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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Silver price hits eight-year high; Robinhood raises another $2.4bn – as it happened

Silver bars pictured in Silver Bullion’s vault in Singapore
Silver bars pictured in Silver Bullion’s vault in Singapore Photograph: Edgar Su/Reuters

Closing Summary

The logos of video grame retail store GameStop and trading application Robinhood.

Right, time to recap:

Silver has risen to its highest level in eight years, amid a burst of activity in the precious metal. Silver hit $30.03 per troy ounce for the first time since February 2013 today, surging over 10%, but has now dropped back to around $28.60, up 6% today.

Some analysts attributed the frenzied rise to retail investors, with bullion dealers reporting a surge in demand for coins and bars over the weekend.

But on Reddit, several popular WallStreetBets posts insisted that they’re not behind the surge in the silver price today.

One theory, popular on WSB, is that hedge funds have been attempting to lure small investors into attempting a ‘short squeeze’ on silver, rather than maintaining their focus on heavily shorted stocks like GameStop.

GameStop’s shares have come under pressure today, dropping by over 30% at one stage. They’re currently hovering around $242, down 25% today - but still up around 1,200% this year.

Fintech firm S3 Partners has reported that the hedge funds have been cutting their short positions in GameStop, meaning the short squeeze is in ‘full force’.

Those hedge funds will have incurred heavy losses by closing their short positions, and also lowered the amount of GameSpot shares shorted.

S3 says:

As S3 short insight data shows, GameStop shares shorted significantly declined as short sellers began liquidating their holdings. Over the last few days, GameStop short interest has decreased from $11.20 billion to $8.82 billion. Short sellers bought to cover and trimmed positions as they incurred large mark-to-market losses. GME shares shorted are now 27.13 million.

GME price volatility has been remarkably high, and the stock has gained +400% over the last week. Long shareholders have been able to support GME’s stock price and rally it to historically high levels.

While long shareholders are looking at significant mark-to-market gains, shorts are now down -$15.31 billion in year-to-date mark-to-market losses. Both fundamental and momentum short sellers have found opportunities and price exit points to trim their positions in the face of these losses. The GME short squeeze is in full force.

Trading app Robinhood has raised another $2.4bn from investors to strengthen its financial position.

This has allowed it to increase the limits on trading in the heavily shorted companies which surged last week, amid the short squeeze on hedge funds.

Global stock markets are recovering from last week’s wobble, with the UK’s FTSE 100 gaining almost 1%. In the US, the Dow Jones industrial average is up over 1%, while the tech-focused Nasdaq has jumped by 2.5% in late afternoon trading.

Here’s our round-up of today’s action:

And here are some more of today’s stories:

Goodnight. GW

Robinhood raises GameStop trading limit again, to 20

Hang on... Robinhood have just raised the limit on buying GameStop shares again.

It will now let users hold up to 20 shares in the company, up from 4 earlier this afternoon, (and just one at the start of the day) [full details here].

This underlines that today’s new $2.4bn cash injection will help the trading app meet the demands from clearinghouses for larger deposits to cover potential losses on particularly volatile stocks.

Here are the new limits on the eight stocks being restricted (so ignore the ones in the previous post!). Importantly, you can’t add to existing positions if you’re already over these limits.

Robinhood trading limits

These seem to be the new limits on Robinhood stock purchases, with today’s $2.4bn cash injection giving the app more firepower to meet clearinghouse deposit requirements. Update, this post is now out of date.....

Updated

UK financial services firm Hargreaves Lansdown has also benefitted from the renewed interest in investing, as my colleague Kalyeena Makortoff explains:

Britain’s largest retail investment company, Hargreaves Lansdown, reported a rise in half-year profits today, as vaccine hopes and the US election result prompted an influx of younger clients looking to invest in stock markets.

The broker said it had attracted £3.2bn worth of new business and another 84,000 clients since June, as the Covid outbreak reinforced the importance of saving as well as investing. Nearly half of all new clients were aged between 30 and 54.

European stock markets had a solid day, recovering some of last week’s losses.

The Europe-wide Stoxx 600 index closed 1.2% higher, despite concerns over the pace of Covid-19 vaccine rollouts in the EU.

