Redditors have pushed silver to an eight-year record high after a user by the name of ‘TheHappyHawaiin’ suggested punishing banks for betting against a prise rise.
Silver prices rose by as much as 13 percent on Monday – to $30 per ounce – putting the rare metal on course for its biggest single-day percentage gain since 2008.
Monday’s increase followed a 6 percent rise last week and a rally in the shares of some miners of the metal, while the world’s largest silver-backed exchange traded fund, the iShares Silver Trust, recorded almost $1 billion in inflows on Friday.
Meanwhile, retail sites warned customers over the weekend that they would not be able to meet the dramatic increase in demand for silver bars and coins.
The uptick in investments came after the subject was shared on the WallStreetBets Reddit forum last week, with one post by user TheHappyHawaiian saying that buying shares in the exchange-traded fund (ETF) would ‘force physical delivery of silver’ into the fund’s vaults, causing a ‘short squeeze’ and pushing up silver’s price.
Silver prices rose by as much as 13 percent on Monday – to $30 per ounce – putting the rare metal on course for its biggest single-day percentage gain since 2008. Pictured: Bars of silver are placed on wooden pallets, file photo
The message board has been in the news in recent days after it orchestrated a ‘short squeeze’ of GameStop shares, losing hedge funds billions who were betting against the video game company.
One Wall Street hedge fund – Melvin Capital – which had bet against GameStop, had to be bailed out because of the roughly $4.5 billion losses it suffered in the frenzy.
In the fallout, Robinhood – the free-trading app – was slammed by its users after it restricted trades in GameStop and other stocks.
GameStop was one of the most heavily shorted stocks in the United States, according to data.
An analysis of 28 global silver ETFs and mutual funds on Lipper showed they received an inflow of $1.8 billion in January, their biggest since August 2020.
iShares Silver Trust ETF, the largest silver-backed ETF, recorded an inflow of $1.2 billion in January, out of which $780 million came in the last week, the data showed.
Aberdeen Standard Physical Silver Shares ETF and ZKB Silver ETF had inflows of $80 million and $13.7 million respectively in the last month.
Spot silver surged over 6% last week and added another 9% on Monday as thousands of Reddit posts suggested that higher silver prices could hurt banks with large positions, and said buying easy-to-access exchange-traded silver funds could quickly ramp up the metal’s value.
Monday’s increase followed a 6 percent rise last week a rally in the shares of some miners of the metal, while the world’s largest silver-backed exchange traded fund, the iShares Silver Trust, recorded almost $1 billion in inflows on Friday
However, a backlash followed the surge in silver prices on Monday with some members of the Reddit board speculating that institutions such as hedge funds were attempting to harness the retail fervour.
‘It’s a fool’s errand, it’s financial anarchy; somebody is going to get hurt,’ Ross Norman, a veteran precious metals trader, told the Financial Times.
Analysts said that shift was likely caused by retain investors amid reports of a shortage in silver bars, with Ken Lewis, chief executive of the US precious metals retailer Apmex, saying the company had to stop selling silver due to high demand.
‘Due to unprecedented demand on physical silver products, we are unable to accept any additional orders on a large number of products, until global markets open Sunday evening,’ APMEX, thought to be world’s largest online retailer of precious metals, said on its website.
In TheHappyHawaiian’s post, user wrote that it would be ‘incredible’ to make the large banks that are active in the futures market ‘pay dearly’ for what he alleged were bets against the metal – or betting that the price of silver would fall.
Another WallStreetBets user wrote that iShares Silver Trust ETF (SLV) ‘will destroy the biggest banks, not just some little hedge funds’.
The uptick in investments came after the subject was shared on the WallStreetBets Reddit forum (pictured, file photo) last week, with one post by user TheHappyHawaiian saying that buying shares in the exchange-traded fund (ETF) would ‘force physical delivery of silver’ into the fund’s vaults, causing a ‘short squeeze’ and pushing up silver’s price
The message board has been in the news in recent days after it orchestrated a ‘short squeeze’ of GameStop shares, losing hedge funds billions who were betting against the company
Another user claimed bank JPMorgan Chase had been ‘surpressing metals for a long time. This should be epic. LOAD UP.’
A number of users pointed out that JPMorgan had paid a record $920 million fine last year to settle charges that it engaged in manipulative trades of futures tied to precious metals, according to CNN.
However, some other users were more sceptical, suggesting that the movement was being co-opted by hedge funds and that there is no coordinated effort in the silver market.
One thread that suggested this was titled: ‘The Silver Squeeze is a hedge-fund coordinated attack so they can keep fighting the $GME fight.’
The post said that buying silver ‘would be a tragic, irreversible decision that not only will most likely not make you any money because the squeeze is fake, it will put you on the sidelines from this righteous and glorious war we are in.’
What is the Reddit shares trading frenzy?
GameStop is one of the most heavily shorted stocks on the market, with more contracts to sell the stock short than there are shares available.
‘Short selling’ allows an investor to profit when the price of a share drops. Short sellers borrow a stock, sell the stock, and then buy the stock back to return it to the lender.
Reddit users saw an opportunity for what is known as a ‘short squeeze’, in which rising share prices force short sellers to buy more of the stock to cover their losses.
Users of the Reddit group WallStreetBets were urging members to buy and hold GameStop stock, locking up the supply of shares and forcing desperate hedge funds to bid higher and higher to cover their shorts.
It is a bubble that could burst at any time, if investors decide to cash out and a selling spree ensues. Most professional investors agree that GameStop’s earning potential does not justify the current share price.
Despite this, some well known business figures tweeted their support for the #silversqueeze, which was trending in Twitter on Monday.
The Winklevoss twins, famous for suing Facebook’s founder Mark Zuckerberg and who were early backers of bitcoin, both shared the hashtag in support.
‘The #silversqueeze is a rage against the machine,’ Tyler Winklevoss tweeted, while his brother Cameron wrote: ‘If silver market is proven to be fraudulent, you better believe gold market will be next.’
‘It remains to be seen whether Reddit traders will have the same success in triggering a massive short squeeze for silver as they did for downtrodden stocks such as GameStop,’ Raffi Boyadjian, senior investment analyst at XM, told Reuters.
‘Unlike single stocks, the market for silver is much larger and more complex and therefore more difficult to manipulate.’
The rush on silver was similar to efforts made by oil barons William Herbert Hunt and Nelson Bunker Hunt – known as the Hunt brothers – who in 1979 – 1980 purchased billions of dollars worth of silver in an attempt to corner the market.
They were later sanctioned for market manipulation and went bankrupt after the price of silver collapsed in an event that became known as ‘silver Tuesday’.
Silver ETFs and mutual funds saw an inflow of $3.8 billion in 2020 as the COVID-19 pandemic increased demand for safe-haven assets.
Silver’s industrial use also helped to sustain the rally in the later part of the year, when recovery hopes rose on vaccine optimism.