The recent surge in silver market sentiment has made silver LOF (Listed Open-Ended Funds) a hot commodity. With high premiums, daily limit-ups, and purchase restrictions one after another, a bunch of similar products with similar names and codes have also been pushed to the daily limit.

Many people are starting to wonder: since silver is so popular, why can’t we just focus on this one "problematic" LOF? Why not buy a convenient and cost-effective silver ETF like we do with gold?

Let’s discuss a few core issues.

**First, let’s talk about the current high premiums.** To put it simply, this is a false fire built up by buying sentiment. Those rushing in at the high now are starting to lose money once they’re in. If you buy at a 20% premium, silver futures would need to rise another 20% for you to break even. Once the market sentiment cools or the purchase restrictions are lifted (which is unlikely), the premium will instantly vanish, and those who bought at high prices will face double losses. So, right now, don’t gamble on the market inside; arbitrage outside the market is still relatively safe.

**Next, let’s discuss long-term holding returns.** Many investors have long realized that holding silver LOF makes it difficult to outperform the same period’s physical silver. This isn’t due to poor fund manager skills; it’s a fundamental flaw of the product itself—rollover costs. Silver LOF is actually a "futures fund," not holding real silver, but futures contracts. These contracts have expiration dates, so the fund must constantly "sell near-expiry contracts and buy new ones." Most of the time, forward contracts are more expensive than near-term ones (this is called futures contango), so each time the fund rolls over, it is "selling low and buying high." This bleeding is like a funnel, gradually eroding the net asset value over time, ultimately causing long-term underperformance compared to physical silver.

**Why can’t the scale grow larger?** Trading restrictions are in place. According to regulations, public funds, as non-futures company members, have a limit of 10,000 lots (roughly over 1 billion yuan in market value) for a single main futures contract. With two forward contracts supporting, the fund’s maximum size is capped at around 3 to 5 billion yuan. Once the capital exceeds this, even a well-funded fund manager has nowhere compliant to buy more.

**Finally, since futures funds have so many pitfalls, why don’t fund companies learn from gold ETFs and directly buy physical silver to store in warehouses, then issue a precisely tracking, unlimited-scale physical silver ETF?**

Here’s a unique economic dilemma specific to silver:

**First, the storage issue—this is the most painful reality.** At current prices, 1 kilogram of gold is worth about 1 million yuan, while 1 kilogram of silver is only worth around 16,000 yuan. To launch a 10 billion yuan silver ETF, the required warehouse space would be dozens of times larger than that for gold ETF. Any fund company or exchange cannot bear such enormous storage, security, and logistics costs.

**Second, silver is prone to deterioration—this is due to its industrial nature.** Gold stored in a vault remains shiny and intact for a hundred years, with almost no loss. Silver, being an industrial metal, easily oxidizes and turns black when exposed to air over time. To hold large amounts of physical silver in an ETF long-term without depreciation would incur prohibitively high maintenance costs.

**Another big issue: infrastructure.** The gold spot market has formed a closed loop. The Shanghai Gold Exchange (SGE) has established a highly mature physical gold trading and delivery system, allowing ETFs to trade directly through the SGE. Moreover, the SGE’s vaults are state-level, highly trustworthy. Silver’s shortcoming lies here—although the SGE does have silver trading, it mainly serves industrial enterprises’ spot circulation and has not established a large, standardized, investment-oriented delivery and storage system like gold. Without this infrastructure, fund companies simply dare not touch physical silver ETFs.

So, don’t mess around blindly; the risks are right in front of you.