In London, the FTSE 100 index ended 58 points higher at 6,466, up 0.9%, with silver miner Fresnillo the top riser (+8.9%).

UK retailers also had a good day, with JD Sports up 7% and Primark owner AB Foods gaining 4%, while housebuilders Berkeley, Taylor Wimpey and Barratt rose 3.7%. They usually do well when traders are more optimistic about UK economic prospects,

Craig Erlam, senior market analyst, OANDA Europe, says February got off to a good start.

A decent start to the month after a difficult opening month of the year, with Europe ending the day up around 1% and US stocks also enjoying modest gains.

Mining stocks the latest beneficiaries of the Reddit frenzy but gains are more widespread than just these stocks. Of course, stock markets are coming off a tough start to the year, in particular the last few weeks, so we may just be seeing a little bit of reprieve led by the miners.

I guess we’ll see over the coming days just how much sentiment has improved but I’m not particularly optimistic. It will obviously be fascinating to see which area of the market Reddit traders target next and what the knock-on effects will be elsewhere. This at times over the last week or two appears to have contributed to the risk-aversion but we’re not seeing much of that today.

Robinhood’s new $2.4bn cash injection comes as it rushes to shore up finances that have been strained by a sharp rise in trading on its platform, says the Financial Times.

They add:

The latest round of convertible debt financing — which allows investors to convert their debt into equity — comes as Robinhood faces mounting deposit requirements at clearing houses where its trades are settled.

Robinhood chief executive Vlad Tenev said late on Sunday that its equities clearing house had asked for $3bn of margin deposits on Thursday — a day marked by chaotic trading in popular stocks — before lowering the request to $700m after the company limited trading in certain stocks.

People briefed on the deal announced on Monday said it would help Robinhood maintain trading in stocks such as GameStop and AMC.

Updated

Robinhood raises another $2.4bn

In another interesting development, Robinhood has raised another $2.4bn from shareholders -- just days after investors agreed to provide $1bn to help it through the turmoil that hit markets last week.

Robinhood says the funds will help it “continue to invest in record customer growth”.

In practice, this $3.4bn will help Robinhood meet the higher collateral requirements set by its clearinghouses due to the volatility in stocks such as GameStop, AMC and BlackBerry.

It explains why the company has just felt able to relax the restrictions on GameStop purchases today (see previous post).

In a blog post, Robinhood says:

This funding is a strong sign of confidence from investors and will help us build for the future and continue to serve people through the exponential growth we’ve seen this year.

We’re witnessing a movement of everyday people taking control of their own financial futures, many investing for the first time through Robinhood. With this funding, we’ll build and enhance our products that give more people access to the financial system.

The Wall Street Journal, who first reported the cash injection, say it will help Robinhood handle demands from clearinghouses for more cash to cover potential losses on trades:

The huge infusion—the $3.4 billion raised since last Thursday is more than the company has raised in total up until that point—gives Robinhood a war chest to cover a surge in collateral requirements stemming from the trading boom, the people said.

It should also allow the company to support the hundreds of thousands of new accounts users opened since Thursday and to remove many of the trading restrictions that angered customers of the popular brokerage, the people said.

The WSJ adds:

In an interview posted online late Sunday, Robinhood Chief Executive Vlad Tenev said the clearinghouse initially asked for $3 billion to back up the trades—“about an order of magnitude more than what it typically is.”

He spoke Sunday night in an interview alongside Tesla Inc. boss Elon Musk on a live stream of Clubhouse, an invitation-only social-networking app popular in Silicon Valley.

Updated

Trading app RobinHood has relaxed its restrictions on purchasing GameStop shares.

Users can now buy four GameStop shares, up from one previously. However, that still includes any stock already held by a customer [details here].

CNBC points out that other restrictions have been lifted too:

Clients can buy 75 shares of AMC, higher than the earlier restriction of just 10 shares. Robinhood clients can now buy 200 shares of Express, instead of the previous cap of 20 shares. However, if a clients owns more than 200 shares of Express, they cannot buy anymore shares of the embattled retailer.

Those trading restrictions on a range of shorted stocks, imposed due to ‘market volatility’ last week, sparked a huge outcry, and claims that RobinHood was bowing to pressure to protect major hedge funds.

