Silver Calms as Market-Roiling Frenzy Shows Signs of Easing Off

(Bloomberg) -- Silver gained after the biggest loss since August, with markets calming following a buying frenzy that sent prices to an eight-year high.

Futures rose as much as 3.3% on Wednesday following a turbulent two days that saw the market whipsawed as an investor stampede into the metal gave way to swift exits. Silver’s emergence as a focus of an online forum that trains its fire on supposedly shorted assets pushed prices above $30 an ounce on Monday before a 10% tumble on Tuesday as CME Group jacked up margin requirements.

Posts on Reddit’s WallStreetBets forum had initially called for a “short squeeze” of silver, with prices pushing higher and options trading surging. But sentiment has now turned with users speculating that supporting posts may be part of a pump-and-dump scheme -- or that hedge funds infiltrated the board. Tuesday’s slump in silver came alongside a plunge in shares of GameStop Corp. and AMC Entertainment Holdings Inc., two other popular trades.

Reddit traders “have very little financial firepower, and while it’s a good story, the reality is that they simply do not have the capital to really push global markets like silver around,” said Michael McCarthy, chief market strategist at CMC Markets.

“I suspect what happened was, some bigger players got involved and tried to ride the Reddit wave, and that would explain why we saw that spectacular gain for silver. Given the lack of firepower for the Reddit traders, silver is returning to where it all began,” he said.

Futures were 1.9% higher at $26.91 an ounce by 5:56 a.m. in London, while spot prices added 0.6%. BlackRock Inc.’s iShares Silver Trust, a short-squeeze target, slumped more than 8% on Tuesday.

The wild swings have come under scrutiny. Treasury Secretary Janet Yellen has summoned U.S. regulators, including the Commodity Futures Trading Commission, to discuss recent volatility, in her first public effort to address the tumult involving GameStop shares and broker-dealer Robinhood Markets Inc. The CFTC has previously said it’s closely monitoring activity in silver.

Goldman Sachs Group Inc. said silver remains the bank’s preferred precious metal, although it noted that Monday’s rally was never going to be enough to squeeze shorts as those positions are backed by physical stock.

Even as the intensity of market moves eased, buying interest remains. The U.S. Mint said it’s still rationing sales of silver coins because of “exceptional market demand,” as well as limited supplies and manufacturing capacity. In Australia, the Perth Mint has also seen high demand, with some clients selling gold to buy silver, according to Chief Executive Officer Richard Hayes.

“We still see demand and retail buying of physical when silver prices plummeted last night, though it has been subdued as compared to the last few days,” said Brian Lan, managing director of Singapore-based dealer GoldSilver Central Pte. “Silver prices are lower today as compared to the last few days, hence we expect to see some retail clients buying throughout the day.”

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