Reddit Turns Silver Into Gold

In a landscape dominated by parabolic tech IPOs and SPAC-mania, silver bullion may not be considered the most en vogue investment. Yet again, the same might be said about a flailing brick-and-mortar video game retailer. Yesterday silver futures jumped as…

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In a landscape dominated by parabolic tech IPOs and SPAC-mania, silver bullion may not be considered the most en vogue investment. Yet again, the same might be said about a flailing brick-and-mortar video game retailer.

Yesterday silver futures jumped as much as 11% to $30 once — an 11-year high — ostensibly the handiwork of Reddit day traders.

The Silver Pump

Unlike gold, silver is used in many industrial applications such as photovoltaic panels for solar farms. With much of the trading done by banks off-exchange, analysts say its price is more difficult to manipulate than comparable securities.

But that didn’t stop a gaggle of retail traders from descending into silver securities:

  • The world’s largest silver-backed exchange-traded fund, the iShares Silver Trust, recorded almost $1 billion in inflows on Friday.
  • One user on WallStreetBets wrote yesterday, “Mall retailer? Small potatoes. Global silver market? The greatest short squeeze in history.”

Unlike the GameStop drama (where the little guy vs. Wall Street titan narrative was clear), the silver scenario is more nuanced.

Some have speculated that hedge funds intentionally diverted attention away from GameStop yesterday (its shares fell 30%). Other retail traders piled into the trade in an attempt to harm banks such as JP Morgan – who they believe hold short positions.

Historical Parallel

The rush into silver was reminiscent of the Hunt Brothers (William and Nelson) who bought $10 billion+ of silver in the late ‘70s in an attempt to corner the silver market. The brothers were subsequently sanctioned for market manipulation and went bankrupt in a collapse known as “Silver Tuesday. “

The Takeaway:

The Reddit fervor also extended into the biotech sector yesterday. Biocryst Pharmaceuticals soared over 40% to a 5-year high Monday as reddit users declared a “BioWar” against biotech shorts. Biocryst, which recently terminated development of a Covid-19 drug, has the anatomy of a typical Wall Street short – a small biotech with little to no revenue.

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