But RobinHood has blamed the ‘plumbing’ in the financial system, which meant it was forced to stump up more capital to cover the trades made by its users as prices soared last week.

That’s because clearinghouses use a volatility multiplier to work out how much capital is needed; which can also go up based on how much of one stock a firm’s customers holds.

Back on Friday, RobinHood explained that:

The amount required by clearinghouses to cover the settlement period of some securities rose tremendously this week. How much? To put it in perspective, this week alone, our clearinghouse-mandated deposit requirements related to equities increased ten-fold. And that’s what led us to put temporary buying restrictions in place on a small number of securities that the clearinghouses had raised their deposit requirements on.

It was not because we wanted to stop people from buying these stocks. We did this because the required amount we had to deposit with the clearinghouse was so large—with individual volatile securities accounting for hundreds of millions of dollars in deposit requirements—that we had to take steps to limit buying in those volatile securities to ensure we could comfortably meet our requirements.

Bloomberg is reporting that hedge funds have cut some of their short bets against GameStop, having incurred hefty losses during last week’s short squeeze.

They say:

After absorbing a $20 billion hit, bears appear to have started covering their GameStop Corp. positions in earnest.

Short interest in the video-game retailer plummeted to 39% of free-floating shares, from 114% in mid-January, according to IHS Markit Ltd. data. Data from S3 Partners, another market intelligence firm, showed a similar pattern, with GameStop’s short sales having fallen to about 50% of its total stock available to trade, down from a high of roughly 140% reached earlier this year.

Such a move could change the dynamic of the GameStop short squeeze, which was particularly potent because the hedge funds had borrowed and sold more shares than actually existed [because some shares were sold short more than once].

BBG adds:

“Short squeezes can only last as long as there is a large short position in a stock. Once that dissipates, the situation changes completely,” said Matt Maley, chief market strategist at Miller Tabak & Co.

Reuters is also reporting that some short sellers covered their bets against Gamestop, adding that the video game retailer remained “a highly shorted stock”.

GameStop had 27.13 million shares shorted, down 35 million over the prior week, according to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.

Shares in Koss Corporation, the headphone manufacturer popular with WallStreetBets, have dropped almost 40% so far today.

But, that still leaves Koss up around 1,000% so far this year. Its shares surged during last week’s short squeeze megarally - and strengthened further after it posted strong sales growth.

GameStop shares have resumed trading after that short halt, and they’ve recovered some ground -- now down 25% today at $243.

GameStop shares
GameStop shares today (the straight line shows when the stock was temporarily paused) Photograph: Refinitiv

The GameStop selloff has gathered pace.

The stock has dropped as much as 34% to $213, a drop of around $111 today, triggering a short halt to trading.

GameStop shares open lower

GameStop shares have dropped, as the gripping tussle between hedge funds and Wall Street Bets’ army of small investors resumes.

GME fell around 20% in early trading to $262, having closed at $325 per share on Friday night.

The GameStop share price
The GameStop share price Photograph: Refinitiv

But, that’s still sharply higher than before the short squeeze began in earnest (GME were trading below $20 at the start of the year)

Silver, meanwhile, is holding most of its gains:

Updated

The US stock market has opened higher, as shares recover from last week’s sharp falls.

The Dow Jones industrial average is up 58 points, or 0.2%, at 30,041 points.

Technology stocks are also strengthening, with the Nasdaq Composite index gaining 120 points, or 0.9%, to 13,190.99.

Bloomberg also points out that a short squeeze in silver is hard to pull off.

That’s partly due to the size of the market, and also because many investors have long positions (unlike GameStop, where hedge funds had shorted around 140% of the outstanding stock - creating the conditions for last week’s historic squeeze).

As Bloomberg puts it:

For one, the scope for a short squeeze in silver is far less obvious: money managers have had a net-long position on the metal since mid-2019, futures and options data from the Commodity Futures Trading Commission show.

The market for silver is also by some measures much deeper than those for smaller stocks like GameStop. The bricks-and-mortar video game retailer had a market capitalization of about $1.4 billion in mid-January, before the Reddit frenzy sent the company’s value soaring more than 16-fold.

