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10% surge: Silver reaches 7-year high amid Reddit frenzy

Anastasia Santoreneos
·4-min read
Silver surges to seven-year high. Source: Getty
Silver surges to seven-year high. Source: Getty

Reddit users have nominated their next victim - or darling, depending on how you look at it - with the price of silver unexpectedly surging to a seven-year high.

Silver (SI=F) reached US$29.70 (AU$38.87) per ounce after a 10 per cent increase took it to its the highest level since March 2013, as retail traders on the Reddit forum, WallStreetBets, decided it would be their next GameStop.

This time last year, the price of gold was roughly US$17.50.

The performance of silver (year to date). Source: Yahoo Finance
The performance of silver (year to date). Source: Yahoo Finance

How did Reddit manipulate the price of silver?

Traders in the WallStreetBets group reportedly believe silver will be the next short squeeze, so like GameStop, they’re trying to manipulate the price by piling into it.

“Any short squeeze in silver paper shorts would be EPIC,” a Reddit user posted in the group.

“We know billion [SIC] banks are manipulating gold and silver to cover real inflation,” the poster, who reportedly put a $1,000/oz price target on the metal, said.

The question is, are they right?

According to ThinkMarkets market analyst, Carl Capolingua, silver has been looking pretty good lately.

“From a chart perspective, it had made a large consolidation pattern between US$22/oz and US$28/oz since the high set just below US$30/oz back in August last year,” he said.

“It was near the top of that range, and this hype has pushed it through. US$30 is now a logical short-term target, but above that, there's not a great deal of resistance until $US37/oz.”

But while the poster might have a point, regardless of the price of silver, there is also clearly a desire to rort institutional investors.

“Think about the Gainz [SIC]. If you don't care about the gains, think about the banks like JP MORGAN you'd be destroying along the way,” one user commented on the post.

But unlike GameStop, this trader pile-in is not a united action, and there are plenty of naysayers in the Reddit community on this matter.

In fact, some of the recommended posts are comments from retail traders pushing back against the idea that silver is going to rise dramatically.

Others claim the commotion is again part of “a hedge-fund coordinated attack” to keep the attention away from GameStop.

But Wall Street firms largely hold long silver positions, so it’s actually unlikely that any institutional investors would feel any pinch from moves in the silver space.

Are silver stocks going up?

Exchange-traded funds in silver are riding the wave, with the largest silver-backed ETF in the US, iShares Silver Trust (SLV), up 5.5 per cent, and ProShares Ultra Silver up 11 per cent.

It’s also had a knock-on effect to mining companies, with mining shares rising amid the retail trading frenzy.

Head of distribution at ETF Securities, Kanish Chugh, said he had already started to see growing interest in physical silver, but Reddit efforts really ramped up the charge.

“Much of the activity generated in Australian markets on Monday and overnight in US and European markets was related to movement across the weekend,” Chugh said.

“Overnight, there were record volumes for trades into US silver ETFs however prices didn’t move significantly compared to the close of the Australian market.

“We anticipate interest from Australian investors will continue today but may start to ease later in the week.”

Going forward, Chugh said the outlook for silver is likely to be supported by Government stimulus packages and economic recovery, particularly in terms of industrial production.

“More than 50 per cent of global demand for silver is for industrial purposes,” he said.

“Silver is also likely to benefit in the coming months from the refocused global efforts on climate change, as silver is heavily used in renewable energy systems such as solar panels and as part of electronics.”

“Once the Reddit frenzy has passed, investors would do well to consider the overall value of precious metals like silver in their portfolios over the longer term,” says Chugh.

Reddit declares ‘BioWar’

Reddit investors have also reportedly declared a “#BioWar”, pumping money into the heavily-shorted stock, BioCryst Pharmaceuticals.

The stock surged past its five-year high, rallying to close 39 per cent higher on Monday after a poster in the WallStreetBets forum called it “the most undervalued stock in the market”.

Other shorted biotech stocks like Novavax Inc and Inovio Pharmaceuticals also experienced a surge in activity as social media users piled in.

But in this instance, the Reddit community may have got it right: biotech companies with little or no revenue are a hot pick for Wall Street shorters.

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