China moved swiftly on Friday to suspend trading in five key silver and oil funds to contain growing financial risks and protect investors from potential market shocks. The decision reflects the government’s increasing concern about speculative bubbles forming in the country’s commodity markets, particularly amid persistent geopolitical instability and fears of currency devaluation. The country’s only public fund investing specifically in silver futures, the UBS SDIC Silver Futures Fund, a Listed Open-Ended Fund (LOF), remained halted for the entire day, following a similar suspension on January 22. Four additional oil LOFs paused trading for an hour during morning sessions after weeks of mounting investor activity and warnings of inflated premiums.
The intervention follows one of the most volatile weeks in the history of precious metals trading. Gold, after soaring to a record high of $5,595.47 per ounce on Thursday, plummeted nearly 5% on Friday to $5,107.79, resulting in a massive sell-off that wiped out over $3 trillion in market capitalisation across gold and silver markets. Silver prices mirrored gold’s decline, slumping more than 15% on the day to $98.07 per ounce, following record highs above $120 earlier in the week. The catalyst for much of the volatility was the announcement of Kevin Warsh as the new U.S. Federal Reserve chairman, which altered investor expectations about U.S. monetary policy, strengthening the dollar and triggering rapid profit booking. These developments exposed the fragility of an overheated investment environment in China, where premiums for commodity-based funds have soared well above their underlying values.
According to an official from UBS SDIC Fund Management, the silver fund had warned of “unsustainable” premiums recently exceeding 36% above silver contracts on the Shanghai Futures Exchange. The company issued repeated alerts and halted new subscriptions to curb speculative excess and protect retail investors from “significant” losses in the event of a sudden downturn.
The chaos has not been confined to institutional channels. On Tuesday, more than 100 frustrated users of Shenzhen-based gold-trading platform Jiewo Rui stormed company offices after reports of withdrawal delays. Videos released by Hong Kong media outlet HK01 showed physical altercations between investors and local police. Although the authenticity of the footage has not been independently verified, social media carried similar clips underscoring the widespread unease.
Jiewo Rui allows highly leveraged trades up to 40 times the spot price, effectively magnifying both potential profits and losses. As gold prices fluctuated dramatically, the burden of managing fund flows and guaranteeing delivery became unsustainable for some platforms. Risk had clearly outpaced regulation, prompting Shenzhen city authorities to establish a special task force to oversee precious metals trading operations. Authorities and financial institutions alike have been warning investors for months. Shenzhen’s jewelry and bullion traders have faced intense scrutiny since October, following a crackdown on at least three firms. In January, a major silver dealer in the city’s Shuibei market defaulted on delivery, leaving more than 350 investors in financial limbo.
This week’s trading halts aim to curb unchecked speculation in China’s increasingly frothy commodities market. Analysts say these rapid regulatory responses are crucial to preventing further erosion of investor confidence and systemic disruption. “The trading halts and alerts are necessary to maintain the stability of the capital markets,” said one analyst. “Without intervention, investors could face huge losses.”
With global commodities continuing to react to international policy shifts and macroeconomic tensions, the Chinese government’s swift action reflects a balancing act: maintaining investor access to lucrative markets while ensuring financial discipline. Whether these measures will be enough to forestall a deeper crisis remains uncertain. Still, the message is clear: the era of unchecked market euphoria in precious metals may be drawing to a close.