By contrast, London vaults held 1.08 billion ounces of silver at the end of November, according to LBMA data. That’s worth almost $32 billion at current prices.

What’s more, it’s unclear how long retail investors will stick to the silver trade. Already some prominent members of the WallStreetBets forum have advised against it, with some noting that Ken Griffin’s Citadel Advisors LLC, a favorite bogeyman of the Reddit crowd, is listed as one of the biggest shareholders of the iShares silver trust.

Updated

Neil Wilson of Markets.com suggests that large investors may also be driving the silver price rally, rather than it simply being caused by retail traders.

He also warns that such speculation is risky, and usually ends badly for some of those who get caught up:

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.

The price of silver

Allianz’s Mohamed El-Erian has tweeted that GameStop and silver are not the same kind of short squeeze trade (as some WallStreetBets posts have also been pointing out).

El-Erian also cautions that the silver squeeze could undermine the squeeze on hedge funds who shorted GameStop’s shares, as the GME trade depends on keeping retail investors on board (rather than selling to the hedge funds).

Another post currently high on r/WallStreetBets is also warning against trying to engineer a short squeeze in silver to drive the price up.

Titled “There is no silver short squeeze happening. NONE. NEVER.”, it argues that:

Silver might go up nicely and for a time but don’t get high on hopium, this is not gonna got in the 100s.

The post outlines the famous attempt to corner the silver market over 40 years ago by the Hunt brothers (sons of Texas oil billionaire Haroldson Lafayette Hunt Jr).

Nelson Bunker Hunt and William Herbert Hunt managed to control billions of dollars of silver, driving the price higher and higher, but came unstuck when regulators tightened up the use of leverage to buy silver.

The price promptly crashed on Silver Thursday, and the Hunts were hit with huge margin calls on their silver futures contracts. They later declared personal bankruptcy, and were fined and banned from trading in the American commodities markets.

David Jones, chief market strategist at Capital.com, makes an important point. WallStreetBets traders may not be pushing silver up (given those concerns about hedge fund manipulation flagged earlier), but the suggestion that they are could be enough to move silver....

Updated

Media news: The New European, the weekly title launched five years ago to battle Brexit, has been bought by a consortium of investors including ex-BBC director general and New York Times chief Mark Thompson and Lionel Barber, the former editor of the Financial Times.

A group of around 10 investors are backing a management buyout of The New European from Norwich-based publisher Archant, which was bought by private equity group Rcapital Partners last year.

Matt Kelly, who launched the title and led the fundraising, will majority own and run the title as chief executive and editor-in-chief. Gavin O’Reilly, former chief of the previous owner of The Independent, will take the role of executive chairman and is also an investor.

Other backers include TransferWise founder Taavet Hinrikus, Robin Klein, founding partner at LocalGlobe, Balderton Capital founder Barry Maloney and Jeff Henry, the former ITV executive who gave The New European the green light when he ran Archant.

The title, which costs £3 per issue in print, was launched immediately after the Brexit referendum in 2016 as a pop-up publication on a shoe-string budget designed to give Remain supporters a voice. Its editor-at-large is Alistair Campbell, Tony Blair’s former communications director. Post-Brexit it remains a permanent publication with a combined weekly and online circulation of around 20,000, with 2m page views monthly.

Kelly said:

“Since the Referendum, The New European has shown that there is a significant market for high-quality, informative, provocative and entertaining journalism written for an audience who care deeply about both Britain and Europe’s future.

“With new investment capital in place and seasoned media investors, we have a very clear vision of how we can better enhance the experience for our readers and employ new innovations and product developments.”

The title, which has consistently made a small annual profit, is expected to make a loss this year but is projected to return to profit next year.

Investors in China also drove up silver prices today, Reuters reports:

China’s domestic silver prices rose to their highest since September. Prices on the Shanghai Futures Exchange closed up 9.27% at 5,939 yuan per kilogram....

“Since last week’s Reddit discussions to buy long, funds have flowed into the silver market,” said Xu Ying, precious metals senior analyst at Orient Securities Research.

“In the short term, silver’s rise has little to do with fundamentals. Sentiment to go long is high, the market rally is not over yet.”

