A 31% overnight evaporation! Behind Guotou Silver's "violent price adjustment"—is it saving people or killing them?

February 2, 2026 — The disaster involving China’s “Guotou Ruixin Silver LOF (161226),” still leaves Brother Chan with a sense of awe: This is an invaluable, real-world lesson on the risks of “liquidity” and “human nature.”

If you are a retail investor whose account shrank by 31.5% overnight, I understand your anger. But as an investor, we need to see through the underlying financial logic—because only when you understand it can you protect your money next time.

1. What happened? The “disappearance” of 31%

The cause is simple. During the Spring Festival, the international silver market experienced an epic plunge.

But the problem lies in “time zones” and “rules.” The domestic futures market has limit-up and limit-down restrictions, while the international market has no floor, with declines far exceeding 10%.

At this point, a huge awkwardness emerged:

Domestic apparent price: It looks like it only dropped 10% (because the limit-down cap was hit, making the price artificially high).

Tips: The main contract for Shanghai silver typically has a daily limit of ±3% of the previous trading day’s settlement price during normal, stable market conditions. According to regulations, if a contract hits the limit-up or limit-down repeatedly in the same direction, the exchange can adjust the limit, but it cannot exceed ±20%.

Starting February 3, 2026: The limit for silver futures contracts AG2605, AG2606, etc., was adjusted to 17% (with a maintenance margin ratio of 18%, generally 19%).

Starting February 4, 2026: The limit for listed silver futures contracts was adjusted to 19% (with a maintenance margin ratio of 20%, generally 21%).

International real price: In reality, it fell nearly 32% (combined over January 31 and February 2 trading days).

On the evening of February 2, Guotou Ruixin Fund made a shocking decision: no longer referencing the “artificially inflated” domestic closing price, but directly calculating the fund’s net value based on the real decline in the international market.

The result was the jaw-dropping number everyone saw: the fund’s unit net value plummeted from the previous day’s 3.2838 yuan to 2.2494 yuan, a single-day drop of 31.5%.

Many investors’ first reaction was: “This is outright fraud! Why not use the domestic limit-down price? Why did it drop more by ten points?”

2. Why did the fund manager “flip the table”?

Before answering, I want to quote a line from American investment master Howard Marks in The Most Important Thing: “When prices deviate too far from value, a return to fairness is inevitable, though the process can be brutal.”

Guotou Ruixin responded to the media with brutal honesty: “If we announced this in advance, we’d worry it would be interpreted as intentionally guiding investors not to redeem… causing market panic and a run.” In plain language, this is a “defense against having your assets stolen.”

Let’s do an experiment:

Suppose the fund manager did not adjust the price that day, but settled at the domestic limit-down price (artificially inflated). What would happen?

It’s like your house (fund assets) is actually only worth 700,000 due to an earthquake, but the property bureau’s system is stuck and still shows 900,000.

At this point, “smart money” (quantitative institutions, big players) would immediately rush in, demanding to buy the house from the fund company at 900,000 (redeem in the primary market).

The fund company must pay! But they only hold assets worth 700,000—what to do? They can only sell more assets cheaply to make up the 900,000.

The result:

1. The first to run (big players): With 900,000 cash, they leave laughing. That 200,000 difference is essentially stealing from the remaining investors.

2. Those who don’t run (retail investors): When the system recovers the next day, they find the house is only worth 700,000, and after paying the big players, their remaining money is less than 500,000.

So, Guotou Ruixin’s “violent price adjustment,” though cold, is ethically aimed at preventing “arbitrageurs” from shifting losses onto “left-behind” investors. Without this, the fund might be drained and collapse entirely.

3. Why did you lose more than 31%?

This is the most painful part for beginners. Many cry to me: “I didn’t just lose net value; I also lost the premium, with total losses exceeding 50%!”

Here, I must mention a famous case: the “discount wave” of closed-end funds in the 1990s. When the market panicked, assets worth 1 yuan were only willing to sell for 0.8 yuan.

Tips: Review of the 1998 closed-end fund discount wave

Returning to 1998. China’s closed-end funds were just starting, with the “Big Ten” fund companies emerging. Unlike today’s funds in Alipay, most of these were “closed-end funds.”

