Silver exchange-traded products (ETPs) hit eight-year highs on 1 February as traders from Reddit forum WallStreetBets turned their attention to the precious metal.
Europe’s largest ETP to track the price of silver, the $2.6bn WisdomTree Physical Silver ETC (PHAG), is up 9% in Monday morning trading as the precious metal hit $30 an ounce for the first time since February 2013.
The rally comes off the back of record demand for the world’s largest silver ETF, the $16.5bn iShares Silver Trust ETF (SLV), which saw $943m inflows last Friday alone.
In Europe, the picture was less dramatic with investors pouring $61m into the iShares Physical Silver ETC (SSLN) last week, the highest across the seven silver ETPs in Europe, according to data from Ultumus.
Last week, the WallStreetBets forum called on its army of followers to buy physical silver in a move to inflict more pain on Wall Street as many are short the precious metal.
“Silver bullion market is one of the most manipulated on earth,” the Reddit post said. “Any short squeeze in silver paper shorts would be epic. Demand physical if you can.”“Think about the gains. If you do not care about the gains, think about the banks like JP Morgan you would be destroying along the way.”
Silver ETPs are perfectly placed for investors looking to gain access to physical silver but questions will now turn to whether the strategies can physically deliver the precious metal amid surging inflows.
According to Daniel Izzo, CEO of GHCO, silver ETPs will not break. Although in stressed conditions, he said borrowing costs can rise as physical settlement takes longer and market makers demand more of a premium in order to continue to sell.
"The market is a good way from any storage constraints," Izzo added.
It is thought the WallStreetBets forum has around $1.4bn market buying power highlighting the potential they have to move asset prices.
Tim Duggan, senior trader at Amplify Trading, warned the ratio of futures contracts to physical silver was around 250:1 which could lead to structural pressures.
“It is one thing to move GameStop, it is another thing to move another global commodity market,” Duggan continued. “The record inflows is essentially having a knock-on effect.”
“For every unit of silver physically available to deliver there are 250 contracts traded so something is going to snap this week.”
Examining GameStop's 'significant' impact on ETFs
The WallStreetBets army is not the first to attempt to corner the silver market. In 1980, Nelson Bunker, Lamar and Herbert Hunt invested billions of dollars of silver – around two-thirds of all privately held silver – in a move that they described as a hedge against inflation but many saw this as market manipulation.
With prices rising from $6 an ounce to $50 by January 1980, regulators were forced to step in and limit the amount of silver futures causing a price collapse on 27 March in what became known as ‘Silver Thursday’.