Silver is dubbed the “poor man’s gold”, as it is cheaper to buy and invest in while impacted by the same factors as gold.

Silver has dipped back below its eight-year high over $30 per ounce, but is still up around 10% today at $29.49/oz (compared with around $25/oz a week ago).

Carlo Alberto De Casa, chief analyst at ActivTrades, says silver’s gains are ‘startling’.

Silver is skyrocketing today, jumping by over 10% in a matter of hours to reach its highest in 8 years while gold is up a meagre 1%. Moving silver, however, is not the same as moving GameStop. There are in fact many markets linked to silver, including the physical market, futures, ETFs, CFDs and many other derivatives of the precious metal. The overall trading volumes are also different.

Fear, however, is pushing many of the traders who have shorts on silver to start covering their positions. Sellers of the physical metal are also rushing to cover their short positions, to avoid finding themselves at a loss in the face of the startling increases.

We must also stress, however, that a successful attack on the commodity sector could trigger an intervention by central banks in the medium term to avoid dangerous inflationary spirals.

Silver has gained about 20% in less than 4 days, a huge increase in the world of commodities, that would generally take months or even years to achieve and would be mostly motivated by fundamentals rather than pure speculation.

The price of silver in the last three months
The price of silver in the last three months Photograph: Refinitiv

Adrian Ash, director of research at physical trading platform BullionVault, says the surge in silver in the last few days is quite remarkable:

“We’ve seen people try to corner the market in silver before, but the size and speed of the Reddit Ramp is off the charts for silver. The billionaire Hunt brothers took a decade to build their position in the 1970s, and Warren Buffett built his mid-1990s’ holdings over a couple of months. Both helped drive the price higher, but nothing like as fast as the ‘hive mind’ of Reddit has spiked silver 20% since Wednesday night.

“The flood of new interest in silver has emptied coin shops, but there’s plenty of metal in wholesale storage, and any talk of a ‘shortage’ will in truth refer more to trucking and handling capacity rather than physical stockpiles.

Sorry, there was a typo in that last post (now fixed, so please refresh).

To clarify, most of the top posts on WallStreetBets today are about the squeeze on hedge funds who shorted GameStop and AMC. The highest post about silver is cautioning against the silver squeeze.

Popular WSB post warns against silver squeeze

It’s notable that the only prominent post on WallStreetBets about silver is the one warning against the silver squeeze.

As flagged before, that post argues that talk of a ‘silver squeeze’ is a coordinated attack from hedge funds, to take the focus off GameStop.

By buying silver/going long on silver, you would be directly putting money into the pockets of the EXACT HEDGE FUNDS ON THE OTHER SIDE OF $GME 🚀 🚀 🚀 💎 🙌 The hedge funds are LONG silver NOT short silver.

Instead, it argues, traders should focus on the so-called “$BANG GANG”, of Blackberry, AMC, Nokia, and GME.

So while retail investors do seem to be piling into silver (with APMEX reporting a huge surge in orders for coins and bars over the weekend), it’s not clear how much of this is WallStreetBets driven (as opposed to other posts on Reddit, other social media, etc).

Updated

The Financial Times flags up that those hoping to hurt Wall Street banks by piling into silver could get stung.

“It’s a fools’ errand, it’s financial anarchy; somebody is going to get hurt,” said Ross Norman, a veteran precious metals trader....

Not only is silver a substantial market, the major banks won’t feel the same pressure as from the GameStop squeeze, Norman explained...

Around $6bn worth of silver traded hands in the silver market in November, according to the latest statistics from the London Bullion Market Association. London’s vaults hold around 33,475 tonnes of silver, valued at $23.8bn, they said in January.

Mr Norman said the Reddit forum’s targeting of large banks was misplaced, since the lenders used futures contracts to hedge their physical holdings of silver, meaning they were not speculating on the price falling.

“There is a misnomer here that banks are constantly running short positions, but from a price perspective they are neutral, they have a long and a short that cancels each other out,” he said.

Silver hits $30 for first time since 2013

Silver has continued to surge, and briefly traded over the $30 per ounce mark as today’s sharp rally continues.

That’s silver’s highest level since February 2013, up over 10% today, amid the scramble for silver coins and bars and talk that silver could be the next squeeze.

