Silver prices hit an eight-year high on Monday as the precious metal became the latest asset to be subject to a trading frenzy sparked by posts on the Reddit social network.
Spot silver reached $30 an ounce for the first time since 2013, rising by as much as 10% in early afternoon trading, before falling back to about $28.82, a gain of more than 7% over the day.
Since the middle of last week, Reddit posts and YouTube videos have encouraged amateur traders to buy silver, partly in the belief that lifting its physical price could hurt large investors who had made paper bets that it would fall.
The same logic was behind an explosion in the share price of US retailer GameStop, when Redditors drove up a share price that hedge funds had bet against. S3 Partners, a data provider, said short sellers – investors who had bet on share prices falling – had lost at least $15.3bn in year-to-date trading on GameStop. Short sellers had on Monday significantly cut the size of bets that the stock’s value would fall, S3 reported.
Robinhood, a US company that offers commission-free retail share trading, on Monday raised another $2.4bn to help it cope with the influx of small investors drawn to buy shares in GameStop and other companies such as AMC Entertainment, a struggling cinema chain. The fast-growing company had already raised $1bn on Thursday after the dramatic increase in share purchases forced it to increase deposits at clearing houses, providers of financial infrastructure.
Robinhood on Monday also relaxed restrictions on GameStop shares, first allowing users to buy up to four shares, then 20 shares, up from one previously. However, shares in GameStop still fell back, losing 30% of their value to reach $225 at the close.
Market analysts said the rally in silver prices was caused by the perception that users of the WallStreetBets forum on Reddit were targeting the metal. However, some users on the forum, which was the driving force behind the soaring GameStop share price, warned against speculating on silver.
One popular post on Reddit’s WallStreetBets group on Monday said the “silver squeeze” was actually a “coordinated attack” by unnamed hedge funds who had shorted GameStop’s shares, and now faced huge losses.
Neil Wilson, the chief market analyst at Markets.com, a trading platform, said multiple factors could be behind the rally in silver and related assets such as silver mining stocks and exchange traded funds, which track the metal’s price, which also rose on Monday.
“What we don’t know is exactly how this is happening – clearing out of shorts by worried hedge funds, retail-driven bids, ETF flows driving the physical market, smart money front-running the trade, or a combination of all these,” said Wilson.
Some smaller investors did confirm they had invested in silver. Aaron Cope in Florida was one of the investors buying in with an order of 500 silver coins. Cope has been trading in silver for eight years but said he has more than 10 friends who have just started trading in silver because of the recent news.
However, some analysts cautioned that the size of the silver market meant that smaller retail investors would be unlikely to affect the market in the same way as they achieved with GameStop, a single stock.
Craig Hemke, a precious metals analyst and editor of the TF Metals Report, said: “What they were able to do with GameStop is only one individual stock and on the other side are the hedge funds which can get squeezed with margin calls. That’s going to be challenging to do with silver because it’s a big market and the entities holding the short positions are held by the banks and they have deep pockets.”
Dr Elvis Jarnecic, a senior lecturer at the University of Sydney Business School, said silver was a “much much more liquid market with a lot more buyers and sellers” so the newly empowered investors will represent a much less significant percentage of traders.