The Silver Market is A Lot Harder to Push Around than GameStop

The Silver Market is A Lot Harder to Push Around than GameStop

Dear Reader,

Rumour has it there’s a run-on silver.

Or at least there was a run-on silver.

If only the folks of Reddit would unite.

Or…perhaps…it’s because of those people that the silver price didn’t take off.

By those people I mean the big bad world of bullion banks, Wall Street and other hedge funds with their nefarious business.

All out to supress the silver price and gobble up the physical supply for themselves.

Is that really what is happening though?

REVEALED: What’s Next for Aussie Gold Stock Prices? Learn more.

Increasing volatility or complete fraud?

Wait, hold up, what do you mean there is a run-on silver?

In case you missed the market drama, here is a good recap of what dominated the news last week.

After GameStop was driven higher, the next target was silver. I suspect it was feeding off the long-held idea that the silver market is manipulated.

Did it work?

The silver price enjoyed a huge rally. Jumping up 20% in less than 48 hours.

In fact, the silver price hit an eight-year high, touching just above US$30 (AU$39) per ounce…before heading back down to US$26 (AU$34) where it was at time of writing.

Since the Reddit crowd moved from driving up GameStop and onto silver, my phone has been blowing up non-stop with conspiracy theories and ‘stick it to the man’ kind of messages.

However, as the Reddit crowd switched gears, it brought two different tones to my inbox: ‘wow, we should be aware of the volatility this creates’ and ‘this is proof the market is a complete fraud.

The influx of views has led me down internet rabbit holes I never needed to visit.

Is this surge into silver proof that the market is manipulated?

Well, not really.

Don’t get me wrong, it’s great to see the ‘other’ precious metal getting some interest. But the silver market is a lot harder to push around than GameStop.

There are several reasons as to why the silver market didn’t see the same boom that GameStop did.

The silver markets — yes markets, it’s not just really one market — is much bigger and has millions of participants and moving parts.

The total silver market is worth US$1.5 trillion-dollars, whereas GameStop is (or was) a billion-dollar or so company.

It’s a lot harder to push around something worth 10 times more than a simple, illiquid stock.

This is something Nick Frappell, the global general manager of ABC Bullion, and I discussed yesterday in our interview (Rock Stock Insider friends this will be coming to you on Monday!).

As Nick pointed out during the interview, Reddit folk were always going to have a much harder time moving silver compared to GameStop.

As I mentioned, GameStop is highly illiquid. But Nick explained that GameStop is also limited by the number of shares on issue. While GameStop can create new shares — it can’t do that in a couple of days. There’s a process that listed companies must follow.

That’s in contrast to silver, where new supply is always coming to market.

Not only that, but there’s also far more above ground stock than people realise. Silver isn’t just stored over in the London bullion vaults, but in places like India and Hong Kong.

Compounding all of this, is that supply of physical silver is in surplus at the moment. COVID impacted industrial demand. While investment demand did mop up some of this, some analysis by Jan Nieuwenhuijs suggests that there’s even more silver above ground than the World Silver Council account for. (Though apparently, it’s getting a little harder to get your hands on the refined stuff from dealers right now. A topic we’ll delve into tomorrow.)

Another thing to consider, I don’t think as many of the ‘suck eggs’ anti-Wall Street crowd were as passionate about silver as they were GameStop.

Also, stopping the silver rally screaming higher is profit taking by institutional investors.

The silver price rarely sees a near 20% gain in 48 hours. Any trader will tell you; you have to take profits while they’re on offer.

There are plenty of parties with open buy positions on silver contracts. Mining companies hedge the silver price. As do bullion banks and hedge funds. They do that in order to offset the volatility of all commodity prices on their business.

The failure to push silver as high as GameStop isn’t ‘proof’ that the silver price is being manipulated. The white metal is an enormous multitrillion-dollar market with millions of participants.

It’s going to take a little more than a Reddit thread to shove this market around.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia

PS: Your other Daily Reckoning Australia editor Callum Newman and I were discussing the silver market earlier in the week. This time around we caught our chat on camera! Hit the play button below and you might even get a sneak peak of a commodity that’s about to boom: