Silver short squeeze loses shine
A social media frenzy which helped propel silver to its biggest one-day jump in over a decade has paused for breath.
A social media frenzy which helped propel silver to its biggest one-day jump in over a decade has paused for breath as scepticism mounts about whether the Reddit craze can replicate a run on unloved US stocks to sweep an ignored corner of commodity markets.
Silver rose to an eight-year peak on Monday, eclipsing $US30 an ounce, before dropping to $US28.55 on Tuesday. The dramatic price bump was in part fuelled by posts on the social media Reddit message board which also appeared to have drawn in momentum investors attracted by the chance to profit from a huge trading surge in the precious metal.
“The gains likely reflect retail investors from Reddit’s WallStreetBets forum, after a popular post on the forum declared silver was ‘the biggest short in the world’ last week,” CBA commodity analyst Vivek Dhar said. “Given conflicting posts are now emerging on the forum on buying silver, it’s unclear just how long the current momentum will last.”
Australian silver miners were also caught up in rollercoaster trading, retracing gains won on Monday. Manuka Resources, which skyrocketed nearly 50 per cent on Monday fell 13 per cent to 44c, Silver Mines fell 26 per cent after jumping 36 per cent and Adriatic Minerals shed 8 per cent after a 20 per cent rise to start the week.
Australia’s only specialist silver exchange traded fund racked up 25 times its usual daily turnover on Monday, although that eased on Tuesday to about four times its normal levels.
Analysts were hedging their bets about whether interest in the metal used in semiconductors, batteries and solar panels may recede particularly given many traders and hedge funds hold long positions on the commodity and could profit from any price boom.
“Given the rapid rise in the silver price, and unusual circumstances surrounding the increase, we would be cautious in paying a high multiple for what may be a short-lived price boost,” Morgan Stanley analyst Dan Shaw said.
Still, a further spike could still be on the cards with a potential $US50 an ounce price possible down the track, according to Bank of America.
Silver “could rise to $US35 an ounce this year, with a spike to $US50 an ounce possible further down the line,” Bank of America analysts said. They pointed to the influence of the traders linked to the forum.
“News flow on Reddit has become a focal point, with some posts suggesting that market participants increase their exposure to physically backed exchange traded funds to remove ounces from the market, which would prompt tighter liquidity and ultimately a squeeze higher in prices.”
A lack of short positions in the commodity may limit the longevity of any market bounce while widespread availability of physical silver in the market makes it a more difficult target for Reddit-style speculators compared with single stocks in the share market.
“The speed at which prices have rallied is a concern though, with some of the traditional markets like China trading at a deep discount now,” Bank of America said.
“While we remain bullish on fundamentals, this is worth following because a lack of commercial buying ultimately means that the rally may come to an abrupt end once the recent strong investor buying fades. In the end, the silver market is somewhat bigger vs GameStop and an entirely different kettle.”
US stock GameStop caught the eye of retail traders posting on the Reddit WallStreetBets platform as being shorted by hedge funds. Traders then bought up the stock at record levels to push its share price to stratospheric levels.
Australia’s corporate regulator is also on alert for emerging signs of a battle between amateur investors and hedge funds in the local market, as the frenzy over GameStop, and the war between Wall Street and Main Street, show no sign of slowing.
Already the local share market’s most shorted stocks have had large price swings in recent days as some members of online ASX trading communities attempt to replicate the “short squeeze” tactics of their offshore counterparts.
Shares in the local market’s most shorted company – Webjet – jumped 7.46 per cent to close at $5.04 as the travel booking website was talked up in some stock picking forums, with some users raising the possibility of arranging a co-ordinated buying campaign to bring about a short squeeze.
But other highly-shorted companies have seen price increases: Inghams Group, which has 8.6 per cent of its shares in short positions saw its share price jump by more than 5 per cent last Thursday to $3.32.
Tassal Group, which has 12.36 per cent of its shares in short positions, also shot up last Thursday, with its shares gaining as much as six per cent during the day.