Silver Fund Crash: China's only fund to play the metal closes in lower circuit

The value of China Silver Fund, the only pure-play Silver fund in the country, fell 10%, to end in a lower circuit on Christmas day, after multiple warnings were issued about its fundamentals exceeding the value of its underlying asset.

The UBS SDIC Silver Future Fund LOF fell 10%, after three straight days of 10% upper circuits, which prompted its fund manager to flag those gains as "unsustainable."

Silver prices in the global markets had crossed the mark of $72 an ounce on Wednesday, taking the year-to-date gains past 150% and putting the precious metal on course for its best annual performance since 1979.

This surge also prompted the UBS SDIC Fund's management to tighten subscription rules. New subscriptions to class C shares, or the easier method for short-term gains, will be limited today onwards to 100 yuan from 500 yuan earlier.

The UBS SDIC has also issued multiple previous warnings in the past that the fund's high premium over the value of its underlying asset, which are Silver Contracts on the Shanghai Futures Exchange, poses a risk for steep loses, in case there is a reversal in futures price.

China Silver Fund itself is up 220% this year, in comparison to the 128% rise seen in the Shanghai-traded Silver futures. At the start of the month, premium of this fund over the underlying asset stood at 7%, which increased to 62% by Wednesday.

(With Inputs From Agencies.)