Inside the Chinese retail-trading frenzy that's pushed silver prices to record highs

• Silver prices hit a new record on Monday, driven by speculative retail-investor activity in China.
• Interest has been so high that China's only pure-play silver fund has
• Retail investors in the nation took interest in China's pure-play silver fund last week.
• The precious metal, still on track for its best year since 1979, hit $84/oz before falling on Monday.

It's been a wild few weeks for silver.

The precious metal was already on a record-breaking run this year, and recently got a further boost from speculative interest among Chinese retail investors.

The price of the metal climbed to a new all-time high of $84 an ounce on Monday before erasing gains and trading lower.

Silver, which is a key component in data centers and is seen as an under-the-radar AI play, has been piquing the interest of investors all year.

But speculative buying in China started just a couple of weeks ago, when a string of posts on the social media platform Xiaohongshu outlined how investors could start an arbitrage play on the UBS SDIC Silver Futures Fund, China's pure-play silver fund. (Arbitrage is a strategy that enables a trader to capitalize on the price difference of the same asset across different markets.)

That strategy evidently gained traction. In the past week, the fund was valued at over a 60% premium compared to the value of its assets, and at one point, was up 187% from levels at the start of the year, according to Bloomberg data.

This spike in Chinese interest can be seen in the spread between spot silver prices in Shanghai and in London, which briefly rose to more than $8 an ounce on Monday, the largest premium the metal has ever posted in China, according to Bloomberg data.

On Friday, UBS SDIC said it would shutter subscriptions to the fund's Class C shares, which are preferred among short-term traders. It also advised traders to avoid chasing "unsustainable" gains, and said rules around trading would become tighter.

UBS SDIC did not immediately respond to a request for comment sent by Business Insider.

It looks like there's a large number of speculators in net-short positions in silver, said Jeff de Graaf, a technical analyst and the CEO of Renaissance Macro.

"Net-short positions are negatively correlated to forward returns implying a potential short squeeze of speculators in silver markets," he wrote in a note to clients on Monday.

It isn't the first time silver has been the object of investor speculation. In October, silver futures hit a fresh record in London as traders staged a short squeeze on the metal, pushing its price to its first record high in over forty years.