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Markets

Silver beats fast retreat as retail rush fades

  • Spot gold, meanwhile, fell 1.2pc to $1,837.21 per ounce. U.S. gold futures shed 1.3pc to $1,839.80.
03 Feb, 2021

Silver slumped 8pc on Tuesday as small investors turned their focus away from the metal, hastening a retreat from a rally to a near eight-year peak in the previous session fuelled by a social media-driven trading frenzy.

Spot silver fell 7.7pc to $26.74 an ounce by 11:51 a.m. EST (1651 GMT). On Monday, it surged 7.3pc to its highest since February 2013.

"It appears that the attempted short squeeze by the smaller retail traders has at least temporarily failed," said Kitco Metals senior analyst Jim Wyckoff, adding retail investors were now looking for other markets to impact.

Contributing to the pullback, the CME Group raised maintenance margins on silver futures by 17.9pc on Monday to tackle unusual market volatility.

Also, posts on the WallStreetBets Reddit forum at the centre of the past week's action encouraged traders to steer clear of silver.

"If these Reddit investors are going to try to squeeze the silver market, they're going to have to do it this week, otherwise it's going to be a flash in the pan," Kitco's Wyckoff said.

The sharp market gyrations invited scrutiny from the U.S. commodities regulator.

"A coordinated surge in investment by retail traders into the silver market would simply raise volatility and generate small regional dislocations in supply-demand dynamics," Goldman Sachs said in a note.

The largest silver-backed exchange traded fund, the iShares Silver Trust, added about 20 million ounces of silver to its holdings on Monday, following a record inflow of about 34 million ounces on Friday.

Spot gold, meanwhile, fell 1.2pc to $1,837.21 per ounce. U.S. gold futures shed 1.3pc to $1,839.80.

Silver may weaken if gold does not move higher, HSBC analyst James Steel said in a note.

The current gold/silver ratio is "well below historical averages, and investors may recognise this level as straying too far from historical norms".

Platinum declined 3.1pc, to $1,092.65, while palladium fell 0.1pc to $2,243.91.

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