SHANGHAI/HONG KONG Feb 6 (Reuters) - China's sole silver futures fund slumped by its 10% daily limit on Friday, its fifth straight session of decline, after a global selloff in precious metals wiped out significant investor gains.
Global gold and silver prices hit a series of record highs in January. But U.S. President Donald Trump's nomination of Kevin Warsh as the next Federal Reserve chair triggered a selloff last week that is still being felt, with silver particularly hard hit in recent days.
The fund's tumble followed a one-hour trading halt at the open designed to protect investors in a product that was trading at a huge premium to net asset value.
The UBS SDIC Silver Futures fund , China's only exchange-listed pure-silver product, is now down more than 40% from its January 26 peak.
But the fund, at 3.099 yuan ($0.4465) per unit on Friday, still trades at a 29% premium over its net asset value of 2.4073 yuan.
The rich premium reflects both investors' feverish bets on silver when the metal was soaring, and China's daily trading limit, which prevents prompt valuation adjustment.
"Investors could suffer severe losses if they blindly invest in fund units trading at a high premium," the UBS SDIC Fund Management, which manages the silver fund, cautioned in a statement on Friday announcing the trading suspension.
The Chinese fund venture said in a statement later on Friday that it has set up a working group and is urgently formulating plans to protect investors.
"We will strive to reduce the impact of related valuation adjustments, and protect investors' legitimate rights and interests," it said.
Many investors purchased the fund as a speculative tool to bet on silver rising, inspired by tales of overnight riches in the gold market, said Duan Shihua, head of Shanghai Changer Investment Management Consulting.
"A perfect storm involving product design, investor behaviour and trading mechanics led to the crash in the silver fund," he said, adding that it highlighted the risks of commodity-linked products in China's retail-dominated stock market.
($1 = 6.9403 Chinese yuan)
Reporting by Samuel Shen in Shanghai and Jiaxing Li in Hong Kong; Editing by Christian Schmollinger, Jacqueline Wong and Joe Bavier
Source: Reuters