Silver Finds Calmer Tone After Posting Biggest Drop Since August

Ranjeetha Pakiam
Updated

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

Futures rose as much as 3.1% following a turbulent two days that saw the market whipsawed as a buying frenzy reached fever pitch then sharply dropped off. Prices tumbled 10% on Tuesday as CME Group raised margin requirements.

Silver has been in the spotlight after posts on the WallStreetBets forum called for a “short squeeze,” with prices pushing higher and options trading surging. But sentiment has now turned with users speculating 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 popular trades with the Reddit crowd.

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.

Silver futures were 2.4% higher at $27.035 an ounce by 8:54 a.m. in Singapore. Spot prices added 1.1%.

Goldman Sachs Group Inc. said silver remains the bank’s preferred precious metal, although noted that Monday’s rally was never going to be enough to squeeze shorts as those positions are backed by physical stock. The U.S. Mint said it is still rationing sales of silver coins because of “continued exceptional market demand,” as well as limited supplies and manufacturing capacity.

For more articles like this, please visit us at bloomberg.com

Subscribe now to stay ahead with the most trusted business news source.

©2021 Bloomberg L.P.

Originally published