What worked for the Reddit group with GameStop Corp
On Monday, the price of the iShares Silver Trust SLV exchange-traded fund jumped to $ 27.92, from around $ 25 on Friday night. But on Tuesday morning, the rally had completely reversed. The fund was recently trading at less than $ 25 per share. In other words, it was selling less than it was selling late Friday.
Money not squeezed by Redditters
“[T]he assumes that the Redditors’ attempt to organize a short money squeeze is not going as well, ”said a recent report from New York bank BBH.
The idea of the short squeeze, which involves driving up the price of a stock to force those who bet on a price drop to buy back their positions, has worked well with GameStop. The not doing well has seen its stock price rise dramatically after members of a Reddit focus group raised the share price enough to force short sellers out of positions.
However, it probably won’t work with the silver market.
The first problem is that the commodity market doesn’t look much like the stock market.
It is more difficult to say exactly how short or long investors are in their positions. For example, data from the Commodity Futures Trading Commission (CFTC) showing whether hedge funds are long or short doesn’t tell anyone the whole story. Yes, this data will tell you something about what is going on in the silver futures market. But the silver market also has a big physical side.
Banks that trade physical commodities generally hedge their price risk. They do this by selling futures contracts for the same number of ounces they physically own. Therefore, even if the CFTC data shows since financial companies have a net short position, it will likely be matched with physical assets. Jeff Christian, who heads New York-based commodities consulting firm CPM Group, explains that here.
Maybe the Redditers haven’t verified their data
However, in this case, the Reddit team may have just read the wrong data.
Another report from BBH explains how:
- “The redditors are trying to replicate GameStop’s strategy in the precious metal, assuming the banks have a huge short position that can be targeted. Note, however, that the data suggests that the funds have been net for some time. ”
Another misconception in the silver market is that there is a shortage of money. This is something the Redditers might have believed. If they did, they are wrong.
Money in itself is not lacking. There is a shortage of silver coins and small bars, again Christian from CPM Explain. There are plenty of great bars around.
And yes, the market is tight, partly because of seasonal demand, but it’s not that tight that’s a problem.
“It’s not going to break,” says Christian.