- The UBS SDIC Silver Futures Fund LOF, China‘s only major exchange-traded silver fund, has suspended trading multiple times due to an “unsustainable premium.”
- The fund’s share price has reached a premium of over 60% above its Net Asset Value, vastly outperforming the underlying metal’s 52% rally year-to-date.
- This situation mirrors the historic “GBTC Premium” where Grayscale’s Bitcoin Trust traded far above its underlying asset value before its ETF conversion.
- SDIC has warned of further trading halts if the premium does not retreat by February 2.
A speculative frenzy in Shenzen has forced the sole Chinese silver fund, the UBS SDIC Silver Futures Fund LOF, to repeatedly halt trading. The fund’s manager warned of an “unsustainable premium” and paused new subscriptions to limit cash inflows.
Consequently, the fund’s shares recently traded at a staggering 60% premium above the value of its silver holdings. This is despite silver itself rallying a more modest 52% year-to-date, according to data.
The situation is a direct echo of the famous “GBTC Premium.” Grayscale Bitcoin Trust historically traded for more than double its bitcoin’s value, with its premium exceeding 130% at points in 2017.
Investors then used a nearly riskless arbitrage by contributing BTC directly to receive shares at net asset value. The GBTC premium persisted for years until doubts about its ETF conversion emerged in early 2021.
Now, speculators are ravenous for the only silver fund on a major Chinese exchange. However, SDIC has stated it will apply for more trading suspensions if the premium doesn’t effectively retreat by February 2.
Paradoxically, this greater-fool game has worked over recent weeks. Long-term investors will never receive compensation for paying a premium far above the fund’s actual holdings.
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