Amid the silver speculative frenzy, the Shenzhen-traded UBS SDIC Silver Futures Fund LOF has repeatedly halted trading, warned of an “unsustainable premium” in its share price and suspended primary market subscriptions to limit cash inflows.
It also warned that if the premium did not effectively recede by February 2, the State Development and Investment Corporation (SDIC) would apply for a further suspension of trading.
Year-to-date, the fund is up 133%. In contrast, silver posted a more modest but still impressive 52% increase over the same period.
GBTC Premium again
Before the SEC approved Barry Silbert’s Grayscale Bitcoin Trust (GBTC) to convert from an over-the-counter trust to an ETF, it only loosely tracked the price of Bitcoin ($BTC).
The brief but well-known “GBTC premium” occurred when a fund traded at more than twice its corresponding value. $BTC.
In fact, when demand is strong, $BTC Price exposure through a very limited set of securities traded on US exchanges drove the price of GBTC to over 130% of its value. $BTC Retained on June 1, 2017 and again on September 1, 2017.
Incredibly, retail investors have been bidding up GBTC at a premium for months, and accredited investors have been able to enjoy near-risk-free arbitrage by giving it grayscale. $BTC You can receive GBTC shares directly and at a premium-free net asset value (NAV) at discreet intervals of several weeks.
In fact, GBTC premium lasted from August 2015 to late February 2021. At the time, investors questioned Mr. Silbert’s ability to convince outgoing SEC Chairman Jay Clayton and incoming SEC Chairman Gary Gensler to approve the conversion of GBTC into a spot ETF.
Ultimately, the U.S. Court of Appeals for the D.C. Circuit’s August 29, 2023 decision ruled in Grayscale’s favor that the SEC’s refusal to convert the trust was arbitrary and capricious.
After trading at a significant discount to NAV since late February 2021 (as low as half NAV by December 2022), that discount gradually narrowed and eventually approached parity with NAV as the ETF conversion date arrived.
Speculators greedy for China’s only silver fund
UBS SDIC Silver Futures Fund LOF is the only silver fund traded on China’s major exchanges, and its premium has increased throughout the year.
The stock is up a staggering 60% today, and could have traded even higher had exchanges not halted trading to limit the price.
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Of course, long-term investors in precious metals will not receive any compensation from SDIC for this premium over the Fund’s holdings in silver futures contracts.
The only way to make money after buying at a premium is to hope that other investors will pay an even more extravagant and unreasonable premium in the future.
Paradoxically, this great fool’s game has worked well in recent weeks. But whether that will last, and for how long, is a matter of heated debate in Shenzhen before the next trading halt on the fund is lifted.
