China’s Silver Market Heats Up as Exclusive Pure Silver Fund Slams Door on New Investors

When a gate slams shut, the scramble outside gets frantic. That's the scene unfolding in China's silver market after the country's sole pure silver fund barred new money from its Class C shares. The move didn't cool demand—it lit a fuse.

The Rush for Real Metal

With a key institutional door now locked, traders aren't walking away. They're pivoting—hard. Direct silver trading volumes are spiking as investors bypass the fund bottleneck entirely, chasing exposure to the physical commodity. It's a classic case of capital finding a new path when the old one gets walled off.

A Market Forced to Adapt

This isn't just a shuffle of assets; it's a stress test for China's commodity investment channels. The fund's closure acts like a controlled burn, revealing where the real liquidity—and speculation—lies. It shows that when a regulated vehicle hits capacity, the money doesn't vanish. It floods into the spot market, driving volatility and testing the infrastructure meant to contain it.

One door closes, another gets battered down by a wave of determined capital. It's a reminder that in finance, for every rule written to manage risk, an arbitrage is born—usually to the delight of brokers collecting fees on both sides of the trade.

Retail trading and online guides fuel extreme premiums

China is the world’s largest consumer of silver, but the metal has long been treated as an industrial input rather than an investment. That view changed this year as silver prices jumped about 150% on global markets.

Social media amplified the move. Posts on Xiaohongshu, also known as Rednote, circulated step-by-step guides showing traders how to exploit price gaps between the fund’s exchange-traded units and its over-the-counter shares.

Money flooded in. For three straight sessions, the fund hit its 10% daily limit. On Thursday, UBS SDIC Fund Management Co. cut the maximum Class C subscription to 100 yuan from 500 yuan, or roughly $14.26. The fund then fell by the same daily limit.

Even after the drop, the premium stayed elevated. It slid to 44%, still far above the 7% level recorded at the start of December. On Friday, the manager announced the full closure of Class C subscriptions and also lowered the cap on Class A shares to 100 yuan, effective Monday.

The firm said earlier measures failed to cool demand and described the price action as “unsustainable.”

China has seen similar bursts of speculative trading in listed open-ended funds, known as LOFs, which trade like stocks but can also be subscribed to directly through fund companies.

Tight supply and global policy pressure drive silver higher

The silver fund is not alone. Several LOFs surged earlier this week as metals prices climbed. The UBS SDIC silver fund has gained 187% this year, compared with about 145% for Shanghai-listed silver futures.

That gap narrowed sharply after Wednesday as restrictions took effect. China continues to play a major role as retail money hunts trends with few domestic channels.

As you probably know, gold has dominated 2025 as investors and central banks sought protection under the economic approach of US President Donald Trump, who returned to the WHITE House this year.

Silver followed, supported by both investment demand and supply pressure. By early December, silver was up 100%, while Gold had risen 60%. Investors bought both metals to hedge against inflation, currency weakness, and political stress.

Unlike gold, silver also feeds directly into manufacturing. It is used in electronics, renewable energy equipment, and other industrial products.

Inventories sit near record lows, raising the risk of shortages that could hit multiple sectors. Demand typically changes with factory output, interest rates, and energy policy. When growth picks up, industrial buyers push prices higher. When downturn fears rise, investors step in.

Liquidity adds risk. The silver market is far smaller than gold. Daily turnover is thinner, and stocks are tighter. Silver held in London is valued at just under $50 billion, while gold stored there is worth about $1.2 trillion.

Around $700 billion of that gold is held by central banks in the Bank of England and can be lent during stress. No such backstop exists for silver. China now sits at the center of that imbalance as retail demand meets limited supply.

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