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(Kitco News) The silver market is booming, and it’s not just about price. Investors are investing in physics, ETFs and mining.
Last week, the silver movement started with the Reddit post, culminating on Monday with prices rising to an eight-year high of $ 30.35 an ounce.
“After successful attacks against short sellers at game retailer GameStop and other heavily sold stocks like AMC, Nokia, Blackberry and Bed Bath & Beyond, retailers’ next target has turned to silver,” said the chief strategist at FXTM market, Hussein Sayed.
On Friday, the iShare Silver Trust (SLV), which is the largest silver-backed exchange-traded fund (ETF) in the world, recorded an inflow of nearly $ 1 billion in one day. And much more is likely to happen on Monday, with more investors choosing to participate, said Sayed.
Silver miners also saw an impressive recovery on Friday and Monday, with investors looking at the silver mining sector.
In light of this price hike, silver is not cheaper from a fundamental perspective, said Commerzbank analyst Eugen Weinberg.
“After staying below $ 25 per troy ounce for some time on Thursday, the price of silver this morning rose more than 10% to a good $ 30. The price explosion has made the so-called gold ratio / silver dropped to just 63 “, Weinberg said on Monday.
Analysts caution investors to be careful in this type of frenzy, since short selling in the silver market is a different beast from the GameStop game, which Reddit previously encouraged.
“Wall Street segmentation can be misleading, since most large banks hold short positions in silver futures markets to protect their physical assets. If their short positions lose value, their physical assets gain, so from a price perspective , they are neutral. ” said Sayed.
In addition, much more effort is needed to have a strong and lasting impact on the price of silver compared to individual shareholders’ equity.
“Silver’s market capitalization is in the range of $ 1.4 trillion to $ 1.6 trillion, as opposed to GameStop’s $ 1.5 billion before it became the target of retail investors, and a large proportion of the market is out of stock, “added Sayed.
It remains to be seen how far retail investors can take silver. “Retailers who are just following the herd and joining the party late can accumulate huge losses and need to be more rational in their decisions. The new phenomenon may continue for some time, but the longer it lasts, the more pricing errors will occur on assets and possibly lead to huge losses in the broader market, “said Sayed.
Excessive price increases could be detrimental to the silver market in the medium term, Weinberg wrote. “This irrevocably destroys part of the physical demand. On the other hand, it makes silver increasingly seen as an investment metal.”
In any case, the old trade rules no longer apply in light of this new Reddit phenomenon, said Sayed.
“The gains of big names in technology, the Federal Reserve’s monetary policy meeting, Covid’s stimulus aid, economic data and vaccine launches should be the big factors that moved markets last week. Instead, it was the battle between retail investors and hedge funds that emerged from nowhere that took control of the markets “, he highlighted.
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