Silver price leaps more than 7pc to highest since August

SINGAPORE: Silver prices surged to a five-month high on Monday, silver-mining stocks leapt and coin-selling websites were swamped as small-time investors piled in to the metal, the latest focus of a retail-trading frenzy that has set financial markets on edge.

Organised in online forums and traded with fee-free brokers, such as Robinhood, the phenomenon has driven a 1500% rally in the shares of videogame retailer GameStop as the crowd targets assets that big fund managers had bet against.

Since mid last week, thousands of Reddit posts and hundreds of YouTube videos have encouraged small investors to buy silver, partly in the belief that lifting its physical price could hurt large investors who had made paper bets that it would fall.

Spot silver leapt as much as 7.4% in early trade on Monday to $28.99 an ounce, taking gains to about 15% since last Wednesday and the price to its highest since mid August.

Silver-tracking exchange-traded funds in Japan and Australia also jumped and small Sydney-listed miners soared, while broader markets fell as the frenzy jangled investor nerves.

Money Metals, an online exchange for precious coins and bullion, posted an "EXTREME DEMAND ALERT" banner across its homepage, and capped orders at $10,000. Rival SD Bullion warned of shipping delays due to "unprecedended demand".

"The Reddit crowd has turned its sights on a bigger whale in terms of trying to catalyse something of a short squeeze in the silver market," said Kyle Rodda, an analyst at brokerage IG Markets in Melbourne.

"This is their big, bold Moby Dick moment," he said.

The popularity of dabbling in stockmarkets has grown globally during the COVID-19 pandemic as volatility, stimulus cheques and lockdowns have driven account openings and investment.

The trend has turbocharged a long equities rally, and begun to make brokers in places like South Korea a little worried as investor loan volumes rise to record highs.

The craze hit fever pitch last week when the GameStop pile-on resulted in a "short squeeze," which turned price gains stratospheric as hedge funds with bets against the stock desperately bought it at big prices to close their positions.

"The turnover suggests that it's not just Redditers that are involved now," said Michael McCarthy, strategist at broker CMC Markets in Sydney.

"Having said that, the 5% gain in silver prices is a very solid lift, particularly when gold prices are static, it certainly does suggest that the impact of messaging in social media is becoming much more significant."

Among some of the strongest small mining stock gains were Thomson Resources, which soared as much as 60% - or eight Australian cents - and Investigator Resources Ltd which jumped nearly 40%.

Both are explorers which did not produce silver for sale in 2020.