Attempts by Reddit forum WallStreetBets to corner the silver market appear to have failed after the precious metal gave back much of its gains on Tuesday, however, despite the record daily demand for silver ETFs, this strategy was always doomed from the start.
Excitement in the market was palpable last week when one WallStreetBets post called on the army of traders to pile into the physical silver market in an attempt to squeeze Wall Street banks that were supposedly short the precious metal.
One ETF, in particular, was targeted, the $18.4bn iShares Silver Trust ETF (SLV). SLV provided the simplest way for retail investors to access the physical silver market and the WallStreetBets traders piled $1.5bn over the course of two days last Friday and Monday.
With approximately 65 million ounces – or 6.2% of the silver bullion market – required to meet SLV demand, the precious metal soared in trading on Monday jumping above $30 an ounce for the first time since 2013.
However, sentiment quickly changed on Tuesday with many Reddit users warning hedge funds had infiltrated the group and were using it as a way of boosting short-term prices. As a result, SLV, along with the other silver ETFs, fell 7%, giving back the majority of its gains made earlier in the week.
While the short-term surged highlights the buying power of the WallStreetBets army, the silver example is simply a case of picking the wrong market.
According to analysts at Goldman Sachs, cornering the silver market is now “nearly impossible” due to regulations in place following the squeeze in 1979-80 by the Hunt brothers that caused the price to soar 713% over three weeks before the market came crashing down on ‘Silver Thursday’.
They calculated the five million WallStreetBets subscribers would need roughly 4,600 tonnes of silver each and work in a co-ordinated fashion.
“It is now nearly impossible for someone to corner the silver market,” Jeffrey Currie, global head of commodities research at Goldman Sachs and co-author of the report, explained.
“In the current environment, a co-ordinated surge in investment by retail investors into the silver market would simply raise volatility and generate small regional dislocations in supply-demand dynamics.”
That is not to say a surge in flows cannot have an impact. According to ETF.com, silver ETFs bought 281 million ounces of the precious metal, a record amount, that pushed prices to a 26% increase over the 12 months despite a drop in industrial demand.
Furthermore, it is not entirely clear Wall Street banks targeted by Reddit users are short the precious metal. According to data from ETFLogic, Morgan Stanley is the largest holder in SLV with 11 million shares while Bank of America and Hong Kong bank CTC held 8.6m and 7.5m, respectively.
This saga has shown it is one thing to move a stock such as GameStop but it is entirely another to move a global commodity market.
As Goldman Sachs analysts concluded: “With ample physical supply we do not believe such an attempt to ‘short squeeze’ the market would prove effective, with enough physical metal ready for delivery to satiate retail investor demand.”