Silver Is the Latest Market Hit by Reddit Day-Trader Frenzy

The first signs that the silver market was about to get hit came Wednesday.

Comments began appearing on the Reddit chatroom r/wallstreetbets -- the investor board now famous for fueling an astonishing short squeeze in Gamestop Corp. that sent its market value soaring by 788% in a week. Posters started egging each other on to pile into IShares Silver Trust, the largest silver exchange-traded fund around, saying banks have been manipulating silver prices, keeping them artificially low and masking a shortfall in physical supplies. One post described it as “THE BIGGEST SHORT SQUEEZE IN THE WORLD.”

Silver Is the Latest Market Hit by Reddit Day-Trader Frenzy

If this sounds all too familiar, it’s because it has been the rallying cry of conspiracy theorists in precious metals circles for decades, if not centuries. With their constant railing against banks and big government colluding to mask inflation, it was only a matter of time before they and retail investors raging against the financial machine joined forces.

To say there was a strategy may be overstating things, but the impact was felt across the markets.

Small silver miners began surging first thing in the New York morning Thursday with First Majestic Silver Corp., cited on Reddit as a short-squeeze target, soaring as much as 39%. Then retail investors started flooding into IShares Silver Trust, driving it up by as much as 7.2%. Spot silver gained 6.8% at one point, the biggest jump since August.

“There’s a short squeeze going on in silver. The ‘hoodies are all rolling into silver and the party is on,” Phil Streible, chief market strategist at Blue Line Futures LLC in Chicago, said in a phone call. “All those other stocks like GameStop and AMC, they’re dumping because they’ve been restricted, and they gotta go into other short opportunities and silver is an easy identifiable target.”

Silver Is the Latest Market Hit by Reddit Day-Trader Frenzy

The economic data that came out Thursday morning, which included a larger-than-expected drop in jobless claims, have become “a moot point” for traders, Bob Haberkorn, senior market strategist at RJO Futures said by phone. “This isn’t predicated on any global events, it’s just people on a message board putting all their guns towards the precious metals markets.”

Options markets were bid up in the frenzy, with traders and brokers seeing wide bid/ask spreads on the IShares and Comex contracts. A record 3.1 million IShares Silver Trust options contracts traded.

READ MORE: Silver Options Market Volume Surges on Reddit-Fueled Swings

“The implied volatility being quoted in the options market at this moment is wider than I’ve ever witnessed.” James Gavilan, principal and adviser at Gavilan Commodities LLC, said in a phone interview. “The market is factoring in large swings in the silver price, and an already illiquid market is showing extremely wide quotes for options, which means that traders are concerned about the difficulty of hedging their positions.”

To see such wide volatility spreads is “mind boggling, breath taking, it’s shocking really,” said Gavilan.

See also: Silver ETF VIX Surges 62% as Silver Declines

The buying in silver and gold spilled over to the base metals complex on the London Metal Exchange, with copper erasing early losses, while “Chinese night desks buying” also helped the metal, according to Tai Wong, head of metals derivatives trading at BMO Capital Markets. Copper for three-month delivery rose 0.6% to $7,873 a ton in London.

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