Silver market fleeces Reddit patsies

Via Societe General:

The recent Reddit silver rally was triggered by a post in a Reddit forum thread called WallStreetBets calling for “the biggest short squeeze in the world”. At the time of writing, silver prices have retreated and paused after the initial resulting surge. This note is not intended to offer a prediction of prices but rather an illustration, using a couple of metrics,of how unusual this event has been.The impact on the silver market has been real, with the silver price diverging from the gold price, which is highly unusual, as gold prices are by far the major driver of the silver market. Silver jumped 7.7% on Monday 1 February,whereas gold was up less than 0.8%, a very rare occurrence.

◼Historically high inflows into silver ETF market were met with historically high outflows. The initial Reddit post gave instructions to focus on purchases in the iShares Silver Trust ETF. We monitored the inflow into this targeted ETF and other major silver ETFs and funds. Counterintuitively, both saw outflows on 28 January, the first day of the rally. Over the following two days, 29 January and 1 February, historically high inflows into the iShares ETFs were met by similarly sized out flows from other silver ETFs and funds. As investors who followed Reddit’s blueprint continued to stockpile ETF shares, other investors sold and probably took profits, with silver having already rallied almost 48% in 2020.

◼Futures market may have driven the rally and the silver forward curve distorted. A very strong build in open interest occurred during the rally and most of it focused on 28 January. Given that silver ETFs saw outflows on 28 January and the spot price jumped 4.89%, this first leg of the rally seems, in fact, to have been driven by Futures market rather than ETFs. Later during the rally,the silver forward curve saw its second-strongest front-end backwardation since 2000. This exceptional situation may have happened as Swiss coins seller were reportedly overwhelmed by online purchases of silver coins creating a short-term shortage of silver to melt. Since then, the market has normalised and the silver forward curve is back in contango.

The problem with basing your entire investment strategy upon reflexivity – that is trading on other traders not fundamentals – is that it can also be done to you.

Houses and Holes
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Comments

  1. Ronin8317MEMBER

    There is a Japanese gambling card game called Tehonbiki.

    There are 6 cards : ordered from 1 to 6. The dealer will place the cards in a pile at a certain order, and the player will gamble on what is the top card in the pile. Unlike rolling a dice, there are no randomness or coincidence : the player is trying to read the mind of the dealer.

    This is how the market is behaving now.

  2. I think the purchasers of silver think they have the fundamentals on their side. Unlike shares an ounce of silver is valuable, as long as you have the silver. It can take weeks for the delivery. The sweaty armpits come when people take the physical instead of the paper. I note $SLV was trading at a discount of 3.33% on the 2-2-21 as traders lose confidence in the custodian JPM.

    This bunch of crooks only got fined $920 million last time they manipulated this market.
    2020
    https://www.forbes.com/sites/michaelshellenberger/2019/09/05/renewables-threaten-german-economy-energy-supply-mckinsey-warns-in-new-report/?sh=3a7deee28e48

    2019
    https://fcced.com/jp-morgan-precious-metals-traders-mkt-manipulation-desk/

    2018
    https://www.cnbc.com/2018/11/06/ex-jp-morgan-trader-pleads-guilty-to-manipulating-metals-markets.html

    2009-20015
    https://bmg-group.com/criminal-sentencing-of-former-jp-morgan-precious-metals-trader/

  3. It’s not surprising silver was targeted.

    The argument about bimetalism and its connection with populism in the US goes back to the 19th century.

    • Gold and silver have been hammered by short selling Bullion Banks since the gold window was closed by Nixon. It supported the dollar.

  4. Markets are liquid because fear (risk) is low.
    This just adds to the pressure on all things debt. (my guess)

  5. I'll have anotherMEMBER

    Interesting to note that all the Perth Mint is sold out of silver bullion coins.

    Personally I like silver, have been investing in it since the match downturn, have done pretty well.

    And Reddit have a point, the silver market is highly manipulated.

    • Also I just doubled checked with ETPMAG EFT silver vault holdings:
      Over the year they increased holdings by 78%

      • I'll have anotherMEMBER

        Thanks for the link Matchbox. Good interview.

        Interesting most of the demand is retail and is mostly coming from the US then Europe. Not us Aussies.

        His comment: Plenty of Silver, just not in the form that customers want it. Sounds like a bit of a ploy. It doesn’t take stuff all to melt it down and stamp a coin. There is something going on here.

        Also the comment this has been going on for months, you could still buy plenty of varieties of silver last week from Perth Mint. Now all 1oz coins are out of stock last time I checked yesterday.

        • Well I can imagine that smaller coins and small bars would be in higher demand than the larger 100oz bars for example especially for retail investors.
          I know physical ETF has been big buyers as well and they would be buying the larger bars so as a producer you would probably not want to melt down the larger bars just in case you need to allocate some in stock as well. It would be a tricky decision to make.
          I think the overarching takeaway is that there is strong demand.
          I don’t know if silver is a good investment or not. I have some and have been waiting for it to catch up to gold as it broke its all time high and usually silver rockets well past but so far its still 85% below it peak and 60% below where gold was 10 years ago. I thought by now we would be well past the highs which keeps me checking the charts and thinking maybe i missed something. Dont know

          • I'll have anotherMEMBER

            Didn’t miss anything mate. I think its current price is somewhere around it’s 1980s price.

            Demand is huge now with electronics, solar and just a general larger population.

            JPM copped a $1bil fine last year for manipulation. It can’t be allowed to go up too much because it devalues USD so am informed that the price is kept artificially low.

            The Chicago exchange recently increased the minimum futures contract value a couple of days ago to demand delivery. $11k to $16k I think?

            I definitely think there is a greater value than the spot price in any case. Whether federal governments and large banks ever allow it to see it’s true value remains to be seen.

            I like to keep paper and physical as a hedge against my riskier bets.

  6. I dont like short term trading. Its risky as hell. That risk is getting even worse as the months roll on and every man and his dog becomes a Trader.

    I think everyone wants to make money and thats fair. Im more concerned with not losing money and just let the profits run.

    • An interesting observation, almost becoming a mass hysteria.
      Speculation that is becoming more globally co-ordinated because of central bank interest rate suppression.

    • Doesn’t mean that its honest. The priors suggest otherwise. There is no price discovery because of the futures market.

      • Dont disagree there is dishonesty at play, but not sure this one can be handed to wsb.
        The news that wsb was targeting silver got widespread coverage, from memory afr and even the capital city chip wrappers were running stories on the SLV is the next wsb gambit.
        Very quickly the reddit forums and other places were warning people off it for all the reasons stated above. You can’t squeeze SLV like it’s a penny stock, the noise whipped up fomo from people who wished they’d got in on GME.
        Probably in part the same class of sophisticated investor that bought up GME.AX

  7. Australia Day 2021

    I bought silver as it was heading up. I’m not worried because at worst it settles around where it is right now. There’s a difference between buying something at $28 and having it go back to $24 than buying something at $200 for it to go back to $20.

    The smart money is still long silver. If slv busts through $28 there’s a good possibility it heads to $50.

    I did well to jump out of steel before it took a beating. Timed it to perfection.

  8. Reddit wasn’t even buying silver. There was lots of bots spamming the subreddit to buy silver to distract people from GME/AMC.

    Wider internet possibly rather than reddit.