Issue of the Day: Home trading

Following the furore over the trading of shares in retailer GameStop by small investors, a move which blind-sided hedge funds, silver prices have now been turbo-charged by the same army of savvy online investors.

What’s happening exactly?

Based around WallStreetBets, a user group on the discussion website Reddit, solo online traders drove up the price of shares in GameStop last month. Implementing what’s known as ‘a short squeeze’, members of the Reddit group piled into GameStop shares and drove the price up by a whopping 1500%.

That’s good news isn’t it?

Not for the big Wall Street players which had bet against the share price falling – what’s known in the jargon as ‘short-selling’. It was reported last week that short sellers – mostly hedge funds and investment companies – had lost a combined total of $6 billion (£4.39 billion) as a result of the ‘short squeeze’. Worst affected was hedge fund Melvin Capital, though as the New York Post reported yesterday the huge losses weren’t affecting the plans of its chief investment officer Gabe Plotkin to redevelop a $44 million property he recently bought in Miami Beach.

And now the same thing’s happening to silver?

It is indeed. Noticing that many financial institutions had taken short positions on silver, the Reddit-frequenting online traders sitting at home on their computers piled into that. At one point yesterday the price broached $30 an ounce for the first time since 2013. They’re calling it the ‘Reddit Ramp’.

What are the experts saying?

“We’ve seen people try to corner the market in silver before,” says Adrian Ash, director of research at trading platform BullionVault, citing the efforts of billionaire siblings Nelson and Lamar Hunt, who brought about Silver Thursday in March 1980, and mega-investor Warren Buffet. “But the size and speed of the Reddit Ramp is off the charts for silver. The Hunt brothers took a decade to build their position in the 1970s, and Warren Buffett built his mid-1990s holdings over a couple of months. Both helped drive the price higher, but nothing like as fast as the ‘hive mind’ of Reddit.” Quoted in The Financial Times yesterday, veteran precious metals trader Ross Norman described it as “financial anarchy” and warned that “somebody is going to get hurt”.

And who might that be?

Banks are already feeling the squeeze applied by the ‘Redditors’, as they’re known. But some posters to the website are now cautioning against the gilt glut, seeing in the talk of a ‘silver squeeze’ the hand of the very hedge funds the online traders have set themselves against. Going long on silver, says one Reddit poster, “would be a tragic, irreversible decision that not only will most likely not make you any money because the squeeze is fake, it will put you on the sidelines from this righteous and glorious war we are in.”