WallStreetBets Targets Silver ETFs

Silver briefly hit a seven-year high as Redditors pile in, but this could be different than GameStop.

Silver surged on Monday as traders on the popular WallStreetBets subreddit piled into the metal. Seeking their next target after GameStop, some Redditors believe the metal will be the next big short squeeze. (Read: GameStop Throws 2 ETFs For A Loop)

However, others on the forum are pushing back, arguing that a big run-up in the precious metal is unlikely, and if it comes to pass, could actually help the many large hedge funds that WallStreetBets collectively has gone to battle with.

Spot silver prices were last trading up by 5.5% to $28.50/oz early Monday morning after briefly topping $30 for the first time in seven years.

Spot Silver Prices

Silver ETFs are following suit to the upside. The $14.5 billion iShares Silver Trust (SLV) is currently higher by 5.5%, while the $656 million ProShares Ultra Silver (AGQ) is up 11%.

The $238 million iShares MSCI Global Silver and Metals Miners ETF (SLVP), the largest ETF focused on silver miners, is also up nearly 11% on the day.

YTD Returns For SLV & SLVP

‘Manipulated’ Market

A widely recommended post on the WallStreetBets subreddit seems to have kicked off the latest jump in silver prices. According to the Reddit poster, the “Silver Bullion Market is one of the most manipulated on earth.”

“Any short squeeze in silver paper shorts would be EPIC. We know billion (sic) banks are manipulating gold and silver to cover real inflation,” the poster, who put a $1,000/oz price target on the metal, added.

While the prospect of riding a skyrocketing asset to hefty gains motivates many of the WallStreetBets community, there is also a pervasive desire to make life difficult for large Wall Street institutions. This feeling is evident on this bullish silver post: “Think about the Gainz. If you don't care about the gains, think about the banks like JP MORGAN you'd be destroying along the way.”

Far From United

Judging by today’s action in silver prices, and a notable $943 million Friday inflow for SLV (the largest in the fund’s 14-year history), the bullish silver thesis is resonating.

But the WallStreetBets community certainly isn’t united in the matter. Some of the most recommended posts on the subreddit pushed back against the idea that silver is going to rise dramatically. Others are going as far as to claim that all of the bullish commotion surrounding the metal was a part of “a hedge-fund coordinated attack” to keep attention off of GameStop. GME was down 25% in early trading.

Currently, this skeptical narrative is actually much more prominent on the subreddit. Three of the most popular posts related to silver on the forum advised traders not to buy the metal.

Indeed, the skeptics seem to have a point. A quick look at the top holders of SLV suggests that many Wall Street firms hold the ETF. And while there could certainly be hedge funds with large short positions on the futures markets or the over-the-counter markets, there could just as well be others with long positions.

That is in fact what the latest Commitments of Traders report from the Commodity Futures Trading Commission shows. As of Jan. 26, speculators were net long silver futures, diminishing the case that big Wall Street institutions will be hurt by a rally in silver prices.

Top Holders Of ‘SLV’

Source: Bloomberg

Fundamental Backdrop

Perhaps more importantly, the fundamental backdrop for silver isn’t particularly bullish for the metal, at least as it stands today. Data from The Silver Institute shows demand for the metal from industrial users is tepid.

Industrial silver demand slumped 7% in 2020 (though its trajectory will likely improve in 2021 as economic growth rebounds).

On the other hand, demand for silver ETFs—mostly used as a hedge against inflation (and more recently as a WallStreetBets target)—has been resilient, climbing 47% in the past year. The amount of silver held in ETFs stands at 905 million troy ounces, according to Bloomberg, close to an all-time high.

Silver ETFs hold physical bullion, so an ounce bought by an ETF is an ounce taken off the global silver market. That means that traders buying silver ETFs can have an impact on the physical silver market, driving up prices.

If enough buyers pile on, silver prices will go up, just like they have today; it’s simply supply and demand. But those looking for a hedge-fund-driven short squeeze will probably be disappointed.

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