SINGAPORE (Reuters) – A shopping spree driven by social media raised silver to an eight-year high on Monday, but the high has cooled with doubts about the ability of retail traders, who are typically stock-focused, to move higher and more liquid commodity prices into the market.
Video game retailer GameStop, at the center of last week’s “recovery from Reddit,” fell 30.8% to $ 225, but other stocks were caught in the frenzy that hit short sellers by extending their advance, including the BlackBerry.
Silver prices rose to an eight-year peak of just over $ 30 an ounce before slashing trading gains up 6.3% to $ 28.70.
Many people who were anticipating a GameStop silver spike “now realize that there is not as much buying pressure as some thought,” said Michael Matousek, chief negotiator at US Global Investors.
It was unclear how long the recovery fueled by Reddit would last in shares shorted by hedge funds. This could mean further losses in the broader market this week if funds are to continue selling to meet redemptions or correct their portfolios. In the long run, they may have to change their strategy.
Stock prices rocked violently last week, when small traders, who organized themselves in online forums and traded with non-fee brokers like online broker Robinhood, overwhelmed several powerful hedge funds with losses on their short positions.
The effect of the fight on the broader US market waned on Monday, with stocks ending higher after the strong market liquidation last week. AMC was stable, having increased by more than 500% this year. BlackBerry’s shares rose in the New York and Toronto trades.
The confrontation drew scrutiny from financial regulators, legislators and the White House, concerned about possible market manipulation.
Robinhood Chief Executive Vlad Tenev is due to testify before a committee of the US House of Representatives on February 18, the Politico said on Monday, citing people familiar with the matter.
Robinhood raised another $ 2.4 billion from shareholders just days after existing investors injected $ 1 billion, the company said in a blog. The company, which faced anger last week for containing the purchase of some shares, raised the trading limits for GameStop, AMC, Koss Corp and Express.
The company is preparing for an initial public offering, but it is unclear whether it will carry out these plans.
Cold water
Traders and analysts poured cold water on the chances of a prolonged recovery in silver, saying that, unlike GameStop, there is no over-sold positioning and that the options market is quite balanced.
Speculative financial investors have already positioned themselves quite optimistically, traders said. Net long positions in COMEX silver futures and options increased to around 44,320 lots on January 26, data from the US Commodity Futures Trading Commission (CFTC) showed.
“Unlike individual stocks, the silver market is much bigger and more complex and therefore more difficult to manipulate,” said Raffi Boyadjian, senior investment analyst at XM, in a note.
Traders were increasingly concerned that the Reddit effect could extend to less liquid commodity markets. However, traders said that exchange-traded funds with a focus on commodities were more likely to be targeted.
The iShares Silver Trust ETF, the largest silver-based ETF, jumped 7.1% on Monday. The data showed that its holdings increased by a record 37 million shares from Thursday to Friday alone, each representing an ounce of silver.
Mining giants BHP Group, Glencore and Anglo American were the six biggest winners at the FTSE 100 in London. Mining company Fresnillo rose 8.95%, and American miners Hecla Mining and Coeur Mining increased 28.3% and 23.1%, respectively.
Natural gas rose about 10% on Monday, partly due to expectations of a cooler climate, although such movements are not out of the ordinary for this market.
Retail investors on the popular Reddit online forum WallStreetBets expressed concern on Monday that silver bets were hampering their focus.
“When buying silver … you would be putting money directly into the pockets of the EXACT HEDGE FUNDS ON THE OTHER SIDE OF $ GME,” wrote a user who asked investors to continue buying GameStop. “It will put you on the sidelines of this just and glorious war that we are in.”
The short sale of GameStop shares cost hedge funds a total of $ 12.5 billion in January, data from financial analysis firm Ortex showed on Monday.
Hurting short sellers
The silver furor started on Thursday after WallStreetBets publications encouraged investors to buy physical silver.
“Go there and buy at least 4 ounces of silver as soon as you can,” posted one forum participant.
Retail traders poured a record A $ 40 million ($ 30.6 million) into the Australian ETF Securities’ physical silver fund in the afternoon. A silver ETF in Japan increased by 11%.
Global silver short interest, or the cumulative value of bets that its price falls, is equivalent to about 900 million ounces, just below global annual production.
Banks and brokers hold most of this, but it is unclear whether they are sold on the metal or whether their bets outweigh very large physical possessions.
JPMorgan analysts said the fundamentals do not justify a sustained decoupling of silver from gold. Gold prices rose less than 1% on Monday.
(Reporting by Tom Westbrook and Thyagaraju Adinarayan in London and Jeff Lewis in Toronto; Additional reporting by Gavin Maguire in Singapore, Luoyan Liu in Shanghai and Abhinav Ramnarayan, Sujata Rao and Karin Strohecker in London, Lewis Krauskopf, Devika Krishna Kumar and Marcelo Teixeira in New York; text by Sonya Hepinstall; edited by Jan Harvey and Matthew Lewis)
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