Silver miners soar as Reddit traders pile into the precious metal

Daniel Fowler
February 1, 2021

The silver market frenzy extended to physical demand, with coin dealers reporting delays in deliveries as they were overwhelmed by new orders.

This came as some retail investors on online forums urged people to buy silver-backed ETFs and raise its price.

"Both helped drive the price higher, but nothing like as fast as the "hive mind" of Reddit has spiked silver 20 percent since Wednesday night".

"Buying outside the professional market also means United Kingdom and European investors have to pay VAT sales tax".

The world's largest silver-backed exchange-traded fund, the iShares Silver Trust, recorded nearly $1bn in inflows on Friday, according to data from BlackRock, the fund's sponsor.

The hope by retail investors is that the sharp price rises in silver will force the closure of substantial bets being held by big institutions that would return profit if the price of silver fell, creating a cascading effect in the market and eye-watering surges in its value.

As a result of these inflows and to back new shares, the ETF added 34 million ounces of silver to its stockpile, taking it to a total of 601 million ounces. Shares of First Majestic Silver, Pan American Silver, and Wheaton Precious metals are up 23%, 16%, and 6%, respectively, as of 10:21 AM EST.

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Some of these smaller traders believe the hedge funds that were pillaged last week are behind the surge in silver. The rallying call echoed that of other WallStreetBets users who last week cheered their success in triggering large losses at Melvin Capital and other hedge funds.

Hemke said the silver mining sector in United States and Canada had been a victim of predatory short selling but that "for this silver squeeze to be effective it's going to take a lot of patience as the pricing system is entrenched and has been entrenched for 40 years".

Around half a billion ounces of silver trade each day in the London OTC market, the world's biggest, of which two thirds are spot contracts, and around 1 billion ounces are produced and consumed each year with surplus supply for most of the last decade, consultants Metals Focus said.

Analysts who monitor silver markets say there is more to the story than small investors rushing in.

In South Korea, where retail traders dubbed "ants" have turbocharged a long equities rally by investing borrowed money are applying pressure to quash a government plan to lift a pandemic-imposed short-selling ban.

The market may face short term issues moving silver in the right forms to the right vaults, but draining liquidity enough to send prices to $100 or $1,000 will be hard.

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