Silver futures surge to five-month high

Silver took center stage in the retail investor frenzy sweeping through markets, sending the precious metal to a five-month high and fueling a debate over the power of Reddit-inspired speculators to take on ever-bigger targets, Bloomberg reports.

The most-active silver futures on the Comex jumped by 8.7 percent at US$29.25 an ounce, after a weekend buying binge that overwhelmed online sellers of silver coins and bars from the U.S. to Australia. BlackRock Inc.’s iShares Silver Trust, the largest exchange-traded product tracking the metal, recorded an unprecedented US$944 million net inflow on Friday.

Like the buying stampede in GameStop Corp. and other small-cap stocks that has captivated the financial world in recent weeks, silver’s advance can be traced to Reddit’s WallStreetBets forum. One post last week declared the metal “THE BIGGEST SHORT IN THE WORLD” and encouraged traders to pile into the iShares trust as a way to stick it to big banks.

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 US$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.

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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.

Whether or not the rally fizzles, it could have ramifications beyond what has typically been a relatively niche corner of the commodities world. As the first high-profile target of the retail frenzy to start trading on Monday, silver may help set the tone this week for money managers trying to gauge how Reddit-fueled volatility will impact their risk models and potentially cascade from one asset to the next.