‘Absolute guarantee it ends in tears:’ Silver hits 8-year high as Reddit’s army bursts into metal

“It’s Their Big Bold Moby Dick Moment”

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SINGAPORE — Silver surged above $30 an ounce for the first time since 2013 on Monday as an army of retail traders stormed into the metal after betting billions of dollars on stocks last week, triggering risks of collapse of several assets on the world markets.

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Organized in online forums and traded with no-fee brokers such as Robinhood, small investors drove shares of video game retailer GameStop up 1,600%, scooping up the assets that big fund managers had bet against.

The phenomenon spread to silver at the end of last week.

Spot silver jumped more than 11% in London to US$30.03 an ounce and was on course for its biggest one-day rise since 2008, taking its gains to around 19% since last Wednesday. .

The jump sparked a rally in silver mining stocks from Sydney to London, with Fresnillo shares climbing 20.5% to overtake Britain’s blue-chip FTSE 100 index.

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The silver action, following thousands of Reddit posts and hundreds of YouTube videos, suggests a rise in physical price could hurt big investors with bearish bets, also marks a foray into a much bigger market and more liquid than individual stocks.

“I would look at the silver rally the same way as the GameStop saga – from a market stability point of view, right now it’s not an immediate concern, but if we see any sudden moves, we could see a deleveraging of the markets,” said Antoine Bouvet, rates strategist at ING.

“This risk reduction through deleveraging could potentially boost demand for bonds if it leads to excessive volatility.”

In early signs of deleveraging, Goldman Sachs said the amount of position hedging last week by U.S. hedge funds, buying and selling, was the highest since the financial crisis more than a decade ago.

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Nonetheless, their equity market exposure remains near record highs, the investment bank warned.

Hiccups

The rush for cash and GameStop-like stocks has tested the limits of new trading platforms and processing venues, frustrating retail traders who are unable to feed their thirst to buy and sell. sell more frequently.

Feverish silver buying has hit a snag, with major US broker Apmex warning of processing delays while it secures more bullion. The Money Metals exchange suspended trading until Monday mid-morning.

Trading volumes in small miner stocks in Australia were unprecedented and jumps in some exploration companies, which do not actually produce silver, exceeded 90%.

Similar hiccups were seen in stocks last week. GameStop, AMC and a few other volatile stocks saw temporary buying restrictions in trading apps like Robinhood as frenzied buying led to trading apps being set up.

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“The Reddit crowd turned to a bigger whale trying to catalyze something from a short silver market squeeze,” said Kyle Rodda, an analyst at IG Markets in Melbourne.

“This is their big, bold Moby Dick moment,” he said.

Money is not GameStop

The popularity of dabbling in stock markets has increased during the COVID-19 pandemic as volatility, stimulus checks and lockdowns have driven account openings and investments.

The craze came to a head last week when GameStop’s buildup led to a ‘short squeeze’, turning stratospheric price gains as hedge funds with bets against the stock desperately bought it at high prices. to close their positions.

It is now the turn of the money and once again the scale of the purchases surprises the professionals.

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Online discussions turned to silver late last week as Reddit posts suggested higher prices could hurt banks with large short positions, and buying silver funds easy-to-access exchange-traded coins could quickly increase the value of the metal.

Retail traders poured a record A$40 million (US$30.6 million) into Australian ETF Securities’ physical silver fund in the afternoon. A silver ETF in Japan jumped 11%.

All eyes are on possible gains later today from the $16.5 billion U.S.-listed iShares Silver Trust ETF, which rose 5.6% on the week last.

“We see little chance of a tightening in the silver market,” said Commerzbank’s Eugen Weinberg. “After all, the market is not only large and difficult to manipulate; unlike stocks, there is no excessive short selling with silver.

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Global short-term interest on silver, or the cumulative value of bets on its falling price, is equivalent to around 900 million ounces, just short of global annual production.

Banks and brokers hold the bulk of it – around 610 million ounces – but it is unclear whether they are net short on the metal or whether their bets are offsetting very large physical holdings.

“Allegations that certain market participants are artificially keeping silver prices low have existed for years, but are somewhat difficult to reconcile,” said BofA precious metals analyst Michael Jalonen.

He said he was “bullish on silver for a while” based on new applications, including solar panels, and expects it to break above US$31/oz.

So far, Redditers carry on. Many of the renegade traders are paper millionaires and their hedge fund opponents are nursing their wounds. Melvin Capital, which bet against GameStop, lost 53% in January.

Robinhood, the main broker for Redditers, has also rolled back and lifted some of the purchase restrictions it imposed last week, although limits remain for eight companies, including GameStop, AMC Entertainment and BlackBerry.

However, with regulators surrounding both Robinhood and the Redditers forums, the battle is far from over.

“I’ll tell you one thing, absolute guarantee this ends in tears. I just don’t know when,” said CMC’s Michael McCarthy.

© Thomson Reuters 2021

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