On Feb 1st, the global markets saw silver soar up to as much as 7.4%, declaring it to be nearly a six-month peak. This was a positive consequence of the social media community, posting and urging retail investors to flood into the market and shoot up silver.
Let's find out how.
In the Indian market, gold and silver prices were boosted on Friday. To talk in exact figures Silver fixtures jumped at a rate of 3.2%, following a big increase in global rates. To talk about silver’s supplementary metal, Gold futures on MCX rose 0.8% to ₹49,330 per 10 gram, narrowing losses for the month. However, on overall account gold prices experienced a fall of about 2% or ₹1,000 amidst wild swings
Nish Bhatt, Founder & CEO, Millwood Kane International, said: "Gold prices have been under pressure due to the rise in US treasury yield and subdued buying activity by Gold ETF investors.”
He further added “Delay and lack of clarity on the next instalment of the US stimulus package have pushed yields higher, reducing the investor appetite for the yellow metal. Moving forward, the amount of stimulus package from the US government, effective implementation of vaccination process and pick up in economy across the globe will guide gold prices."
Globally, on Comex, Silver prices rose 4.3% to $27.06 an ounce, on Friday. This was due to the messages on Reddit pursuing retail investors to contribute to the market and push the prices higher.
Bloomberg Quint said, “silver took centre stage in the retail investor frenzy sweeping through markets, sending the precious metal to a five-month high and fueling a debate over the power of Reddit-inspired speculators to take on ever-bigger targets.”
To note, the most active silver fixtures took a leap as much as 8.7% to $29.25 an ounce. Thus, this binge on the weekend resulted in this shooting up of silver coins and bars, overwhelming the online sellers.
This buying expedition inspired by GameStop Corp and other small-cap stocks has held the financial world by a storm in the recent week. Silver’s sudden surge of price can also be credited to Reddit’s WallStreetBets forum. A post in the previous week called silver “the biggest short in the world.” This motivated traders big time to pile into the iShares trust as a way to stick it to big banks.
The important question is how does silver differ from the stocks like GameStop. The primary difference is the scope for a short squeeze in silver is far lesser. Since mid-2019 money managers have had a long net position for the metal. The market dimensions of the metal too, are comparatively deeper than those for smaller stocks like GameStop.
Howie Lee, an economist at Oversea-Chinese Banking Corp said: “They may find it a bit harder to squeeze the silver market than they did with GameStop, the former is much bigger and more liquid -- but the momentum looks like it rests with them at the moment.”
Another report claimed that the reason behind this surge is that JPMorgan Chase has been "suppressing metals for a long time.” It was observed that JPMorgan (JPM) paid a record $920 million fine last year. This was to settle all the charges accounted for in manipulative trades tied to precious metals as well as Treasuries.
What is the future of this Silver trade?
Kyle Rodda, an analyst at brokerage IG Markets in Melbourne commented: “The Reddit crowd has turned its sights on a bigger whale in terms of trying to catalyze something of a short squeeze in the silver market.”
However, in the current scenarios, it is ambiguous about how long retail investors will continue to be involved in the silver trade. This is also because some prominent members of the WallStreetBets forum have advised against it. It will also be interesting to see how money managers will react in the coming week to understand how this Reddit induced volatility will impact their risk models and eventually shift from one asset to another.