Do the Reddit silver bulls have a real plan?
Ok, so we know that there’s a significant grouping of retail investors on Reddit who are capable of moving markets.
They’ve managed to execute one of the most spectacular short squeezes in recent history with last week’s move on Gamestop.
But like many insurgent groups before them, they’ve incurred the enmity of the established powers and counter-moves are now afoot.
Deplatformed from equity trading apps in droves towards the end of last week, the Reddit gang have turned instead to commodities, and specifically silver.
In many ways, silver’s a good one to choose. How exactly it is priced is open to question. There’s the gold-silver ratio, which argues that silver should always be priced relative to gold.
So far so good, except silver often lags, as gold is the go-to metal for safe-haven seekers who only turn to silver once the price action in gold is beginning to peter out.
What’s more, silver also has an industrial application, and it was the industrial buyers of silver who eventually and effectively put a stop to the last major attempt to manipulate the silver market in 1980.
Back then, the appeal was to higher authorities too – a limit was placed on how much silver could be borrowed on margin, and the Hunt brothers, who were trying to corner the market, found their guns spiked and their losses piling up into the billions.
It’s a different kettle of fish this time around, as silver roars up to an eight-year high, given that it’s lots of little fish driving the price, rather than a small cabal of big ones.
But the question remains: what in the end do the Reddit buyers hope to achieve? And indeed, are there any real Reddit buyers? Talk on Wallstreetbets is relatively muted, and some more seasoned market commentators have speculated that the real action in silver has been driven by professionals who’ve noticed a recent widening of the gold-silver ratio, and who are calling down the hype of last week’s Gamestop action to bolster their positions.
As with any market where there are willing buyers and willing sellers – and in silver, at least, those two counterparties are at least still operating on equal terms – individual reasons for trading in and out are often hard to discern, and it’s only when a pattern emerges that real analysis can begin.
Whether there is such a pattern yet is open to question. Certainly, the price action is real. Silver has spiked, and naturally enough, shares in silver companies like Hochschild (LON:HOC), Fresnillo (LON:FRES), Polymetal (LON:POLY), Baker Steel (LON:BSRT) and Alien Metals (LON:UFO) have also taken flight.
It’s where we go from here that’s puzzling. Although certain conspiracy theorists have long posited that precious metals prices have been kept artificially low in the face of years of relentless quantitative easing, despite certain irregularities around the AM and PM fixes, there’s never been any real evidence of this. The moral certainty of the Reddit brigade in their Gamestop crusade against the hedge funds translates only loosely into the silver market, in the sense that all sophisticated players try to game the system as much as they’re allowed.
And the idea that there’s anyone meaningful to be squeezed out by going long silver is also doubtful. While the managers of the biggest funds are no doubt fully on board with modern monetary theory when they dine out in the evenings with central bankers, when they’re back at their desks the following morning they’re just as capable joining the dots between money printing and inflation as the rest of us. Why wouldn’t they be buying silver?
And therein lies the nub of the matter. It may or may not be the Reddit craze of the week. But actually, silver represents a sound investment in its own right anyway. Sounder than fiat currencies, sounder than Gamestop, and certainly sounder than Robinhood IPO stock.