Published: Tue, February 02, 2021
Tech | By

Silver traders ask who wrote Reddit posts to spark a run-up

Silver traders ask who wrote Reddit posts to spark a run-up

Some are doing it to stick it to the big investors, and their efforts paid off last week when their investments in GameStop, a USA bricks-and-mortar video retailer that's been struggling to compete with the shift to online shopping during the pandemic, saw a massive rise in its value.

The result of this collective action was to see GameStop's share price to rocket by 1,700%+ since the start of the year and leave the hedge fund with losses in the billions of dollars.

The firm is preparing for an initial public offering but it was not clear if it will push forward with those plans.

The social media-driven trading frenzy "could be slowly ending", said OANDA market analyst Edward Moya.

Speculative financial investors were already positioned fairly bullishly, dealers said.

Silver futures jumped more than nine per cent today to US$29.42 (NZ$41.02) per ounce with #silversqueeze trending on Twitter. But in most cases, silver is a fairly small element of the costs of these high-value goods, suggesting that a larger and more sustained price move would be necessary to affect the prices of final products.

Traders were growing concerned that the Reddit effect could extend to less liquid commodities markets.

"With volumes in all the hot stocks collapsing, silver attack met by margin, Robinhood having to seek fresh collateral at a rampant speed, the signals that the retail mania could unravel rapidly are aligning".

The Motley Fool points out that a short squeeze on silver funds like iShares Silver Trust-an ETF-is unlikely.

According to Daniel Izzo, CEO of GHCO, silver ETPs will not break although in stressed conditions, borrowing costs can rise as physical settlement takes longer and market makers demand more of a premium in order to continue to sell.

Fresnillo Plc's shares were down 6% in London.

He was hesitant about getting involved in the stock market - "I never understood what it was, what it did" - but a few months later he created an account and bought shares in airlines and cruise lines, figuring the industries, slammed by COVID-19 disruptions, would eventually rebound.

Small silver miners in Australia, which had leapt on Monday, retraced some of their gains on Tuesday.

In trading on the Toronto Stock Exchange on Monday, First Majestic Silver Corp. closed up 23.5 per cent, Silvercorp Metals Inc. was up 25.7 per cent and Fortuna Silver Mines Inc. closed 18.7 per cent higher. The 5-day correlation between VXSLV and silver prices is +0.87 and the 20-day correlation is +0.74.

Analysts said the silver pullback may show the limits of small investors' impact in a large market, while posts on the popular Reddit forum, WallStreetBets, ranged from those giving up on the GameStop trade to calls to stick with the stock.

"What is happening with GameStop only reminds us of what has been happening for years on Wall Street", Warren lamented in a CNN interview Sunday.

"Get out there and buy at least 4 ounces of silver as soon as you can", one forum participant posted.

ELECTRONICSAbout 28% of the world's silver went into electronics a year ago - in products like computers, televisions, cell phones, circuit boards, microwave ovens and more.

Other investors expressed concerns on WallStreetBets on Monday that silver was undercutting their focus.

Even so, hedge funds' exposure to the stock market remains close to record levels.

"It will put you on the sidelines from this righteous and glorious war we are in".

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