Bubble Retail Trading Mob Tries To Squeeze The Silver Market Like GameStop
Silver prices surged on Monday morning to an eight-year high of $30 an ounce after a “call-to-arms” on a Reddit board following last week’s successful short squeeze of hedge funds betting against retailer GameStop.
Reddit users have brought record new interest to precious metals, BullionVault reported.
Posts to followers of the Reddit board WallStreetBets called for others to buy the iShares Silver Trust — the world’s largest silver-backed exchange-traded fund. It was a way of pushing up the price and squeezing speculative traders who were shorting the precious metal and betting that the price would go down, the posters said, according to Bullion Vault.
On Friday, iShares recorded almost $1 billion in inflows, according to data from fund sponsor BlackRock, Financial Times reported.
Analysts said the surge was likely triggered by retail investors, FT reported. Ken Lewis, CEO of U.S. precious metals retailer Apmex, said the company had to stop selling silver due to demand. “Once markets closed on Friday, we saw demand hit as much as six times a typical business day and more than 12 times a normal weekend day,” Lewis said. He also reported a surge in new customers.
If there is a bubble in the silver market, it won’t be the first. In the 1970s, the billionaire Hunt brothers — Herbert and Nelson — created a bubble in the silver market that severely shook the financial system. It was one of the largest speculative attempts to corner a market. The brothers inherited money from their oil-tycoon father. Believing that inflation would result in silver becoming a haven, just like gold, the Hunt brothers bought up physical silver as well as future contracts. Instead of closing out contracts with cash settlements, they took delivery on the metal, stockpiling it and buying more. The demand triggered shares to rise to more than $50 an ounce. The Hunts controlled more than two-thirds of the silver market via futures. The U.S. government saw it as a clear attempt to manipulate U.S. silver reserves. Commodities regulators introduced special rules to prevent any more long-position contracts from being written or sold for silver futures. The Hunts were stopped from increasing their positions by the temporary suspension of fundamental rules of the commodities market, according to Investopedia.
Silver dropped back down to less that $11, the Hunt brothers got a private bailout from a consortium of banks, and they were reprimanded, fined by Congress and forced into bankruptcy. They emerged still wealthy by most standards.
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Shares of GameStop skyrocketed more than 400 percent last week and 1,750 percent this year thanks to the activity of retail investors. Shares of AMC Entertainment and American Airlines also rose in the short-squeeze rally.
On Thursday, online broker Robinhood and others restricted trading of Gamestop and other stocks popular in the Reddit forum, such as BlackBerry and Nokia. In some cases, investors could only sell their stock and options positions but not open new ones, enraging Redditors.
“Last week’s events have shown it to be unwise to doubt the purchasing power of retail investors, and this has been sufficiently demonstrated again on the silver market,” said economist Howie Lee, at Oversea-Chinese Banking Corp. in Singapore. “(But) they may find it a bit harder to squeeze the silver market than they did with GameStop,” Lee predicted.