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Silver will get the GameStop therapy, rallies by as a lot as 13%


Silver prices rebounded to their highest intraday level since 2013 on Monday, as a spending spree attributed to a post on Reddit last week suggested the precious and industrial metal continued to be briefly depressed.

Silver futures for March delivery SIH21, + 8.68% SI00, + 8.68% climbed up to $ 30.35 an ounce on Monday at Comex, the highest intraday level since February 2013.

Prices were $ 29,418, up $ 2.50, or 9.3%. The most active contract saw the highest settlement since February 2013. The silver backed iShares Silver Trust SLV, + 7.08%,
Meanwhile, it rose 7.5% after rising nearly 10% early Monday.

Futures prices rose more than 5% last week. A price hike on Thursday and Friday, followed by a release by a Reddit user, suggested putting a “quick squeeze” on the metal.

The moves for the metal are “incredibly unusual – in fairness it’s unprecedented,” Zach Abraham, chief investment officer at Bulwark Capital Management, told MarketWatch.

“But we have to see if it is possible again. Remember GME [GameStop] was a deeply undervalued and unique situation, ”he said.

Read: Is GameStop’s market manipulation by a bunch of Reddit users, a savvy group of investors – or both?

The move in silver led to comparisons with the early 1980s when the Hunt brothers famously tried to break into the silver market.

During the Hunt brothers’ accumulation of silver, the prices of silver bars rose from $ 11 an ounce in September 1979 to $ 49.45 an ounce in January 1980, based on the London Prime Minister’s Fix, according to The Silver Institute, which also said that silver prices then fell below $ 11 an ounce two months later.

“The difference between then and now in silver, of course, is that this was a family that tried to put brief pressure on the futures market while now it’s like the financial equivalent of a distributed denial of service attack – lots of people decide simply become independent. Take part in a momentum trade, ”said Marshall Gittler, Head of Investment Research at the BDSwiss Group.

“The other big difference – and the difference with GME, for example – is that no one is visible that they are attacking,” he told MarketWatch.

Gittler said that “during a speculative mania, there is no limit” how high prices can be. “At some point, of course, sellers will come in and sell short. In 1980, people were literally selling the family silver, melting down the cutlery and selling it. At some point we could see that. ”

The all-time high for the most active silver futures was on April 29, 2011 at $ 48.599 an ounce, based on FactSet data dating back to November 1984, according to Dow Jones Market Data.

“Adjusted for inflation, that would be 56 US dollars,” said Gittler. “Not impossible at all. But silver was pretty calm prior to this event, which leads me to believe the market was pretty even. ”

It is probably “a dangerous market. Certainly not a market for investors, more for day traders at this point.”

– Marshall Gittler, BDSwiss Group

Gittler called the silver move “pure momentum trading, not a short squeeze”. So if it stops going up, people are likely to take their profits with them pretty quickly. It is “probably a dangerous market. Certainly not a market for investors, more for day traders at this point.”

So far, what has happened to silver in the past few days is “not even close” to what happened to the Hunt brothers, said Abraham of Bulwark Capital.

“Besides, they don’t control anything,” he said, referring to the Reddit crowd. “For this reason alone, I think there is no point looking for a commodity like silver.”

Still, many analysts had touted a positive outlook for silver even before the frenzy sparked by Reddit.

Abraham said his company invested in silver in the expectation that there would be a brief push on silver and the Reddit WallStreetBets forum did not consider the investment.

“Silver is still cheap. Not a bad idea to buy something in the long run, ”he said. “Might make sense to buy silver miners too. Just know that both can be extremely volatile. ”

He believes $ 100 silver prices cannot be ruled out for the metal in the next run. “Silver has historically been terribly undervalued compared to financial assets.”

Michael DiRienzo, executive director at the Silver Institute, said the fundamentals of the market are “beyond what you see in terms of activity in the market.”

The market saw lower mine supplies in 2020, with production being offline due to COVID restrictions, leaving less supply and more demand for the metal, he said. Inflows into exchange-traded silver products rose 331 million ounces in 2020, and inventories ended the year at more than 1 billion ounces, DiRienzo said.

The Silver Institute predicts that the annual silver price will average $ 30.13 per ounce and that physical investments will hit a six-year high this year.

Ryan Giannotto, director of research at GraniteShares, meanwhile, said one of the big questions right now is whether “Redditors have what it takes to restore GME magic with silver.” So far, “It looks like no – we’re seeing silver prices move around 10%, not 100%. Many of the elements that are perfectly matched in the GameStop squeeze don’t apply in the silver markets, or are poorly replicated at best. “

He said the market is not actually short silver, which would be a requirement for a massive short squeeze. “There is a difference between a low silver supply and a fall in silver prices for investors.”

There is only a limited amount of GME stock, but “production in silver can be easily ramped up and new sellers can come into the market,” said Giannotto. And “Silver may be a smaller market than gold or another major asset class, but it’s still a far larger market than a GameStop, a single, quasi-defunct small-cap stock. The Redditors just don’t optimize their purchasing power. ”

If Reddit’s WallStreetBets “really want to maximize their buying power in precious metals, they should target smaller markets that are far less produced, such as platinum,” said Giannotto.

“While 27,000 tons of silver are mined each year, only 160 tons of platinum are produced annually – platinum is simply a much better target for replacement than silver,” he said.

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