Silver, one of the most valued commodities has surged to an eight-year high after a critical exchange on social media last week to buy the metal to push up prices.
The metal emerged as the latest focus for investors on Reddit’s WallStreetBets forum who train their followers on supposedly shorted assets, and a buying stampede swiftly followed. Traders are now trying to determine whether the move will have a sustained impact.
How it started
The silver turmoil began on Thursday after posts on the wallstreetbets Reddit message board urged investors to buy physical silver. The post said the move would force the fund to create new shares and buy silver to back them hence exposing a shortage of supply and pushing the prices up.
Silver prices were up more than 9% on Monday, their biggest daily gain since 2008. However, analysts say it will be challenging to subject silver to the kind of short squeeze engineered last week on companies like U.S. video game store chain Game Stop, which sent its shares up by hundreds of per cent.
The impact of Silver on the market
A short squeeze is unlikely to happen as there are no holders of massive silver short positions who can be forced to abandon them in big enough numbers to send prices through the roof. While many banks have short positions in U.S. silver futures, they tend to be balanced against long positions in the London Over-The-Counter (OTC) market.
On the other hand, most hedge funds and other money managers with silver positions were already long, hoping that the coronavirus pandemic and its aftermath would lift prices.
However, the market may face short-term issues moving silver since it takes a long time for sea shipping, but draining liquidity enough to send prices to $100 or $1,000 will be difficult.
Consultants at Metal focus said around 1 billion ounces of silver are produced and consumed each year, and supply has been in surplus for most of the last decade.
Since there is no shortage of the metal, the market is expected to calm