Silver prices rallied at record levels in Monday’s trading session, fueled by a wave of fresh enthusiasm from WallStreetBets traders.
Silver futures gained as much as 8% shortly after the futures market opened on Monday, marking the biggest rise in the futures since at least 2013.
What you must know
The white shiny metal’s contracts last traded up 6.75% at $28.777.
Silver is bouncing so high after users on Reddit’s WallStreetBets forum posted about executing a “short squeeze” similar to ones attributed with triggering recent gains in other stocks popular on the internet.
- The group tagged as the Wallstreetbets is a longstanding subreddit channel founded in 2012, where many Reddit users discuss highly speculative trading strategies and ideas.
- The group had caused huge disruption to financial markets in the previous week, especially among institutional investors like Melvin Capital who recently recapitalized its fund amid its losing positions at Gamestop.
What this means: A short squeeze occurs when a significant amount of investors look to cover short positions by buying at the same time. Such buying pressure pushes the asset’s price in review higher, making investors sell such positions at a record pace in order to cover their positions, which sends the shares spiraling higher in a usual way.
The co-founder of Gemini, an American Crypto Exchange, Cameron Winklevoss recently spoke on the impact a silver squeeze had.
“The ramifications of a silver squeeze cannot be underestimated. If it’s exposed that there are more paper claims on silver than actual silver, not only would the payoff be enormous, but gold would be next. Bitcoin fixes this.”
The ramifications of a #silversqueeze cannot be underestimated. If it’s exposed that there are more paper claims on silver than actual silver, not only would payoff be enormous, but gold would be next. #Bitcoin fixes this.
— Cameron Winklevoss (@cameron) January 31, 2021
Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, gave critical insights on silver’s recent price action.
“Silver closed at 27.00 on Friday and opened at 28.00/10 today. It then traded up to a handful of prints at 29.00. The futures market was so overwhelmed that it froze up a few times.
“The effort appears aimed at futures for delivery, resulting in exponentially higher EFPs (greater contango) with the market then countering by selling spot and buying futures to move deliveries out into the future.”