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Hunt Brothers Redux? How Redditors’ Appetite For Silver Could Impact Jewelry | February 01, 2021 (0 comments)
New York, NY—Hi ho Silver! Away! Instead of the Lone Ranger, a coordinated effort of online retail traders are trying to drive up the price of silver just as they did shares of retailer GameStop last week. Silver briefly broke $30 an ounce Monday, before settling back to $28 at press time. Image: Silver jewelry from King Baby.
According to Kitco.com’s Jim Wyckoff, the traders “are looking for a ‘short squeeze’ in the market.”
In a kind of populist finance revolt, retail traders congregate on social media—particularly Reddit—to try and out-maneuver markets they see as being manipulated and dominated by Wall Street hedge funds looking to short a troubled asset. Last week, of course, news broke that online traders were driving up the share price of GameStop, a largely mall-based brick-and-mortar retailer of video games faced with growing online competition and declining mall traffic. After noticing that Wall Street hedge funds were shorting the retailer’s stock, online traders banded together to send GameStop shares rocketing (albeit possibly without understanding any of the underlying retail fundamentals that made it a troubled stock in the first place.)
This week, their target is silver (again, possibly without understanding the underlying fundamentals of the metal.) Kitco’s Wyckoff says this is a much bigger beast than GameStop, but acknowledges the so-called Redditors have “put the scare into many on Wall Street.”
This couldn’t have happened 15 years ago. Apart from the fact that social media was barely in its infancy, a major change in silver trading even making such a situation possible only occurred in 2006.
“Up until 2006, a silver investor had only a few options available,” explains Mike DiRienzo of the Silver Institute. “You could have physical silver, which you’d give to a custodian to hold so it’s not buried in your backyard. Or you could invest in mining companies, or buy coins and so forth at a local coin dealer.
“But when a silver ETF (exchange traded fund) product came to market, that democratized silver [investing]. You could get ounces of silver without having to take possession, and it was easy to get in and out of,” he told The Centurion.
So far, the Redditors are a long way off the infamous Hunt Brothers, who drove the price of silver from $6 an ounce in January 1979 to over $50 an ounce one year later, causing no small amount of chaos in the market. (In today’s dollars, that would be a jump from $21.39 an ounce to $157.05.) But when the Hunt-driven silver bubble burst in March 1980, the metal’s price plunged back down to about $10 an ounce and, correspondingly, wiped out the Hunts’ fortune. They declared bankruptcy in 1988.
But, as Wyckoff points out, it is only Monday, which means the trading week is young and much can happen. And David Morgan of The Morgan Report says “nothing has been sold short stronger and longer than the silver market.” But he explains the difference between silver and stocks is that investors don’t need a brokerage account to buy silver, a tangible asset. They can simply call up a broker and buy it, so the surge in demand for silver has outstripped the supply.
DiRienzo explains that ETFs do have to be backed by real silver. If billions of ounces are being traded in ETFs, it takes time for the real product to catch up, so right now people buying coins and investment bars can only order it for future delivery.
Will the Redditors’ appetite for silver impact the jewelry market? DiRienzo says typically industries that use a lot of silver will hedge their purchases well in advance, so at least in the short term, it shouldn’t.
The Redditors seem to have moved on from GameStop fairly quickly, so if they lose their interest in silver just as quickly, the jewelry industry shouldn't feel a thing. But the question remains whether or not they'll move on from it or stick with it, as Redditors seem to be focused on short-selling assets.
Click here or on the image below to watch the video interview with Morgan and David Lin of Kitco.com.