What is a closed-end fund? Imagine a fund company creates a pool of capital, say for 5 or 15 years. Money is invested, but before maturity, you cannot redeem directly from the fund company. If you want to cash out, you can only transfer your fund shares to someone else in the stock market.

This leads to a core formula:

Net Asset Value (NAV): The true value of the fund manager’s holdings (the inside).

Market Price: How much investors are willing to pay for your shares (the outside).

In 1998, when “Jintai” and “Kaiyuan” funds just listed, investors rushed in like crazy. Why? Because they believed “the national team” and “expert management” were top-notch. At that time, there was an astonishing “premium”: a fund with a NAV of 1 yuan was willing to be bought for 2 yuan. This is exactly the same as today’s Guotou Silver LOF—buying into a bubble.

From 1999 to 2005, the good times didn’t last. After the “5.19” rally (from May 19, 1999, to June 30, 1999, a total of 31 trading days, with the SSE index rising from about 1059 to 1756 points, a 66% increase), and the subsequent exposure of “fund scandals” (revealing fund managers’ front-running and benefit transfers), investor trust hit rock bottom. Coupled with a prolonged bear market, holding these “non-redeemable” funds felt like imprisonment. More people wanted to sell, fewer wanted to buy.

Before this disaster, the situation was the opposite: extreme pessimism led to “discount dumping” (closed-end funds), while extreme enthusiasm caused “premium buying” (Guotou Silver LOF).

Because silver was so hot, many retail investors in the secondary market (buying like stocks) frantically bought silver LOF, pushing prices 30-40% above NAV (subscription in the primary market, selling in the secondary market for arbitrage). This is often called “buying fake gold at real gold prices”:

When buying in the secondary market: The fund’s NAV is actually only 1 yuan, but you pay 1.4 yuan to buy (a 40% bubble).

During the plunge: The fund company drops NAV from 1 yuan to 0.7 yuan (a 30% decline).

When the bubble bursts: Market panic causes that 0.4 yuan premium bubble to vanish instantly.

Your actual loss = NAV decline (30%) + bubble premium disappearance (40%) = devastating blow.

This is the famous “Davis Double Play” (a negative version). Guotou Ruixin’s announcement was just the pin that burst the bubble, which was inflated by frenzied investors themselves.

4. Logical deduction

Brother Chan will analyze this deeply in two parts: first, the “protect retail investors” truth, and second, a hypothetical “30% surge the next day” scenario.

1. Is Guotou Ruixin “protecting retail investors”?

Answer: They are protecting the “left-behind retail investors’” fair rights, but at the same time, they also “kill” everyone’s account balance. This is cold financial rationality.

The so-called “protection” isn’t about preventing your money from losing but about preventing your money from being stolen.

For those wanting to redeem (usually institutions or big players): This cut severs their “escape at high prices.” Want to leave? Fine, at the real price after the plunge (0.7 yuan).

For those who can’t escape (trapped retail investors): This cut seems to destroy the net value, but it guarantees every penny in the fund is real. Without this, big players could run with inflated prices (0.9 yuan), leaving you with only 0.5 yuan in net value.

2. What if the international silver market surges 30% the next day?

If Guotou Ruixin did not lower the net value that day, sticking to the artificially high domestic price, and then the international market miraculously surged 30% the next day, the scenario could go two ways:

Scenario 1: Ideal world (no redemptions)

If all investors think: “Don’t panic, it will bounce back tomorrow,” everyone holds tight.

First day (plunge): Real value is 70, but the account shows 90. No big loss perceived.

Second day (surge): Real value jumps from 70 to 91 (70×1.3).

Result: The fund’s net value smoothly recovers from 90 to 91 (or even more, limited by daily limit).

Outcome: Everyone is happy! It’s like a dream—no real loss. The fund manager is praised as “the stabilizer.”

But the market isn’t an ideal world; it’s a ruthless profit-seeking arena, and scenario two can happen.

Scenario 2: Real-world (arbitrageurs reap huge profits)

The market is full of “sharks” and “cheetahs” (arbitrage funds, professional big players). They don’t bet on tomorrow’s rise or fall; they only look for loopholes today.

