SLV: Retail Interest Another Reason To Be Bullish (NYSEARCA:SLV)

SLV: Retail Interest Another Reason To Be Bullish (NYSEARCA:SLV)

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Silver surges as Reddit army targets precious metals

New York (CNN Business) Move over GameStop, Reddit mania is spreading to the precious metals market.

Meanwhile, retail sites warned customers over the weekend they could not meet skyrocketing demand for silver bars and coins. And “#silversqueeze” is trending on Twitter.

In more recent trading, silver futures were up 6.5%.

The moves provide another example of the power of a group that has captivated Wall Street and Main Street : WallStreetBets. The Reddit forum sentand other heavily shorted stocks skyrocketing last week, roiling markets and crushing some hedge funds that had bet against those stocks. Robinhood, the free-trading app, came under fire after restricting trades in GameStop and other stocks.

iShares Silver Trust ETF SLV People on WallStreetBets set their sights on silver and thelast week, with some suggesting it could be a way to hurt big banks they believe are artificially suppressing prices.

“SLV will destroy the biggest banks, not just some little hedge funds,” one WallStreetBets user wrote.

Another claimed JPMorgan Chase has been “suppressing metals for a long time. This should be epic. LOAD UP.”

The Winklevoss twins, who famously sued Facebook’s Mark Zuckerberg and were early backers of bitcoin, both tweeted support for the push by WallStreetBets into silver.

“The #silversqueeze is a rage against the machine,” Tyler Winklevoss tweeted

“If silver market is proven to be fraudulent, you better believe gold market will be next,” Cameron Winklevoss tweeted.

Leading retail sites posted warnings over the weekend that they faced heavy demand.

“Due to unprecedented demand on physical silver products, we are unable to accept any additional orders on a large number of products, until global markets open Sunday evening,” APMEX, which calls itself the world’s largest online retailer of precious metals, wrote in a notice atop its website.

SD Bullion warned that “due to unprecedented silver demand” it would also be unable to accept orders until Sunday evening. Similar notices were posted by Money Metals and other websites.

“It’s not surprising to see the sharp and abrupt uptick in consumer demand overwhelm the physical supply of silver coins held by dealers in the short term,” Ryan Fitzmaurice, a commodities strategist at Rabobank, told CNN Business in an email.

However, unlike GameStop and other unloved stocks targeted by WallStreetBets, silver futures have been strong of late. Hedge funds and other institutional investors had been bullish on silver futures and the precious metal was trading near multi-year highs.

“It is a dramatically different market setup,” Fitzmaurice said. “I am not sure how well this new Reddit trading strategy will fare in futures markets and especially the notoriously volatile commodity markets.”

Silver rallies after Reddit post about executing a ‘short squeeze’

Silver futures rallied Thursday to mark their highest finish in three weeks, following a post by a Reddit user, who suggested executing a “short squeeze” on silver.

“Any short squeeze in silver paper shorts would be EPIC,” a post on the popular WallStreetBets forum said. “Why not squeeze $SLV to real physical price,” he said referring to the iShares Silver Trust exchange traded fund.

A short squeeze happens when a price increase for an asset prompts a rush in buying activity by those who previously bet that prices would fall.

Silver jumped “as a campaign grew among long-time silver bugs to attract the ‘Reddit crowd’ of young day-traders currently squeezing heavily-shorted U.S. shares higher,” Adrian Ash, director of research at BullionVault, wrote in a article Thursday.

Silver futures climbed sharply Thursday, with the March contract SIH21, +10.20% SI00, +10.20% up 53 cents, or 2.1%, to settle at $25.922 an ounce after trading as high as $27.10. Prices saw the highest settlement for a most-active contract since Jan. 7, FactSet data show.

The Wall Street Journal suggested that the moves in silver represented a shift by day traders into other asset classes in the wake of big gains in popular stocks such as GameStop Corp. GME, +67.87% and AMC Entertainment Holdings Inc. AMC, +53.65% .

Read: Even Reddit is beginning to discuss the endgame for the wild GameStop ride

“While a sudden flood of money into a particular derivatives contract can spike prices,” Thursday’s jump in silver “will struggle to grab or hold the Reddit crowd’s attention for long,” BullionVault’s Ash told MarketWatch.

“Short-squeezing a stock with short interest of 140% is one thing, but short-squeezing a physical commodity where market-ready stockpiles are 3 times average daily futures volume is another,” said Ash.

The Hunt brothers’ attempt to corner the silver market over 40 years ago “took almost a decade to build, and like the 2011 peak at $50 it showed how silver’s true market depth needs to count bracelets and cutlery too,” he said. The biggest stockpile of silver is in jewelry and silverware, which “can be scrapped and refined in large bars very quickly if prices spike fast and far enough.”

Silver exchange-traded funds and shares of silver mining companies also got a big lift. The silver-backed iShares Silver Trust SLV, +1.09% rose 3.3%. Shares of silver miners also climbed sharply, with First Majestic Silver AG, +7.47% up by by nearly 18% and Coeur Mining Inc. CDE, +0.78% up almost 14%.

Brien Lundin, editor of Gold Newsletter, meanwhile, urged caution amid indications that the “RobinHooders and their ilk will soon target silver as the next market to flood into to trap the shorts.”

“That would be interesting to see…but be careful what you wish for,” he said in emailed commentary. “There are certainly enough fundamental forces driving silver higher over the coming years that we don’t need a manipulation in the positive direction to shorten or possibly forestall the trend already in place.”

“Regardless, the very fear of a flood of new buyers into silver, and the experience with GameStop, seems to be prompting shorts to cover their bets in advance of any such move,” said Lundin.