Silver rallied on Monday, touching levels last seen in 2013, as an army of retail traders stormed into the metal, switching their focus from GameStop Corp., BlackBerry Ltd and other stocks, while short-sellers licked their wounds after a brutal start to 2021.
As traders turned their attention to silver – a bigger and more liquid market than the individual stocks targeted until last week – shares of GameStop fell by a third in morning trade and were down 22 per cent at US$253 in early afternoon.
Its shares have soared 1,600 per cent this year as small-time investors scooped up assets big fund managers had bet against, or “shorted.”
Another retail darling, AMC Entertainment Holdings Inc , was up eight per cent on Monday, having risen more than 500 per cent this year. BlackBerry shares were higher in both New York and Toronto trading.
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, although the retailer remained a highly shorted stock.
Melvin Capital, which bet against GameStop, lost 53 per cent in January.
As a new week of trading begins, it remains to be seen how long the Reddit-fuelled 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.
MINING STOCKS RALLY
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Instead, the frenzy was more apparent in spot silver, which headed for its biggest one-day rise since 2008.
The iShares Silver Trust ETF, the largest silver-backed ETF, was up nine per cent 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.
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 fund manager 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 is also benefiting from being “green,” used in solar panels, electric vehicles and 5G networks, but it remains far off a 2011 high of almost US$50 per ounce, she said.
Silver’s increase of almost 20 per cent since Wednesday ignited a rally in silver-mining stocks globally, with Fresnillo Plc shares soaring 14 per cent in London trading.
Toronto-listed silver miners rose sharply. Big gainers were First Majestic Silver, Fortuna Silver Mines , Silvercorp Metals Inc and Pan American Silver .
Goldman Sachs said the amount of position-covering last week by U.S. hedge funds, buying and selling, was the highest since the financial crisis more than a decade ago. 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!! We didn’t go through the blood bath last week for nothing, keep it up boys!!” a user posted, referring to GameStop’s decline from nearly US$500.
Wall Street’s main indexes climbed on Monday following a steep sell-off last week, as the shift in the retail trading frenzy to silver drove up mining stocks. Miners also lifted European shares.
HURTING SHORT-SELLERS
The furore began on Thursday after posts on the r/wallstreetbets Reddit message board – the same one used to spark frenzied buying of GameStop shares – 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 (US$30.6 million) into Australian ETF Securities’ Physical Silver fund by the afternoon. A silver ETF in Japan surged 11 per cent.
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 prices from gold. Gold prices rose less than one per cent on Monday.
But they warned “the frenzy of retail buying has rebased silver prices higher for the time being.”
(Reporting by Tom Westbrook and Thyagaraju Adinarayan in London and Jeff Lewis in Toronto Additional reporting by Gavin Maguire in Singapore, Luoyan Liu in Shanghai and Abhinav Ramnarayan, Sujata Rao and Karin Strohecker in London, Lewis Krauskopf in New York Writing by Nick Zieminski Editing by Jan Harvey and Matthew Lewis )
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