Quick overview

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The value of China’s only pure-play silver fund dropped by its daily maximum of 10%, ending a wild bull run that led the fund’s manager to issue rare warnings.

The sudden decline in the UBS SDIC Silver Futures Fund LOF follows weeks of gains driven by increasing global interest in precious metals, which the manager called “unsustainable.” Spot silver is on track for its best annual performance since 1979 after reaching a record high of $72.70 per ounce on Wednesday.

After three consecutive days this week of exceeding the 10% upward limit, UBS SDIC Fund Management Co. announced new restrictions. Starting in December, there will be a cap on new Class C share subscriptions, typically the best option for short-term investors, decreasing from 500 yuan to 26-100 yuan ($14.25), according to a statement on the fund manager’s website. Strong investor interest in precious metals has focused on silver, with a historic short squeeze in October fueling the notable global spot price rally.

Palladium, gold, and platinum have all surged, and other Chinese funds linked to these metals have also seen significant gains, as investors caution. This year, the silver fund has surged by nearly 220%, while Shanghai-traded silver futures have risen about 128%.

The premium over the underlying asset jumped from 7% at the start of the month to nearly 62% by Wednesday. As the fund’s value declined and futures rose, this premium is expected to decrease on Thursday.