SINGAPORE - Silver broke above $30 an ounce for the first time since 2013 on Monday as an army of retail traders stormed into the metal after betting billions of dollars on stocks last week, triggering risks of a multi-asset melt-up in global markets.
Organized in online forums and traded with fee-free brokers such as Robinhood, small-time investors have driven a 1,600% rally in the shares of video game retailer GameStop, scooping up assets big fund managers had bet against.
The phenomenon spilled over into silver late last week.
Spot silver leapt more than 11% in London to $30.03 an ounce and was on track for its biggest one-day rise since 2008, taking gains to about 19% since last Wednesday.
The jump set off a rally in silver-mining stocks from Sydney to London, with Fresnillo shares soaring 20.5% to top the UK blue-chip FTSE 100 index.
The action in silver, following thousands of Reddit posts and hundreds of YouTube videos suggests that a rise in the physical price could hurt large investors with bearish bets, also marks a foray into a much bigger and more liquid market than individual stocks.
"I would look at the silver rally the same way as I would the GameStop saga - from the point of view of market stability, for now it's not an immediate concern, but if we see sharp moves we could see some deleveraging in markets," said Antoine Bouvet, a rates strategist at ING.
"This reducing of risk through deleveraging could potentially boost demand for bonds if it is causing excess volatility."
In the first signs of deleveraging, Goldman Sachs said the amount of position-covering last week by US hedge funds, buying and selling, was the highest since the financial crisis more than a decade ago.
Nevertheless, their market exposure to stocks remains near record levels, the investment bank warned.
The rush to silver and GameStop-like stocks has been testing limitations in newer trading platforms and processing venues, frustrating retail traders who are unable to feed their hunger to buy and sell more frequently.
The feverish silver buying has hit a glitch, with large US broker Apmex warning of processing delays while it secures more bullion. The Money Metals exchange suspended trade until mid-morning Monday.
Trading volumes in small miners' stocks in Australia were unprecedented and jumps in some exploration firms, which do not actually produce silver, topped 90%.
Similar hiccups were seen in equities last week. GameStop, AMC and a few other volatile stocks saw temporary buying restrictions in trading apps like Robinhood as frenzied buying led to trading apps putting on curbs.
"The Reddit crowd has turned its sights on a bigger whale in terms of trying to catalyse something of a short squeeze in the silver market," said Kyle Rodda, an analyst at brokerage IG Markets in Melbourne.
"This is their big, bold Moby Dick moment," he said.
SILVER IS NOT GAMESTOP
The popularity of dabbling in stock markets has grown during the COVID-19 pandemic as volatility, stimulus cheques and lockdowns have driven account openings and investment.
The craze hit fever pitch last week when the GameStop pile-on resulted in a "short squeeze", turning price gains stratospheric as hedge funds with bets against the stock desperately bought it at high prices to close their positions.
Now it is silver's turn and once again the scale of buying is catching the professionals by surprise.
Online discussions turned to silver late last week as Reddit posts suggested higher prices could hurt banks with large short positions, and that buying easy-to-access exchange-traded silver funds could quickly ramp up the metal's value.
Retail traders poured a record A$40 million($30.6 million) into Australian ETF Securities' Physical Silver fund by the afternoon. A silver ETF in Japan surged 11%.
All eyes are on possible gains later in the day in iShares' US-listed, $16.5 billion Silver Trust ETF which rose 5.6% last week.
"We see little chances of any tightening of the silver market," said Eugen Weinberg from Commerzbank. "After all, the market is not only large and difficult to manipulate; unlike with shares, there is no excessive short selling with silver,"
Global short interest in silver, or the cumulative value of bets it falls in price, is equivalent to about 900 million ounces - just short of global annual production.
Banks and brokers hold most of that - about 610 million ounces - but it is not clear whether they are net short on the metal or whether their bets offset very big physical holdings.
"Allegations that some market participants artificially keep silver prices low have been around for years, but are somewhat hard to square," said BofA's precious metals analyst Michael Jalonen.
He said he was "bullish silver for a while" based on new applications including solar panels, and expects it to rally above $31/oz.
So far, the Redditers are rolling on. Several of the renegade traders are millionaires on paper and their hedge fund adversaries are nursing their wounds. Melvin Capital, which bet against GameStop, lost 53% in January.
Robinhood, the Redditers' main broker, has also backed down and lifted some of the buying restrictions it imposed last week, although limits remain on eight companies including GameStop, AMC Entertainment and BlackBerry.
However with regulators circling both Robinhood and the Redditers' forums, the battle is far from over.
"I'll tell you one thing, absolute guarantee this ends in tears. I just don't know when," said CMC's Michael McCarthy.