Silver prices plunge after hitting eight-year high

Saleha Riaz
·3 min read
Silver bars or ingots background. Precious metal. 3d illustration
Silver bars or ingots background. Precious metal. 3d illustration

Silver prices (SI=F) were down 6% Tuesday afternoon, just a day after hitting their highest price since February 2013, briefly trading over the $30 (£22) per ounce mark.

The wild upswings had been largely attributed to the retail investing frenzy that has shaken up markets in recent days, however it is thought that day traders on Reddit were not the source of the selloff.

Silver prices fell around 6% Tuesday morning. Chart: Yahoo Finance
Silver prices fell around 6% Tuesday morning. Chart: Yahoo Finance

The surge was followed by the CME Group exchange stepping in, raising margins on silver futures by 18%. It said the decision was based on “the normal review of market volatility to ensure adequate collateral coverage.”

Margins will rise to $16,500 per contract from $14,000 starting 2 February.

Silver miner Fresnillo (FRES.L), which also surged yesterday, was the biggest FTSE 100 (^FTSE) faller Tuesday afternoon, with its stock price down about 5%.

WATCH: Silver swept up by GameStop retail frenzy

Glencore (GLEN.L) and Anglo-American (AAL.L) also ticked lower.

“The number one reason you are seeing silver drop is because the CME Group raised margin requirements overnight...the number two reason for silver's drop is a complete unwinding of the ‘Reddit Rebellion’ trade,” explained Thomas Hayes, chairman at Great Hill Capital.

“With short interest on GameStop (GME) falling to 53% from 140% now, everyone realizes the short squeeze play is over. They are all rushing to the same narrow exit at once and selling anything they can to get off margin,” he added.

Meanwhile, a note by Goldman Sachs said that “a silver short squeeze is unattainable... In the current environment, a co-ordinated surge in investment by retail traders into the silver market would simply raise volatility and generate small regional dislocations in supply-demand dynamics.”

“Moreover, with ample physical supply we do not believe such an attempt to ‘short squeeze’ the market would prove effective, with enough physical metal ready for delivery to satiate retail investor demand,” the note said.

Earlier, silver had become the latest target after a retail frenzy last week saw the likes of GameStop and AMC Entertainment (AMC) surge, revolting against large institutional investors.

Amateur traders had been buying stocks and assets that Wall Street funds bet against. Similarly, it appeared as if traders were looking to squeeze silver shorts.

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Users in the Reddit forum Wallstreetbets argued that silver is a heavily manipulated market, and that a rise in the silver price could hurt large financial services companies.

But the CME’s move casts some doubt over their influence.

The fact that silver prices are down “isn’t surprising, as any longer-term price upside due to social media-driven collaboration and conspiracy theories was always going to be unsustainable,” Bloomberg quoted Gavin Wendt, a senior resource analyst at MineLife, as saying.

“There is a big difference however between trying to manipulate trading in an equity compared to a major exchange-traded commodity,” he added.

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