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This week traders and market participants witnessed a transformation in the way individual or retail investors can effectively use the power of collective capital to trade the financial markets with the same big stick that the hedge funds and large institutional players have been wielding for years. The adage “buy when the big boys buy” is based upon the power of using enormous capital to move markets. Although the Internet has been available for decades it is only recently that we have seen market participants band together and stand toe to toe with the larger hedge funds.
At least for the moment, this movement which began on Reddit’s WallStreetBets has proven to be a very effective method of influencing market pricing. It has created an army of retail investors with enough collective capital behind them to take on hedge funds and win. The hedge fund losses from this technique are in the billions. Up until recently this group of investors was selecting particular equities that hedge funds had been shorting.
WallStreetBets forum targets SLV
According to the Wall Street Journal, this “Nerds versus Wall Street” battle resulted in retail investors acting in unison to collectively even the playing field against these large institutional traders for the first time in history. However, up until this week, their focus was purely on different stocks such as GameStop and AMC. This week Reddit’s group of traders began to focus on one commodity in particular, and that is silver. The power of many can be clearly illustrated in yesterday’s move in silver futures which gained as much as 7% and 4.39% in trading today.
Yesterday MarketWatch reported that “Silver futures rallied Thursday to mark their highest finish in three weeks, following a post by a Reddit user, who suggested executing a “short squeeze” on silver. “Any short squeeze in silver paper shorts would be EPIC”, a post on the popular WallStreetBets forum said. “Why not squeeze $SLV to real physical price”, referring to the iShares Silver Trust exchange-traded fund.”
Typically, silver follows gold in terms of price swings. However, that trend reversed this week. Today gold futures basis the most active April 2021 Comex contract gained just under ½ a percent, concurrently March silver futures gained 4.39%. Only time will tell how effective this current play by Reddit’s forum members will be because it must be noted that it is not just hedge funds that they are trying to go toe to toe with anymore but rather the real supply and demand of industrial and institutional players.
According to Reuters, Commerzbank analyst Eugene Weinberg said, “We are confident that the influence of retail investors on silver will not last all that long, and that ultimately industrial and institutional demand will be the key factor in the longer term.”
However, in the case of silver, the retail investors could easily benefit from the expected solid demand for silver. Unlike GameStock’s current valuation which is based on speculation without the backing of solid fundamentals could be highly overvalued.
Many analysts believe that both gold and silver values have been artificially contained below their real intrinsic value which could ultimately sustain a move in silver back to $30 and above. Yesterday Ishares Silver trust gained 5.55%, a total of $1.30 taking that ETF to $24.72. Today the trust gained just over 1% and is currently fixed at $24.99 per share while silver futures saw a net gain of $1.14 taking the March contract to $27.06.
As we spoke about yesterday the fact that individual traders have found an outlet to exchange information and collectively banded together is a historical moment in the way the retail investor can lessen the edge that hedge funds and institutional players have had for years.
By Gary Wagner
Contributing to kitco.com
