In Silver, Redditors Find a Fit for Raging Against Establishment
Silver grain at a refinery in Australia. (Photographer: David Gray/Bloomberg)

In Silver, Redditors Find a Fit for Raging Against Establishment

It seems a match made in heaven: Reddit’s rambunctious army of retail investors eager to take on the financial elites, and the world of silver “bugs,” hard-core metal bulls, many of whom have long argued the price was being suppressed by powerful forces.

The silver market has been roiled in recent days after a -- now-removed -- post appeared on Reddit’s WallStreetBets forum that encouraged traders to pile into BlackRock Inc.’s iShares Silver Trust. Many long-standing silver advocates reacted with glee as the price surged to an eight-year high on Monday, spurred on by huge purchases through the exchange-traded fund.

While Reddit posters now seem conflicted about the trade, the hashtag #silversqueeze gained rapid momentum on social media Monday. The calls for a “short squeeze” appear far fetched, given the market’s size and lack of any clear short position to target. But the sharp run up in prices and massive surge in demand for coins over the weekend points to mounting interest in the precious metal among retail investors.

In Silver, Redditors Find a Fit for Raging Against Establishment

“What Reddit have done is opened Pandora’s box,” said Ned Naylor-Leyland, head of gold and silver at Jupiter Asset Management and a long-time bull. “What we’re seeing here is a vital commodity and monetary asset being freed to find its true price.”

In Silver, Redditors Find a Fit for Raging Against Establishment

For the silver market, the idea that the establishment is trying to suppress the price is nothing new. In the 1950s and 1960s, the U.S. Treasury regularly sold silver in an attempt to keep the market in line with its so-called “monetary value.” And some silver bulls still view rising prices as a vote of no confidence in the government.

“It’s very emotive: people have strong opinions about where these prices should be and where these prices are going,” said Philip Newman, managing director at Metals Focus, a precious metals-focused consultancy. “You can take it back over decades or much longer.”

Others point to 1979-1980, when the billionaire Hunt brothers attempted to corner the New York silver futures market and helped drive prices to a record high of $50 an ounce, only to be foiled when the exchange intervened to limit their positions.

Today, investors who believe they could pull off a much larger repeat of the short squeeze in GameStop Corp. are focused on Wall Street banks. In particular, forum posts appeared to focus on the claim that banks have large bets against silver that have kept prices suppressed.

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“Silver is probably the most (naked) shorted commodity on earth. The bullion banks are doing their best to short this thing into oblivion,” said one popular post on the forum last week, before exhorting followers to “crash JP Morgan, buy Silver!”

That’s a familiar cry to followers of the silver market, who have for years alleged that JPMorgan Chase & Co. -- the leading bank in precious metals -- has a large bet against the silver price. It’s something the bank has long denied, and a years-long Commodity Futures Trading Commission investigation into alleged manipulation of the silver price was closed without charges in 2013.

While the bank did admit wrongdoing last year when it agreed to pay more than $920 million to resolve regulators’ claims that it had manipulated precious metals markets, those charges related to spoofing -- tricking rival traders by entering false orders -- rather than any attempt to drive the market consistently in a particular direction.

It’s possible that the theory may be based on a misinterpretation of data showing banks hold large short positions on the Comex futures market in New York.

“There’s also always been this theory that bullion banks have a massive net-short position in silver in the New York futures market,” said Ross Norman, CEO at Metal Daily, a precious metals news site, and a veteran of the precious-metals market. “That’s true, but it is because they also hold a corresponding long position in the London market. But one side of this trade is visible and the other is not. And that’s how this theory has grown and gathered momentum over the years.”

Impressive Move

Even without a major short position to target, investors have still succeeded in driving an impressive move in prices. The record $944 million inflow into the iShares Silver Trust, known as SLV, led to a 34 million ounce increase in its holdings on Friday. That’s equivalent to more than two weeks of global mined production of the metal.

On Monday, silver markets were showing signs of tightness, with nearby futures on Comex trading above later-dated contracts -- a condition known as backwardation, which signals a tight market. However, silver showed signs of losing momentum later in the day, with spot silver retracing gains to $28.4355 an ounce by about 4 p.m. London time, compared with a peak earlier of $30.1003.

While silver bulls rejoiced at the surge, some on Reddit were urging their fellow investors to back away from silver. One popular post warned that investors shouldn’t lose their focus on GameStop, warning that buying silver would “be a tragic, irreversible decision that not only will most likely not make you any money because the squeeze is fake, it will put you on the sidelines from this righteous and glorious war we are in.”

Newman of Metals Focus had a similar warning for newly minted silver investors, though for different reasons.

“Their starting premise is the market is being manipulated and therefore we’re not seeing the true silver price. We just don’t subscribe to that view. They are trying to fight against something that may not exist,” he said. “Unfortunately yes it makes a great headline but you could see people losing a lot of money, which is quite sad.”

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