UBS Silver Fund "Revalued" Amidst Selloff

China Silver Fund Plunge, Gold Standard Discussion & Market Rundown - February 20, 2023

Key Concepts:

• SDIC LOF (Silver Fund): China’s sole silver futures listed open-ended fund.
• Tokenized Gold (Pax Gold, Tether Gold): Digital representations of physical gold, potentially functioning as a modern gold standard.
• Rehypothecation: The practice of using collateral received for one transaction as collateral for another.
• ACD (Accumulate, Collateralize, Deploy): Vince Lansancy’s framework for a potential global gold revaluation.
• VIX: CBOE Volatility Index, a measure of market expectations of near-term volatility conveyed by S&P 500 index option pricing.
• Comex: Commodity Exchange, a futures and options market.
• SHFE: Shanghai Futures Exchange.
• Condor Option Strategy: A neutral options strategy designed to profit from limited price movement.

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I. China Silver Fund Crisis & Market Implications

The primary focus of the report is the 31.5% drop in China’s sole silver futures listed open-ended fund (SDIC LOF) last week. This decline was triggered by a sudden change in the fund’s valuation methodology, implemented in response to extreme global silver volatility. The adjustment pushed the fund’s net asset value beyond the Shanghai Futures Exchange’s (SHFE) 17% daily trading limit, resulting in trading halts and over 17,000 investor complaints.

The fund manager has since announced a compensation plan, offering full reimbursement for small losses and partial reimbursement for larger ones, aiming to restore investor confidence. Vince Lansancy argues the situation was exacerbated by the fund holding excessive long positions and the valuation change creating an opportunity for short selling. He suggests the information asymmetry regarding the fund’s difficulties led to a “pile-on” effect from the market.

Lansancy frames this event within a geopolitical context, highlighting the SHFE’s 17% trading limit compared to the unlimited limits in Western markets. He posits this demonstrates the SHFE is “not ready to go global yet,” framing it as a form of “war” or competition between financial systems. He believes the Western Hemisphere may have intentionally “spoofed silver lower” to halt buying pressure in China following the rule change.

II. The Emerging Individual Gold Standard

The report then shifts to a discussion of a potential “individual gold standard” facilitated by tokenized gold, specifically mentioning Pax Gold and Tether Gold. A new academic paper suggests these tokens meet the functional requirements of a modern, opt-in gold standard, being backed by physical bullion, tightly tracking spot prices, and increasingly integrated into lending and settlement infrastructure.

Lansancy acknowledges the paper’s findings but notes concerns surrounding Tether’s reserves. However, he emphasizes that the gold backing these tokens is being accumulated and, currently, is not subject to rehypothecation (though he anticipates this may change). He believes this accumulation is a precursor to a larger bull market in gold.

He introduces the “ACD” framework – Accumulate, Collateralize, Deploy – as a potential plan for global gold revaluation. He states, “There is nothing left for governments to agree on except gold for world trade. And therefore either they get their people on a gold standard even though they don't call it that or there will be world war.” He highlights Tether’s increasing gold holdings, now at 148 tons (though he notes the reported figure is actually 125 tons), rivaling mid-tier central banks and major ETFs. He concludes that this signals a “structural shift” with gold gaining “digital payment rails,” progressing from ownership (Stage 1) to monetization (Stage 2). His advice is clear: “Don’t sell your gold.”

III. Market Overview & Technical Analysis (February 20, 2023)

A brief market overview is provided, noting that President’s Day resulted in limited trading activity. Key figures include:

• 10-Year Yields: Unchanged.
• Dollar Index: 97.02, up 14.
• S&P 500: Up 31.
• Nasdaq: Up 25.
• Gold: Down $43, trading at $1949.98.
• Silver: Down 45 cents, trading at $76.87, with a volatile trading range of $74.90 - $76.90.
• WTI Crude Oil: Up 10 cents.
• Natural Gas: Down 35 cents (9.12%).
• Grains: Mixed, generally softer.

Lansancy then provides technical analysis of gold and silver charts. He believes gold is consolidating within a range, potentially forming a wedge pattern. He identifies key support levels and notes potential buying activity around specific price points, particularly influenced by entities like Tether. He expresses more nervousness regarding silver, citing the impact of the Chinese fund’s collapse on demand. He identifies a critical support level at $71, below which he would become more cautious. He describes his current market position as a “skewed condor” option strategy, designed to profit from limited price movement and minimize stress. He also notes a breakout level for oil at 65.93.

IV. Notable Quotes

• “See where it says a sudden valuation methodology change? That's when they halted the fund amidst the sell-off…The whole thing was rigged in my opinion.” – Vince Lansancy, on the SDIC LOF situation.
• “There is nothing left for governments to agree on except gold for world trade. And therefore either they get their people on a gold standard even though they don't call it that or there will be world war.” – Vince Lansancy, on the future of global finance.
• “Don’t sell your gold.” – Vince Lansancy, summarizing the implications of increasing gold tokenization.

V. Data & Statistics

• SDIC LOF Drop: 31.5%
• Investor Complaints: Over 17,000
• SHFE Daily Trading Limit: 17%
• Tether Gold Holdings: 125 tons (reported as 148 tons)
• Natural Gas Decline: 9.12%

Conclusion:

The report paints a picture of increasing financial instability and a potential shift towards a gold-backed system. The crisis surrounding the Chinese silver fund is presented as a symptom of broader geopolitical and financial tensions, while the rise of tokenized gold is viewed as a potential catalyst for a new monetary order. Lansancy’s analysis emphasizes the importance of monitoring gold and silver markets, particularly in light of these developments, and advocates for a cautious, strategically positioned approach to investment. He believes the current environment is setting the stage for significant changes in the global financial landscape, potentially leading to a revaluation of gold and a restructuring of international trade.