Silver jumped Thursday to notch its best finish in three weeks, following a post by a Reddit user, who suggested executing a “short squeeze” on silver. “Any short squeeze in silver paper shorts would be EPIC,” a post on WallStreetBets forum said. “Why not squeeze $SLV to real physical price,” he said referring to the iShares Silver Trust ETF.
A short squeeze occurs when a stock price increase prompts a volume surge in buying activity by those who previously bet that prices would fall. Silver jumped “as a campaign grew among long-time silver bugs to attract the ‘Reddit crowd’ of young day-traders currently squeezing heavily-shorted U.S. shares higher,” Adrian Ash, director of research at BullionVault, noted in an article Thursday.
The Wall Street Journal thinks that the moves in silver represented a shift by day traders into other asset classes in the wake of big gains in popular stocks such as GameStop [$GME] and AMC [$AMC]. “While a sudden flood of money into a particular derivatives contract can spike prices,” Thursday’s jump in silver “will struggle to grab or hold the Reddit crowd’s attention for long,” BullionVault’s Ash told MarketWatch.
“Short-squeezing a stock with short interest of 140% is one thing, but short-squeezing a physical commodity where market-ready stockpiles are 3 times average daily futures volume is another,” said Ash. The Hunt brothers’ attempt to corner the silver market over 40 years ago “took almost a decade to build, and like the 2011 peak at $50 it showed how silver’s true market depth needs to count bracelets and cutlery too,” he said. The biggest stockpile of silver is in jewelry and silverware, which “can be scrapped and refined in large bars very quickly if prices spike fast and far enough.”
Silver ETF’s and shares of silver mining companies also got a generous bump. The silver-backed iShares Silver Trust [$SLV] rose 3.3%. Shares of silver miners also climbed sharply, with First Majestic Silver [$AG] up by by nearly 18% and Coeur Mining [$CDE] up almost 14%. Brien Lundin, editor of Gold Newsletter, meanwhile, urged caution amid indications that the “RobinHooders and their ilk will soon target silver as the next market to flood into to trap the shorts.”
“That would be interesting to see…but be careful what you wish for,” he said in emailed commentary. “There are certainly enough fundamental forces driving silver higher over the coming years that we don’t need a manipulation in the positive direction to shorten or possibly forestall the trend already in place . . . Regardless, the very fear of a flood of new buyers into silver, and the experience with GameStop, seems to be prompting shorts to cover their bets in advance of any such move,” said Lundin.