The silver price over the last decade
The silver price over the last decade Photograph: Refinitiv

But as I flagged up earlier, some WallStreetBets posters are urging against piling into silver, saying it’s a diversion to help the hedge funds.

That post warns:

By buying silver/going long on silver, you would be directly putting money into the pockets of the EXACT HEDGE FUNDS ON THE OTHER SIDE OF $GME 🚀 🚀 🚀 💎 🙌 The hedge funds are LONG silver NOT short silver.

And as Bloomberg explains, silver is hardly being shorted in the same way as GameStop:

Yet silver differs in important ways from stocks like GameStop. For one, the scope for a short squeeze in silver is far less obvious: money managers have had a net-long position on the metal since mid-2019, futures and options data from the Commodity Futures Trading Commission show.

The market for silver is also by some measures much deeper than those for smaller stocks like GameStop. The bricks-and-mortar video game retailer had a market capitalization of about $1.4 billion in mid-January, before the Reddit frenzy sent the company’s value soaring more than 16-fold. By contrast, the value of silver sitting in vaults in London is alone worth about $48 billion.

Updated

Wall Street is on track to open higher today, after sharp falls last week.

Mohamed El-Erian, chief economic adviser for Allianz, says there is talk that the rush into silver could take some pressure off the hedge funds who have shorted GameStop and AMC Entertainment (although only if enough retail investors change their focus...).

Shares in silver miner Fresnillo have surged by 19% in early trading in London.

The broader market is rallying too, with the FTSE 100 index gaining 50 points to 6457 points. That recovers some of last week’s losses, which saw the ‘Footsie’ end at a five-week low on Friday as the GameStop frenzy roiled markets.

Updated

Full story: Redditors set sights on silver after GameStop frenzy

Dr Elvis Jarnecic, 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 that the newly empowered investors will represent much less significant percentage of traders.

Jarnecic was critical of what he described as market manipulation.

“If institutions did this to inflate prices in this way away from fundamental values they’d receive enormous fines in regards to manipulating the market.”

Here’s our news story on the surge into silver:

Apmex reports 'dramatic shift in Silver demand'

U.S. bullion broker Apmex has warned that it expects a 1-3 delay in processing silver transactions, due to a surge of orders in recent days.

Ken Lewis, CEO of Apmex (which sells silver coins and bars) says a “dramatic shift in silver demand” forced the company to stop sales over the weekend.

In the last week, we have seen a dramatic shift in Silver demand from our customers. 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.

Any Precious Metal dealer will take a long position in the futures market to protect against spot price exposure when the markets open. We do this because it is our goal not to take a speculative position on metal. The weekends are unique as we are not able to real-time hedge our position. We took an aggressive position this weekend, but clearly could not have predicted the volumes that were seen. We have partnerships around to world that allowed us to cover these long positions, but only to a point. Once we exceeded our comfort levels, we had little choice but to stop the sale of Silver on our website. This was a difficult decision to make and unprecedented in our history.

As we evaluate the markets, it is difficult to know where Silver’s price and demand will go in the coming day and weeks. APMEX is highly capitalized and has more than $150 million in inventory to support demand. We have made strategic decisions to procure additional metal, locking up any metal we can find in the market place. We suspect premiums will rise and rise quickly, as we are seeing significant increases in our costs, when we can even locate the metal. It is also highly likely that we will need an additional day or two to fill orders based on current order counts.

Bloomberg points out that other retail sites were also unable to process new orders over the weekend until the markets reopened last night:

Retail sites for silver have been overwhelmed with demand for bars and coins, suggesting the frenzy that roiled commodities markets last week is spilling over into physical assets.

Sites from Money Metals and SD Bullion to JM Bullion and Apmex, the Walmart of precious metals products in North America, said over the weekend they were unable to process orders until Asian markets open because of unprecedented demand. The start of Monday’s trading session saw silver futures jump more than 8% as a frenzy that roiled stocks last week spread.

Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, says a ‘mass move’ of retail investors have piled into silver, sending its price rocketing today.

On Sunday, silver coins and bars were taken by assault; outlets were unable to process orders until markets opened in Asia. Silver jumpstarted the week hitting $29 an ounce, as pajama traders piled into the metal they considered undervalued in a mass move.

