On February 9 the Guotou Silver LOF reopened and immediately hit the daily limit-down, trading at ¥2.789 with a market premium of 34.15%. The fund has now closed at its down limit for six consecutive trading days, extending a dramatic period of price dislocation for a small but visible corner of China’s precious‑metals market.
Listed open‑ended funds (LOFs) normally trade close to their net asset value because creation and redemption mechanisms allow arbitrageurs to bring market prices and underlying values into alignment. A 34% premium indicates a severe divergence: the market price was far above the fund’s calculated net asset value even as sellers pushed the quoted price to the maximum allowed fall for several sessions in a row.
The departure of Guotou Silver LOF from orderly pricing has played out against a wider, volatile rally in silver. International futures contracts rose sharply that morning, and exchanges in the region have been reacting to heightened flows — for example, Thailand’s TFEX suspended online silver futures trading earlier in the day. Chinese regulators and fund managers also signalled concern in recent sessions, instructing trading pauses and warning about premium risks prior to the fund’s reopening.
The immediate driver appears to be a mix of speculative retail demand, limited arbitrage capacity and disruptions in secondary‑market liquidity. When cash buyers overwhelm the market but creation/redemption of underlying holdings (physical silver or futures exposures) is slow or constrained, market prices can detach from NAV. That gap becomes unstable when sentiment shifts and selling pressure meets thin bid depth, producing successive limit‑down closures even from inflated starting points.
The episode exposes structural vulnerabilities in China’s listed precious‑metals products. Retail participation in commodity funds has surged in recent years, but the plumbing that keeps exchange prices tethered to asset values — market makers, authorized participants and speedy physical settlement — can falter under stress. That creates acute risks for unsophisticated investors who may be unaware that a high quoted market price can mask poor liquidity and persistent downward pressure.
For policy makers and market operators the incident raises a policy choice: tolerate episodic dislocations and rely on temporary trading halts, or tighten rules around premium limits, disclosure and creation/redemption procedures to prevent similar blowups. Either approach carries costs: tighter controls reduce speculative excess but could also restrain legitimate price discovery in a thin market for physical silver.
Investors should monitor the fund’s NAV, creation/redemption notices and any further regulatory interventions. The more immediate consequence is reputational: episodes such as this can dent retail confidence in commodity products and prompt scrutiny of other LOFs and ETFs that have accumulated outsized premiums or discounts during recent bouts of volatility.