Silver ETF Pump Loses Steam

Silver prices plunged on Tuesday, giving back much of their gains from the prior session.

The iShares Silver Trust (SLV) sagged 6.3%, nearly reversing Monday’s 7.1% gain. The Global X Silver Miners ETF (SIL) shed 10.2% following Monday’s 12.1% jump.

Silver’s decline came amid a broader pullback in WallStreetBets’ favorite stocks. GameStop shares collapsed by 60% to last trade at $91—an 81% decline from last week’s $483 high.

Shares of movie theater chain AMC dropped nearly 50% and BlackBerry sagged 22%.

Spot Silver Prices

No Traction

On Monday, silver became the latest target of the WallStreetBets subreddit. Some traders on the forum claimed that the metal would be the next short-squeeze candidate, reaching $1,000/oz and crushing large institutions in the process. (Read: WallStreetBets Targets Silver ETFs)

Other Redditors pushed back on the thesis and, indeed, despite briefly hitting seven-year highs above $30, the silver pump never gained traction like the GameStop phenomenon. (Read: GameStop Throws 2 ETFs For A Loop)

But it was not for lack of trying. According to the latest data share creation data from iShares, investors plowed another $551 million into SLV on Monday. That came on the heels of a record $944 million inflow on Friday, and brought year-to-date inflows for the ETF up to $1.7 billion.

Fleeting Interest

Silver’s reluctance to rise in the face of significant ETF inflows shows the limits of WallStreetBets’ pull. After a wild few weeks in GameStop and others, the movement clearly became exhausted. And though the community surely won’t go away, it doesn’t have the ability to keep asset prices far above fair value over the long term.

After all, in internet culture, memes are fleeting. And so, the interest in a meme stock or a meme commodity becomes just as fleeting.

At a more fundamental level, financial asset prices gravitate toward an equilibrium over the longer term—to the present value of future cash flows in the case of a stock, and to the marginal cost of production in the case of a commodity.

Though those precise levels are unknowable and ever-changing, there is a gravitational pull toward them, with sudden bursts of artificial buying or selling only serving to temporarily conceal this inexorable force. 

Rally Possible

With all that said, WallStreetBets could have been successful in driving silver prices higher (and they still could be). Collectively, they’ve shown they are a force to be reckoned with and can push multibillion-dollar financial assets to once-unimaginable levels.

In theory, silver is no different. An ounce of silver purchased by a silver ETF like SLV is an ounce of silver not available on the physical market. That means buying a silver ETF has real-world implications for the commodity.

This year’s $1.7 billion of inflows for SLV, for example, has resulted in 62 million ounces of silver purchases by the ETF. For a market that is roughly 1 billion ounces per year in size, that equals about 6.2% of the market—a sizable increase in demand over just one month.

If that keeps up, silver could easily keep rallying (the opposite is also true; outflows equal silver sales from the ETF).

Case in point: In 2020, silver ETFs collectively bought up 281 million ounces of the metal, a record increase. That was enough to push silver prices to a 26% gain last year despite a steep decline in industrial demand.

So, there is precedent for investors driving silver prices higher. However, the buyers of 2020—many of whom purchased the metal as inflation hedge—have shown they are committed to holding the metal. WallStreetBets traders may prove to be a bit more flighty.

Email Sumit Roy at [email protected] or follow him on Twitter @sumitroy2