This time, the move didn’t come as a pure surprise, as last week’s rush to iShares Silver Trust has thrown the foundation of what we saw on Sunday. From a pricing perspective, we had already discussed the fact that silver lagged behind gold amid an impressive flight to safety sent the yellow metal to its all-time highs last year. Empirical data shows that the gold-silver ratio stands near 60 on average, and the price of an ounce of silver could have well consolidated within the $30-32 band given that the gold price held ground near $1800 per ounce.

Therefore, the rise in silver doesn’t seem far-stretched just yet. So far, it is not exactly the GameStop anomaly, but it is a hint that the retail traders who just discovered the strength of their unity are out there, looking for new targets – and apparently bigger ones.

But, she also urges caution - highlighting that such speculative charges can stumble:

For silver though, the rally could be short-lived as some leading members of Reddit wallstreetbets platform are already divided over the question, and advise against the move in silver.

One important thing to remember in this game is, if you lose full support, and momentum, it’s over. This is why, the speculative rush is a prosperous, but a dangerous game.

Introduction: Silver price rallies as squeeze mania continues

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Having blasted GameStop’s shares dramatically higher in the last week, some of the new wave of retail traders shaking up Wall Street have another target -- silver.

The spot price of silver is soaring today, up over 7% to $29 per ounce, its highest level since last August. Some retail investors mobilized over social media are piling in the precious metal, with one Reddit post on WallStreetBets arguing last week that it could be the world’s biggest short squeeze (updated link).

The move began late last week, with a surge of money into the iShares Silver Trust, an exchange traded fund which is backed by physical silver and tracks its price.

Retail sites are also reporting a surge in demand for silver bars and coins on Sunday, indicating a scramble to get hold of physical silver assets.

Kyle Rodda of brokerage IG explains:

Like the GameStop situation, there’s a back-story to the attempted pumping over silver prices: angered by the perception of a manipulated market for paper silver, the traders are looking squeeze the shorts on the silver market, and force correction in price that, so the argument goes, better reflects the supply and demand of the underlying commodity.

But squeezing the silver market will be much harder than moving a single company’s stock price, and trapping hedge funds who had aggressively shorted it.

And other WallStreetBets users are urging against piling into silver, with one post claiming it’s an attempt by hedge funds to distract from the GameStop squeeze.

Jeffrey Halley, Senior Market Analyst at Asia Pacific, OANDA, says retail investors should be careful when targeting silver.

With a large physical off-exchange market, and a lot more liquidity theoretically, then the sparely traded stocks dallied with so far, the retail wolf pack is in dangerous waters.

The wolves of Wall Street may well be luring them into a trap in their Bunker Hunt for Reddit October.

Last week, the US stock market had its worst week in three months, with the attack on short selling in recent days leaving some large stablished funds nursing huge losses.

Melvin Capital, one of the hedge funds which bet against GameStop, lost more than 50% in January according to the Wall Street Journal.

This is forcing hedge funds and other major investors to cut their short positions in stocks identified by the Reddit reader/trader community. But they’re also closing their long holdings in stocks, to keep their portfolios balanced. This ‘de-grossing’ was a factor behind last week’s volatility.

Investors are also more anxious about the fight against the pandemic, given the deepening row between the European Union and AstraZeneca over vaccine supplies.

Yesterday, France and Germany raised the threat of legal action over the supply problems which mean the EU will only get 25% of the 100m doses pledged to the bloc by the end of March.

But despite that, European markets are on track for a positive open.

Also coming up today, a flurry of purchasing manager surveys will show how factories across the world fared in January.

The UK data is expected to confirm there was a sharp slowdown last month, with supply delays, rising costs and weak exports due to the pandemic and the end of the Brexit withdrawal agreement.

The picture in Australia is more encouraging, with the manufacturing PMI strengthening last month:

The agenda

  • 9am GMT: Eurozone manufacturing PMI report for January
  • 9.30am GMT: UK manufacturing PMI report for January
  • 9.30am GMT: UK mortgage approvals and lending data for December
  • 10am GMT: Eurozone unemployment rate for December
  • 3pm GMT: US manufacturing PMI report for January

Updated

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