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Is Silver The Next Target For The GameStop Traders?

Chatter on the Reddit boards suggests that silver ETFs, such as SLV and SILJ, are at least on the radar.

As the war between Reddit board traders and hedge funds continues to be waged, the number of stocks being targeted by this group seems to only be growing.

What started with GameStop has also swept up BlackBerry, AMC, Nokia, Express and others. Even Dogecoin and long-forgotten Blockbuster are getting caught up in the action.

If you scan the WallStreetBets message board lately (or have the algos do it for you), you'll see that the Reddit traders may be zeroing in on their next target. (Note: you won't be surprised to hear that there's some NSFW language below).

Silver discussion on the WallStreetBets Reddit board

Silver discussion on the WallStreetBets Reddit board

After manipulating the price of many stocks with high short interests, silver may be the next security to go wonky.

To be fair, the Reddit poster above makes some fair points. There is a strong demand for silver for production of many of the products listed. Silver could also benefit from the return of inflation (which I also believe is a growing risk right now). I don't know if I'd go quite as far to say that silver should be at $1,000 an ounce right now, but I am a believer that silver, silver ETFs and silver miner ETFs could be top performers in 2021.

Among the silver ETFs that could be potentially impacted in such a move:

  • iShares Silver Trust (SLV)
  • Aberdeen Standard Physical Silver Shares ETF (SIVR)
  • Invesco DB Silver Fund (DBS)
  • Global X Silver Miners ETF (SIL)
  • ETFMG Prime Junior Silver Miners ETF (SILJ)
  • iShares MSCI Global Silver Miners ETF (SLVP)

SLV is clearly the biggest fund of the group and would easily garner the most attention if the Redditors were to go after it. An interesting target would be DBS since it only has about $25 million in assets and could easily be swung all over the place.

I did receive some comments earlier today from ETFMG's Director of Sales, Stephen Gardner, on the uptick in silver and what is driving that demand. ETFMG manages the SILJ ETF mentioned above, which currently has nearly $700 million in total assets. SILJ was up 10% on Thursday and another 3-4% on Friday.

He says this about silver demand, and trading volume on SILJ:

  • COVID-related government money printing, artificially low yields, and a substantial supply/demand imbalance (lesser supply due to COVID shutdowns at mines earlier in the year and pent-up demand for the metal), is creating upward pressure for the metal.
  • On top of that, the Reddit day trading community has shifted their attention to silver as a potential short squeeze candidate as many banks have been heavily net short silver for years.
  • Biden ushering in a focus on expenditures for clean tech and solar power will also increase demand for silver as silver is used for things like solar panel fields.
  • The miners serve as a levered play vs. the physical metal, so historically the miners outperform the physical, when the metal rallies.
  • Yesterday we traded 4.8mm shares of SILJ, and today we have traded 3.4mm shares vs. an annual 3-month average daily volume of 1.56mm.

If you ignore the potential impact of the Reddit crowd for a moment, the macroeconomic background for silver and other precious metals is very favorable at the moment.

Inflation risk is rising. The demand for silver for use in consumer products is also rising. Fed and government activity is quickly devaluing the dollar making precious metals, in general, look more attractive. Silver could be headed for a big year based on fundamentals alone.

If the Reddit traders truly go after silver and silver ETFs, who knows what could happen. Is a 400% gain in a single week possible like what we saw with GameStop? I'd say it's probably unlikely, but I'll also acknowledge that its a non-zero probability.

As Gardner notes, trading volumes on SILJ are about triple their norms. I checked out SLV and SIL and they're also experiencing significantly higher activity. SLV especially, which experienced 4-5 times normal volume over the past two days.

It's still early message board chatter and there hasn't been a commitment from the Reddit crowd yet, but silver prices are rising, volumes are increasing and there's a strong macro argument to be made. Don't be surprised if this group experiences a wild ride next week.

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