Silver-tongued Redditors drive up prices

• Silver jumps on Reddit interest
• European shares rally
• Fresnillo lead silver miners higher

We’re not in Kansas anymore: Silver prices jumped to 8-year highs as investor interest turned on the metal due to expectations Reddit traders will attempt to squeeze prices higher. Retail traders are herding into silver in the same way they have driven the likes of GameStop over the last week. Prices gapped up from Friday’s settlement at $26.914 to north of $28 and quickly cleared out the daily resistance from the Sep 1st high at $28.91 and then kicked on to $30 by the start of the European session. At send time spot silver was trading +9% around $29.70. That’s about 20% since Thursday and there is clear divergence from gold, which has remained range-bound at $1,865. Could gold be next? I doubt it, but we live in interesting times. What we don’t know is exactly how this is happening – clearing out of shorts by worried hedge funds, retail-driven bid, ETFs flows driving the physical market, smart-money front-running the trade, or a combination of all these.

APMEX released a statement saying it has seen a “dramatic shift” in silver demand in recent days. The US bullion broker said: “For example, the ratio of ounces sold per day was running about two times earlier in the week and closer to four times the average demand by the end of the week. 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. Combined with the extremely high demand levels, we are also seeing a surge in new customers. On Saturday alone, we added as many new customers as we usually add in a week.”

The fact that such a large and liquid market as silver can be targeted by retail investors says much about the shift we are witnessing., though despite appearances this morning it’s going to a lot harder to squeeze silver shorts as the market is so much deeper and more liquid. We should also note that some bigger smart money may have be front-running this trade to piggyback the rally and further fuelling the move up. (George Soros: “When I see a bubble forming, I rush in to buy, adding fuel to the fire.”) Targeting physically backed ETFs like SLV may be smart, as it will drive physical demand and push up spot prices perhaps more acutely than just by trading futures. I would reiterate that this kind of herding to coordinate a squeeze up is risky and likely to create a bubble that will hurt more than helps on the way down. Whether GameStop or silver, these are purely speculative bubbles that rely on the Greater Fool to keep it going. Examples of these manias litter the history of financial markets: it’s just the same, only in a different wrapping.

Fresnillo, the silver miner, saw its share jump 15% in early trade as a result of the squeeze on the underlying price. Polymetal rallied 6%, whilst Hochschild rose 13%. Tiny Australia-listed Argent rose 60%. Watch the likes of Canada’s Pan American Silver and Fortuna Silver Mines later. BlackRock  iShares Silver Trust (SLV) saw a stunning $944 million net inflow on Friday.

GameStop meanwhile opened up more than 30% in Frankfurt having closed up over 67% on Friday in New York to $325. AMC Entertainment finished 53% higher at $13.26. Both will be open for trading at 14:30 when the US cash markets open.

European stock markets were broadly higher on Monday morning as investors try to arrest a decline over the last fortnight that has wiped out YTD gains made during the first week of January. Wall Street had a tough session on Friday, closing down by around 2%. Meanwhile we have a coup d’etat in Myanmar, strife in Chinese repo markets and a raging pandemic to deal with. This week the focus is on the Bank of England, Alphabet and Amazon earnings, and US nonfarm payrolls.

Chart: Silver gap open, backing off at $30