A 20-year precious metals veteran breaks down why Reddit traders' silver squeeze fizzled out — and shares his best advice for investing in the commodity as a bull market remains intact
- Chris Blasi is the president of Neptune Global, a precious-metals dealer and trading platform.
- Blasi breaks down why, unlike GameStop, Reddit traders’ short squeeze on silver fizzled out.
- He also shared the two catalysts driving a bull market for silver and the best way to invest in it.
- Visit the Business section of Insider for more stories.
Despite the ongoing price gyrations of GameStop, the Reddit-fueled trading mania around the video-game retailer has calmed this week.
Another interlude to the GameStop saga that has fizzled out faster is the attempted short squeeze on silver. While it is uncertain whether Reddit traders indeed diverted their attention to the precious metal, the short-term price impact of suddenly increased retail activity on silver is clear to see.
It started with massive inflows of $943 million into the largest physical silver ETF, the $17.9 billion iShares Silver Trust (SLV) last Friday, which was “record-breaking” compared to its daily flow changes averaging $41 million over the past year, according to an RBC research note on Tuesday.
With that, sales of silver bullion coins surged over the weekend and retail sites struggled to keep up with the demand. Dealers including Money Metals, APMEX, SD Bullion, and JM Bullion had to either limit orders of silver or delay processing orders.
Then the markets opened on Monday and the price of silver jumped as much as 13%, to $30.35 per ounce, hitting an 8-year high before paring back gains to around $26.04 per ounce as of midday Thursday.
As the hashtag #silversqueeze started trending on Twitter, Reddit’s WallStreetBets traders shared split opinions. Some posted that short squeezing silver could “bring down the biggest banks in the world.” Others were quick to dismiss the whole silver squeeze episode as “a coordinated attack” from hedge fund short sellers in order to divert dry powder away from the GameStop trade.
Silver squeeze was doomed to fail
Regardless of the identity of the traders that tried to stage the silver squeeze, the attempt was doomed from the start, according to Chris Blasi, the president of Neptune Global, a precious metals dealer and trading exchange.
Blasi left the traditional finance and technology world in 2001 to set up Neptune Global because of his bullish outlook on precious metals. When he heard of the alleged Reddit traders’ short squeeze on silver, he felt it was like comparing “comparing apples to oranges.”
He explained that GameStop is a small-cap company whose market cap hovered around $17 billion as of midday Thursday, but silver is a huge market that’s about $200 billion in value. The contrast between the two also lies in that the short sellers of silver are a concentrated group of banks, versus the hedge funds that shorted over 100% of GameStop’s free float.
Blasi said banks have heavily shorted silver for over a decade and they could have maintained the short position as a hedge for clients such as silver miners. On top of that, most of the market speculators last week were actually net long more than 44,000 silver contracts on Comex, the largest futures and options market for trading metals, according to the Financial Times.
For investors who tried to bid up the price of silver by buying physical retail products such as coins, they missed the point that this buying frenzy “puts absolutely no pressure on the short positions.” The supply shortage of these physical products has no influence over the silver futures market because retailers will simply raise the premium on the product, and delay order processing and delivery to customers, according to Blasi.
Even the huge flows into the iShares Silver Trust do not help with the short squeeze too much, because when investors buy shares of the trust, the trust buys bars of silver from the physical market and then stores them in vaults held by the custodian.
In theory, that reduces the supply of physical silver bars in the market, but the custodian can also store silver “in an unallocated form,” meaning they can promise to deliver the silver bars based on existing inventory without having to go acquire physical silver to meet the demand, according to the trust’s prospectus.
Capitalize on a silver bull market
While retail investors are unlikely to ever engineer a GameStop-like short squeeze on silver, the precious metal is still a good investment driven by two catalysts.
As the economy recovers and manufacturing activities resume, the industrial usage of silver will ramp up again, Blasi said. Meanwhile, President Joe Biden’s green energy and infrastructure plan could also drive greater use of the metal.
“There is no substitute. When a manufacturer produces Apple iPhones, they need silver,” Blasi said. “They actually need it. They can’t lease it and they can’t buy a futures contract.”
He adds that the increased industrial demand will actually drive up the price of silver because there has been an imbalance between silver mine output and industrial consumption.
Blasi believes that the best way to capitalize on a silver bull market is to invest in the physical metal, whether it is through buying silver coins and bars or invest in ETFs backed by physical silver.
But not all ETFs are created equal; it is important for investors to do their due diligence when it comes to selecting silver ETFs. While some of them are 100% backed by physical silver, others lease silver, track silver futures, or invest in stocks of silver miners.
“Investors will need to do their homework to see which one they’re most comfortable with,” he said.
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