Retailers have turned to the silver market following their successful attack on game retailer GameStop’s short sellers.
The world’s largest silver-backed publicly traded fund, the iShares Silver Trust, posted almost $ 1 billion in inflows on Friday, according to data from BlackRock, the fund’s sponsor. The shock of new investments came after a user in Reddit’s WallStreetBets forum urged people to buy stocks and options to pressure banks.
Silver prices rose 6 percent on Monday to $ 28.61 / troy ounce during early Asian trading. That followed a 6 percent jump last week and a rise in stocks of precious metal miners, with the New York-listed First Majestic growing 29 percent. “It’s a silly message, it’s financial anarchy; someone will be hurt, ”said Ross Norman, an experienced precious metals trader.
Last week, user TheHappyHawaiian said that buying shares in the ETF would force “physical delivery of silver” into the fund’s vaults, causing a “short squeeze” in the market, causing the silver price to rise.
The user said on the forum that it would be “unbelievable” to make major banks operating in the futures market “pay dearly” for what he claimed to bet the silver price will fall. The call echoed that of other WallStreetBets users who cheered their success last week by causing big losses at Melvin Capital and other hedge funds.
The 37.05 million increase in the number of shares in the iShares Silver Trust on Friday was the largest one-day increase since the ETF began trading in April 2006, BlackRock data shows. The ETF is backed by physical silver that is kept in vaults, which means it has to buy precious metal when it receives new investment.
The attempt at the “short squeeze” was reminiscent of a similar attempt by the oil barons William Herbert Hunt and Nelson Bunker Hunt, known as the Hunt brothers, in 1979 and 1980. They bought billions of dollars in silver in an attempt to conquer the market. . They were later penalized for market manipulation and went bankrupt after the silver price collapsed at an event called ‘Silver Thursday’.
In 1998, Warren Buffett’s Berkshire Hathaway pushed the silver price up 90 percent to a 10-year high after quietly gaining a huge position in the silver market.
Analysts said it would be more difficult for retail investors to influence the price of silver as opposed to that of a single stock, given the large off-exchange market for the precious metal where banks trade on behalf of clients.
“We are convinced that the influence of retail investors on silver will not last that long,” said Commerzbank analysts.
According to the latest statistics from the London Bullion Market Association, approximately $ 6 billion in silver was traded in the silver market in November. The London vaults hold about 33,475 tons of silver, worth $ 23.8 billion, they said in January.
Mr Norman said the target of major banks by the Reddit forum was misplaced as they used futures contracts to hedge their physical holdings of silver, meaning they were not speculating on the price drop.
“There is a misnomer here that banks are constantly short positions, but from a price perspective they are neutral, they have a long and a short that cancel each other out,” he said.
Additional reporting by Chris Flood in London.