largely on investor sentiment and regulatory signals.
Key Takeaways
- China’s silver fund plunged 10% in a single session
- Restrictions imposed after rapid speculative inflows
- Silver prices recently hit a record high of $72.70/oz
- Fund manager warned of unsustainable premiums
- Volatility expected to continue in near term
