China’s only public offering silver futures fund, “Guotou Silver LOF (161226),” had a volatile week that resembled a rollercoaster ride. Between December 25th and 26th, due to concentrated arbitrage selling, the fund experienced two consecutive days of limit downs, ending a streak of continuous limit ups in the first three days of the week. The premium rate dropped from 68.19% to 29.64%, sparking concerns in the market about the risk of overpriced securities returning to their true value.
In recent times, the secondary market of Guotou Silver LOF has been swept up in a frenzy of speculative trading, leading to a significant surge in prices. In the first three trading days of the week (December 22nd to 24th), the fund saw continuous limit ups, with trading prices deviating significantly from the net asset value of the fund, reaching a premium rate as high as 68.19%.
On December 25th, trading of Guotou Silver LOF was halted for one hour at the opening bell to provide a cooling-off period for the overheated market. When trading resumed at 10:30 a.m., prices plummeted by 10%, with a trading volume of 565 million yuan. The concentrated selling by arbitrageurs caused the premium rate to sharply narrow from the historical high of 68.19% to 45.45%, a single-day decline of over 22%.
On December 26th, trading of Guotou Silver LOF was halted again for an hour at the opening, and when it resumed, it experienced another limit down scenario. By the close of the day, the premium rate within the fund had rapidly decreased to 29.64%.
According to reports from mainland Chinese media, the steep rise in prices was driven by apparent irrational speculation, with the extremely high premium rate attracting a large influx of arbitrage capital. The concentrated selling by arbitrageurs then acted as the catalyst for the consecutive limit downs.
The back-to-back limit downs over two days caused the premium rate to plummet from 68.19% to 29.64%, drawing attention from the market.
A fund blogger and popular Weibo user known as “Wangjingboge” remarked, “With 250,000 accounts on Monday, 300,000 on Tuesday, and 400,000 on Wednesday, it was only a matter of time before silver would hit limit downs at this pace… Through this incident, everyone must remember not to chase after premium ETFs or LOFs easily, as it can lead to significant losses.”
Financial blogger “Taosuzhaocai” commented, “Today (the 26th), Guotou Silver LOF hit limit downs for two consecutive days. Those who hesitated to sell on the day they received their shares after purchasing on the 22nd are now starting to lose money. The key is that with the limit down, they may find it impossible to sell at all.”
CEO of Beijing Huanwen Media Technology Development Co., Ltd., and financial blogger “Huanwen Financial-Xiaolijun” analyzed in a post, “The hottest investment of 2025 is undoubtedly silver, with an annual increase exceeding 120%, far surpassing gold. The Guotou Silver LOF, the only fund directly investing in silver futures, has become a focal point. After trading resumed at 10:30 a.m. on December 26th, the fund hit a limit down within a minute, with the premium rate dropping from 68% to 45% (although corrected to 29.64%), catching many overextended investors off guard.
“Little known is that this volatility had been brewing for some time. The fund had implemented purchase limits since October, with the limit for Class A shares momentarily dropping to as low as 100 yuan, leading to a scarcity of available shares despite high demand, driving up the premium in the market. Moreover, the silver market is undergoing structural changes: the silver content in the photovoltaic industry now accounts for 55%, with a global supply gap exceeding 95 million ounces. Coupled with the Federal Reserve’s rate cuts, the long-term trend is positive, but in the short term, there are hidden pitfalls — arbitraging LOF requires waiting for two trading days, and by the time you get your shares, the premium may have vanished. Some investors who attempted to ride the arbitrage wave were instead trapped.”
Listed Open-end Fund (LOF) allows investors to purchase and redeem fund shares through primary market open-end fund accounts, and trade the fund on the secondary market exchanges. By linking the over-the-counter and on-exchange markets through a custody mechanism, LOF serves as a localized form of investment fund in China.
The so-called “LOF arbitrage” involves exploiting the price difference between the trading price and the net asset value of LOF. On day T, investors use securities brokerage apps’ “on-market fund subscription” feature to purchase shares at a lower price, and upon receiving the shares on day T+2, sell them at a higher on-market price, profiting from the difference after deducting fees. However, if the high premium in the secondary market is not sustained and prices fall, investors may face losses.