A rally in the price of silver (SI*1) lifted the metal to an eight-year high on Monday but those gains faded as some investors questioned the ability of social media-driven traders to move prices in a bigger, more liquid market.
The retail traders’ darling, GameStop Corp. GME-N), sold off, giving up all of Friday’s strong rally, but other shares caught up in the Reddit rally, including BlackBerry Ltd (BB-T) and AMC Entertainment Holdings Inc (AMC-N), extended the advance that has brought pain to short-sellers.
While a lot of people came in with great enthusiasm that they would see moves in silver reminiscent of what happened with GameStop, “they now realize there is not as much buying pressure pushing it up like some had thought,” said Michael Matousek, head trader at U.S. Global Investors.
AMC was up 8.3% on Monday afternoon, having risen more than 500% this year. BlackBerry shares were higher in New York and Toronto trading.
As a new week of trading begins, it is unclear how long the Reddit-fueled rally in traditionally unloved stocks will last. More immediately, it could mean more market losses if hedge funds have to keep selling to meet redemptions or right their portfolios. Longer-term, they may have to shift strategies.
Monday’s moves were relatively small compared with swings last week when small-time traders, who organized in online forums and traded with fee-free brokers such as Robinhood, saddled several powerful hedge funds with losses on their short positions.
Robinhood, the online brokerage at the center of the Reddit rally, raised another $2.4 billion from shareholders, just days after existing investors pumped in $1 billion, it said in a blog post. Robinhood also raised trading limits on some stocks, including GameStop, AMC, Koss Corp and Express Inc .
Robinhood faced anger last week for curbing the purchase of some stocks. It is preparing for an initial public offering and recent developments raise questions on whether it will push forward with those plans.
Spot silver was last up 6% after earlier gaining 11%.
The iShares Silver Trust ETF, the largest silver-backed ETF, was up 7% in U.S. trading. Friday’s retail inflows into the ETF totalled around $950 million, equivalent to two weeks of demand, in a total annual silver market of $25 billion, according to BMO Capital Markets.
“This social media speculation is at the early stage for silver and there is uncertainty about how much more momentum we can have,” said Edward Moya, senior market analyst at OANDA.
MINING SHARES LIFT U.S., EUROPEAN BOURSES
The silver market is not large - about 1 billion ounces annually, or $28 billion at spot - so it is relatively easy to move the price, said portfolio manager Maria Smirnova at precious metals-focused Sprott Inc, a long-term silver investor.
“Gold and silver are direct beneficiaries of low to negative real interest rates and fiat currency debasement,” she said. “A general economic post-COVID recovery is also helping the silver price.”
Silver benefits from being “green,” used in solar panels, electric vehicles and 5G networks, but it remains far off a 2011 high of almost $50 per ounce, she said.
Silver-mining stocks advanced globally, with Fresnillo Plc shares soaring 14% in London trading.
Big Toronto-listed gainers were First Majestic Silver , Fortuna Silver Mines, Silvercorp Metals Inc and Pan American Silver.
Wall Street’s retail trading frenzy has distorted markets, global hedge funds industry body AIMA said on Monday.
Some on the online Reddit WallStreetBets group, or WSB, urged followers to keep their focus on GameStop.
“We just have to stick to the same plan we’ve had all along, HOLD!!” a user posted.
Shorting shares of GameStop cost hedge funds a total $12.5 billion over January, data from financial analytics firm Ortex showed on Monday.
The number of GameStop shares shorted fell by over half in a week as these short-sellers covered their bets, S3 Partners said.
Melvin Capital, which bet against GameStop, lost 53% in January.
Wall Street’s main indexes climbed as the shift in the retail trading frenzy to silver drove up mining stocks. Miners also lifted European shares.
The furore began on Thursday after posts on the r/wallstreetbets Reddit forum urged investors to buy physical silver.
“Get out there and buy at least 4 ounces of silver as soon as you can,” one forum participant posted.
Retail traders poured a record A$40 million ($30.6 million) into Australian ETF Securities’ Physical Silver fund by the afternoon. A silver ETF in Japan surged 11%.
Global short interest in silver, or the cumulative value of bets it falls in price, is equivalent to about 900 million ounces, just short of annual global production. Banks and brokers hold most of that but it is not clear whether they are net short on the metal or whether their bets offset very big physical holdings.
Analysts say a silver short-squeeze is unlikely. Unlike in GameStop, there are no holders of massive silver short positions who can be forced to abandon them in big enough numbers to send prices through the roof.
“Unlike single stocks, the market for silver is much larger and more complex and therefore more difficult to manipulate,” said Raffi Boyadjian, senior investment analyst at XM, in a note.
JPMorgan analysts said fundamentals did not justify a sustained decoupling of silver from gold. Gold prices rose less than 1% on Monday.
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