Silver’s Reddit Surge

This past week’s silver-market action has been extraordinary, wildly unprecedented. Incredible torrents of capital deluged into the world’s dominant silver exchange-traded fund. That came right after attempts to organize small traders to engineer a silver short squeeze on Reddit’s famous wallstreetbets forum. While that group’s apparent silver foray was fragmented and internally controversial, their buying power can’t be denied.

I’ve been a big Reddit fan for about a dozen years now, following and moving between various topical subreddit forums as my interests change. No matter what you’re passionate about, there’s probably an active Reddit community maintaining intelligent forum chats on it. I can’t count the number of times I’ve had some technical challenge on something, Googled for solutions, and found them posted on Reddit.

And apparently, virtually everyone likes Reddit, as Amazon’s Alexa Internet ranks it as the 7th-most-visited website in the US! The subreddits I follow mostly have to do with hobbies and recreational interests, as my work immerses me in the financial markets all day every day. So unfortunately I wasn’t familiar with that wallstreetbets subreddit until the traders on it executed that utterly-brilliant GameStop short squeeze.

That epic story soon went mainstream, a bunch of little guys uniting together to take down apex-predator hedge funds radically over-short-selling small stocks. In just ten trading days ending last week, these small traders buying GME stock and call options catapulted it a mind-boggling 17.4x higher!That forced an elite hedge fund Melvin Capital that had over-shorted GameStop to need an emergency $2.8b bailout!

Last Wednesday, January 27th the day GME stock skyrocketed 134.8% to its record closing high, market professionals marveled at the power of Reddit’s WSB forum. Small traders banding together crowdsourced unimaginable buying power, almost acting like a hive mind. Harnessing and focusing that like a laser had the potential to overwhelm and quickly move almost any price. The WSB guys were looking for another target.

That very evening, one of them suggested silver in a post titled “THE BIGGEST SHORT SQUEEZE IN THE WORLD $SLV Silver 25$ to 1000$.”That WSB user argued that “Silver Bullion Market is one of the most manipulated on earth. Any short squeeze in silver paper shorts would be EPIC. We know billion banks are manipulating gold and silver to cover real inflation. ... Why not squeeze $SLV to real physical price.”

Shortly later he edited it to include “ALL IN ON $AG. Let's GET THE MINERS.”While that post was later removed by WSB moderators, that seemed to be the spark that ignited massive inflows into silver and its miners’ stocks. That attempt to rally the WSB horde to pile into silver was always controversial in that community. It was way outside of the normal wallstreetbets’ wheelhouse of finding small overly-shorted stocks.

Silver is vastly larger than little meme stocks like GameStop, and thus vastly harder to bully around. Just under $20 per share in mid-January, all GME stock was worth less than $1.5b. This video-games retailer is failing because most games are now purchased online and directly downloaded to consoles and PCs. There’s no need for any high-margin middlemen when software is mostly digitally purchased and delivered.

The silver market is global and opaque, impossible to directly measure. The leading authority on silver fundamentals is the Silver Institute, which publishes fantastic annual reports on global silver supply and demand called World Silver Surveys. They are usually released in late April, covering the prior calendar year. So the latest comprehensive WSS data is still 2019’s, where global silver demand ran 991.8m ounces.

That was worth about $16.1b at that year’s average silver price of $16.18, about an order of magnitude more than pre-skyrocketing GME. That initial popular WSB post targeting silver mentioned SLV, the iShares Silver Trust. It is the leading and dominant silver exchange-traded fund, holding physical silver bullion in trust on behalf of its shareholders. Silver-ETF capital flows are growing ever-more important for silver.

On January 27th before some of WSB’s gaze started turning towards silver, SLV held 571.9m ounces of the white metal. That was worth $14.4b at that day’s $25.20 silver close. At the end of 2019, the Silver Institute’s analysts reported SLV’s silver-bullion holdings accounted for half of all the silver held by all the world’s silver ETFs!If that ratio continues to hold true, it implied a silver-ETF “market cap” around $29b.

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William K. 4 weeks ago Member's comment

Thank You for a very educational and insightful post!