Silver price skyrockets, what's going on?

Retail investors are increasingly taking on the big speculators and hedge funds. Through platforms such as Reddit, investors look for shares of small and relatively unknown companies, and then drive up the price. Speculators who are short on the stock in question then have to hedge quickly by buying back shares, resulting in a huge price increase. Is this army of retail investors now also targeting precious metals?

The prices of silver, platinum and palladium shot up sharply on Thursday. The Silver price rose 6.5% in less than two hours to nearly $27 per troy ounce, while platinum and palladium also spiked in the price chart. At the time of writing, the latter two  precious metals have largely surrendered their price gains, but silver is still more than 5% higher.

Silver price skyrockets

Silver price skyrockets

Speculators not only dived into silver, the share prices of several silver miners also shot up on Thursday. Mining companies such as MAG Silver (MAY), Wheaton Precious Metals (WPM), Hecla Mining (HL), Endeavour Silver (EXK), Fortuna Silver Mines (FSM) and Pan American Silver (PAAS) saw their share prices rise by 10 to 20 percent on Thursday.

In recent weeks, groups of investors on Reddit's platform have been in the news more often. They would also be responsible for the Explosive price rise of Gamestop's shares. The share price rose from around $5 to $350, causing hedge funds and speculators with large short positions to lose millions.

Manipulation?

Investors on the platform Reddit now seem to be setting their sights on silver. In this post With more than 5,000 responses, an investor is calling for a massive investment in silver. The price of this precious metal is said to be the most manipulated of all investments in the world. Banks would manipulate the prices of precious metals downwards to cover up the real inflation, we read on the platform. Adjusted for actual inflation, silver price should now be at $100 per troy ounce and not $25.

Opinions differ as to whether the silver price is really manipulated on that scale. In the past, several banks have been fined or settled for manipulation of the price of gold or silver. This usually involved manipulating the daily fixing, with the aim of pushing investors out of the market. Traders also tried to use Spoofing the course to influence. The evidence of structural manipulation in the gold and silver markets is less clear.

What's next?

The Reddit post is calling on investors to buy shares of SLV. That's the largest silver ETF in the world. By buying this stock, investors who are short silver should close their positions, which could cause the price of silver to skyrocket. Today, the price of silver shot up 5%, while the shares of silver miners determined even bigger price gains.

Of course, it remains to be seen whether this sudden rebound in silver is temporary or whether it is a new trend. A rise or fall in the silver price of a few percent in a day is not at all unusual. In fact, the precious metal has shown larger movements in the last twenty years. In 2011, investors pushed the silver price up to $49 per troy ounce, but then the price fell just as hard.

We should also not forget that this week there is Silver Contracts on the U.S. futures market. This is a monthly phenomenon that often causes additional volatility, as traders then have to unwind or roll over their positions. That, too, could explain the sudden surge in silver price. We will, of course, continue to monitor this development closely.

This contribution was made from Geotrendlines