If the first day does not adjust the price (keeping the 90 yuan inflated NAV):

(1) Arbitrageurs act: They see the international silver price collapse (actual value 70), but the fund still allows redemption at 90. That’s like giving away money!

(2) Massive redemption wave: Smart funds will immediately sell or redeem before market close.

(3) The fund gets drained: The fund manager is forced to sell silver futures to pay redemptions.

Note: To pay out the 90 yuan to big investors, the fund manager must sell assets worth 90 yuan of silver. But the silver is only worth 70 yuan now! This means the manager must sell assets at a loss.

Simple math: To cover one inflated share, they need to sell about 1.28 shares worth of real silver.

Next day (30% surge):

Big investors (who already ran): With 90 yuan cash, they’re happy, regardless of today’s rise, because they already made 20 yuan profit (compared to the 70 yuan bottom).

You (left behind retail): Expecting a rebound, but… you find the increase isn’t enough!

Why? Because yesterday, to pay big investors, the fund’s “assets” (silver holdings) have been over-sold. Originally holding 100 tons, now only 50 tons remain. Although the price rose 30%, your position size shrank, so your net value’s rebound is limited.

Outcome: International silver prices rebound, but your fund’s net value can never return to the original level. That permanent loss is taken by those who ran at 90 yuan yesterday.

Guotou Ruixin’s reluctance to bet on “the next day rising” is because, as fund managers, “defense gaps” are prioritized over “market prediction.”

Risks of not adjusting: Certain, immediate (arbitrage funds will drain liquidity).

Potential gains from waiting for a rebound: Uncertain, gambling.

If they don’t adjust, and the next day the price doesn’t rise (or continues to fall), retail investors remaining will face a “plummeting assets + drained fund pool” death spiral. At that point, the fund manager isn’t just criticized—they could face serious misconduct charges.

Therefore, even knowing they’ll be lambasted online, they can only choose to “close the door on the dog,” push the net value to the bottom, squeeze out the water, and prevent others from profiting from the run. This is painful for retail investors but is the only way to prevent the “mutual fund” from turning into a Ponzi scheme.

Tips: From another perspective, everyone knows the biggest beneficiaries are Guotou Silver Fund and the custodian, as the share count remains relatively stable, and management and custody fees are still collected.

Thus, no matter how you analyze it, distressed retail investors will be unhappy! Lawsuits will follow! Guotou Ruixin Fund has also issued a new announcement, so everyone can keep an eye on the developments and see how the fund company responds to the public.

5. Recommendations

Some things are beyond investors’ control, but the Guotou Ruixin incident is very similar to the discount wave of closed-end funds around 2000 and the “Oil Treasure” margin call event in 2020. History doesn’t repeat exactly, but it rhymes. As ordinary investors, how can you avoid becoming the next “cost”?

1. Don’t buy LOF funds with a premium rate over 5%

LOF funds can be subscribed (primary) and traded (secondary). When the secondary market price exceeds NAV (IOPV) by too much, you’re buying air. Always check the “discount/premium rate” (bottom right corner of your trading app) before placing an order. If the premium exceeds 5%, even mountains of gold and silver aren’t worth it, because the premium can vanish at any time.

2. Understand what you’re buying

Many retail investors treat futures funds as bank savings. Know that futures funds (especially QDII or commodity funds) leverage underlying assets and face dual regulatory risks domestically and internationally. If you don’t understand “rollover,” “limit-up and limit-down rules,” then this money isn’t meant for you, and you won’t be able to keep it.

3. Trust “common sense” over “luck” in extreme markets

When international silver plunges 30% but domestic only drops 10%, don’t expect to pick up bargains. Value always reverts, and gaps will be filled. Guotou Ruixin’s decision to “not announce in advance” and directly adjust the price, though criticized for procedural flaws, again proves: In times of financial crisis, liquidity is paramount, and fairness (to the left-behind) often depends on ruthlessly punishing speculators. (Just look at The Big Short!)

Conclusion

Investing is a marathon; surviving is more important than how much you earn. This 31% lesson is costly, but remember: In financial markets, no protection mechanism can shield those blindly chasing highs.

Risk warning: This article reflects personal opinions only and does not constitute investment advice. Markets are risky; invest cautiously.