Tuesday, April 16, 2024

Silver prices retreat rapidly under the influence of new retail buyers

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A silver price rally fueled by a sudden burst of interest from retail traders quickly unfolded on Tuesday, with many seasoned investors scratching their heads over the episode.

Silver fell 4.5% in first trades in London to $ 27.67 an ounce, after jumping 12% the day before. highest level in eight years.

The pullback underscores the difficulties that small investors face, even when they join forces, to influence the global silver market, where $ 6 billion of metal changes hands on a typical day. It also reflects the growing refusal of the Internet Reddit forum against the effort to jack up the prices of silver – a strategy posed by one user last week.

The money rush began on Thursday last week as the topic started to gain momentum on chat rooms online. One user on Reddit suggested buying it to put “pressure” on the banks. The post on the r / WallStreetBets forum said that it would be “amazing” to get the big banks active in the futures market to “pay dearly” for their supposed bets that the price of silver would go down, reflecting the successful campaign by amateur traders to raise the share price from the GameStop console reseller.

But professional analysts and traders quickly questioned the strategy. Unlike GameStop, which had been the subject of negative bets among hedge funds, there was no significant short position in silver futures. In fact, speculators have long been net in the metal, which means they were betting on the price going up.

Analysts said investment banks such as HSBC and JPMorgan did not have “short” speculative positions in silver, and that if anything could make money by selling money to funds. traded and helping miners to hedge.

“It’s a poor understanding of the market,” explains Bernard Dahdah, analyst at Natixis. “It tries to apply the same reasoning as GameStop. But most of the market is long money. Banks will make more profits and [the silver buyers] Indirectly send them their own money.

A trader said he believes the money promoters may have used Reddit to advance their own agenda. “I’m starting to think that they’re being sucked off by money scammers to try and drive up the price,” he said.

“They were able to bid and maybe it continues, but who’s left with the bag when it’s over?” said another precious metals trader. “I’m not sure who is being targeted here and who will suffer from these movements.”

Data from the Commodity Futures Trading Commission shows that silver producers and so-called swap traders, including banks, were strapped for cash before the sudden rebound last week.

But banks would likely only have taken the position of hedging their holdings in physical money, meaning the impact of the sudden price hike would be neutral, analysts said. Instead, hedge funds and other speculators – who net more than 44,000 silver contracts on ExCom last week – would be the likely winners from a rise in the price of silver.

Analysts noted that the language promoting silver on Reddit was similar to that of the gold bugs who, for years, blamed low gold and silver prices on the removal. artificial by the big investment banks, an impression which was aggravated by JPMorgan’s admission in 2020, that he had been manipulating precious metal futures for eight years.

The US bank paid a $ 920 million settlement with US authorities over the practice known as spoofing, which involves quickly placing and withdrawing buy and sell orders to give other traders a bogus print request.

Chris Powell, director of the Gold Anti-Trust Action Committee, one of the world’s most prominent gold enthusiasts, said he applauded the action of the Reddit poster.

“If Reddit-inspired investors believe that some powerful elements, with the underground backing of governments and central banks, are short-selling the shares of silver and silver mining companies in an attempt to suppress the price of a metal monetary potentially competing with currencies and government bonds, Of course I agree with them, ”he said.

Retail investors invested $ 93 million in the world’s largest exchange-traded fund, the iShares Silver Trust, according to VandaTrack, which aggregates data from major brokers, on Monday, the third day of rapid net flows.

Column chart of daily retail flows in iShares Silver Trust (in millions of dollars) showing the races of retail silver in the silver ETF

The ETF was the biggest destination on Monday for new retail money, surpassing leading stocks such as Apple and Tesla stocks and the popular QQQ ETF which tracks the Nasdaq 100 index.

But investors who bought the iShares Silver Trust early Monday morning would have made a loss when it closed.

“Anyone who buys silver should know that it’s called ‘the devil’s metal’ for a reason,” said Adrian Ash, head of research at BullionVault. “Volatility can be fast and violent, and it can be hard to miss the long-term uptrend in prices if you suddenly find yourself sitting in a loss.”

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