The next day, the price of silver fell to $25 per share, less than its mean spot price the previous Friday. The recent price movement appears to be the cause of a media frenzy that has no origin in /r/WallStreetBets, the subreddit responsible for last week's short squeeze on GameStop ($GME) and AMC Theatres ($AMC).įutures for silver jumped 11% on Monday (Feb 1) morning, representing the highest price level for the precious metal since 2013. But despite reports in Bloomberg, CNN, and Barron's that Reddit was to blame, there's no evidence of a coordinated push among Redditors to go long on the white metal. The short might have failed, but it is a strong signal for market integrity in silver – prices reflect more organic demand than bear speculation.The price of silver surged to 8-year highs ($29.59) over the weekend. There is also a possibility that the market capitalisation is too large for retail investors to maintain the squeeze or test the patience of downside speculators. It is possible that speculation in the silver market is at healthy levels and that a large portion of the shorts is hedging rather than speculative behaviour. A squeeze is, therefore, the sign of a healthy market, helping it shrug off excess speculation by a few large investors.Įven the failed squeeze in silver has added two possibilities to the narrative. Short sales can severely dampen market rallies, form overall price depressions, and prompt large holders to sell their positions, further reducing the price. Excessive speculative shorts can form a self-fulfilling prophecy. Squeezes can serve to stave off excessive bear speculation, as was initially the case for AMC and GameStop. The value of a successful squeeze is more than just the payout.
However, we believe this was something that the global markets should have experienced a long time ago. The strong rally and subsequent downturn in GameStop and AMC raised questions in the stock market. Power of Retail Traders a Cause for Worry? The sentiment for silver is more balanced, as can be seen on the Acuity Trading Dashboard.
The rally was over before it truly began. Spot prices retreated more than 8% below the $30 per ounce high almost immediately on February 1 to $27 per ounce. It requires substantially larger capital to persistently move price levels than retail investors could summon.įor these reasons, the rise in silver prices was not a clear breakout. It has a market cap of $1.46 trillion and has maintained a large supply surplus in most years. The metal gained 47% last year.Ī further significant difference from the stock of one company is silver’s considerably larger supply. In addition, most hedge funds and money managers had increased their net long positions in silver through 2020 as inflation and volatility hedges. Silver is also shorted by gold and lead miners, for whom silver is a byproduct of their primary mining activities. These are not naked positions, like in the case of GameStop and AMC. Instead, they acquire physical silver for their clients and hedge these acquisitions by shorting paper silver, thus locking in future revenues. These banks are not looking to profit off silver’s price.
There is good reason for bullion banks, often the biggest shorters of paper silver, to take these short positions. It failed because the narrative was incomplete. However, the silver squeeze did not fail because the narrative was different. Global demand for silver is expected to grow to 1.025 billion ounces in 2021, the highest in eight years, according to the Silver Institute, a nonprofit international association of members from the silver industry. Given the use of silver in industries like electronics and solar panels, demand for the yellow metal is expected to grow as the global economy rebounds this year. Despite this, silver has been relatively undervalued, especially compared to gold. Over the years, demand for the white metal has risen steadily for industrial purposes. Unlike in the case of GameStop and AMC, silver did have strong reasons to rally.
0 kommentar(er)
