Silver prices have shot up nearly 12% to eight-year highs in what analysts said was a surge of interest from retail investors inspired by the WallStreetBets forum to put the squeeze on short-sellers.
Having propelled ailing US main street retailer GameStop Corp (NYSE:GME) up over 1,700% over the past month, the WSB crew were said to have made the precious metal their new darling, pushing its price above US$30 an ounce at one point on Monday morning, from Friday’s settlement at $26.914.
On WallStreetBets, there were denials that the members of the forum had anything to do with the silver rise, with some senior members noting that the silver play “is a trap” with hedge fund giant Citadel being ‘long’ silver, ie expecting the price to go up, and others warning fellow YOLO traders to take a lesson from Silver Thursday in 1980.
Nevertheless, US bullion broker APMEX said over the weekend that it has seen a “dramatic shift” in silver demand in recent days.
“For example, the ratio of ounces sold per day was running about two times earlier in the week and closer to four times the average demand by the end of the week,” the broker said, adding that demand had been running as much as six times that of a typical business day after markets closed on Friday.
“We’re not in Kansas anymore,” said analyst Neil Wilson at Markets.com, saying silver prices were jumping as investor interest in the metal is boosted “due to expectations Reddit traders will attempt to squeeze prices higher”.
There has been a clear divergence from gold, which has remained range-bound, Wilson noted.
He added: “The fact that such a large and liquid market as silver can be targeted by retail investors says much about the shift we are witnessing, though despite appearances this morning it’s going to a lot harder to squeeze silver shorts as the market is so much deeper and more liquid.”
“Unlike GameStop which, while it caused wider volatility as investors sought out other short squeezes, trades as an unattached entity, the silver surfers are already starting to impact prices elsewhere,” noted market analyst Connor Campbell at Spreadex.
Indeed London’s mining companies were lifted in silver’s reflected glory on Monday, with FTSE 100-listed silver miner Fresnillo (LON:FRES) up 15% in early trade, and other big precious metals miners like Polymetal (LON:POLY) and Hochschild (LON:HOC) also rising high. Smaller players were also flying, including Alien Metals Ltd (LON:UFO), Argent Minerals Ltd (ASX:ARD), Pan American Silver Corp (NASDAQ:PAAS) and Fortuna Silver Mines Inc (NYSE:FSM).
Whether or not the drive was actually coming from WallStreetBets or not was a moot point for now.
“What we don’t know is exactly how this is happening – clearing out of shorts by worried hedge funds, retail-driven bid, ETFs flows driving the physical market, smart-money front-running the trade, or a combination of all these,” said Wilson.
He said some huge funds may have been front-running this trade “to piggyback the rally and further fuelling the move up”.
“Targeting physically backed ETFs like SLV may be smart, as it will drive physical demand and push up spot prices perhaps more acutely than just by trading futures,” Wilson added, though stressing that this kind of herding to coordinate a squeeze up “is risky and likely to create a bubble that will hurt more than helps on the way down”.
Some observers wondered why silver has attracting the attentions of WSB’s YOLO traders.
As with GameStop it was likely to be a further venting of the retail traders’ fury upon, and profit from, short sellers, said Russ Mould at AJ Bell.
“Allegations about, and fines for, investment banks rigging precious metal markets have abounded for some time. More fundamentally, money supply is surging, markets more generally are watching carefully for any signs of inflation and precious metals are traditionally seen as a potential hedge here,” said Mould.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said the silver move “is a hint that the retail traders who just discovered the strength of their unity are out there, looking for new targets – and apparently bigger ones”.
She said American Airlines seemed to be a big name that has benefited from the short squeeze frenzy, as it gained as much as 38% during the course of last week “because small investors wanted to fight back the big short-sellers on various battlefields.
“As such, the weeks ahead could see impressive rallies here and there – most probably where you expect the least, and take investors by surprise. You clearly don’t want to be a short-seller in Wall Street right now.”
Whether by regulatory action or not, analysts wondered how these trends might come to an end.
“Ultimately the best cure for high prices is high prices,” said Mould. “In the end some traders somewhere are going to want to take a profit on GameStop or silver and someone is going to left holding the bag – at least one unfortunate person must have paid the top tick in GameStop at around $470 and be sitting on a loss.
“All short squeezes have an element of a pyramid scheme about them as they need new money coming in to maintain the upward price momentum (and also give early movers a chance to book their profits and move on).”
Ozkardeskaya said for silver, the rally could be short-lived as some leading members of Reddit WallStreetBets platform are already divided over the question, and advise against the move in silver.
“One important thing to remember in this game is, if you lose full support, and momentum, it’s over. This is why, the speculative rush is a prosperous, but a dangerous game,” she said.