Silver swept up in trading frenzy while US senators call for probe

Spot silver leapt by as much as 7.4 per cent in early trade yesterday to US$28.99 an ounce, taking gains to about 15 per cent since last Wednesday and the price to its highest since mid-August. PHOTO: REUTERS A protest decrying trading limits on Game
A protest decrying trading limits on GameStop and other stocks last Thursday outside Robinhood's headquarters in Menlo Park, California. A retail-trading frenzy, organised in online forums and traded with zero-fee brokers such as Robinhood, has driven a 1,500 per cent rally in the shares of GameStop. PHOTO: NYTIMES
Spot silver leapt by as much as 7.4 per cent in early trade yesterday to US$28.99 an ounce, taking gains to about 15 per cent since last Wednesday and the price to its highest since mid-August. PHOTO: REUTERS A protest decrying trading limits on Game
Spot silver leapt by as much as 7.4 per cent in early trade yesterday to US$28.99 an ounce, taking gains to about 15 per cent since last Wednesday and the price to its highest since mid-August. PHOTO: REUTERS

SINGAPORE/WASHINGTON • Silver prices surged to a five-month high yesterday, silver-mining stocks leapt and coin-selling websites were swamped, as small-time investors piled in to the metal, the latest focus of a retail trading frenzy that has set financial markets on edge.

Organised in online forums and traded with zero-fee brokers such as Robinhood, the phenomenon has driven a 1,500 per cent rally in the shares of major video game retailer GameStop as the crowd targets assets that big fund managers had bet against.

Since the middle of last week, thousands of Reddit posts and hundreds of YouTube videos have encouraged small investors to buy silver, partly in the belief that lifting its physical price could hurt large investors who had made paper bets that it would fall.

Spot silver leapt by as much as 7.4 per cent in early trade yesterday to US$28.99 an ounce, taking gains to about 15 per cent since last Wednesday and the price to its highest since mid-August last year.

Silver-tracking exchange-traded funds in Japan and Australia also jumped and small Sydney-listed miners soared, while broader markets fell as the frenzy jangled investor nerves.

Money Metals, an online exchange for precious coins and bullion, posted an "Extreme demand alert" banner across its homepage, and capped orders at US$10,000 (S$13,300). Its rival SD Bullion warned of shipping delays due to "unprecedented demand".

"The Reddit crowd has turned its sights on a bigger whale in terms of trying to catalyse something of a short squeeze in the silver market," said Mr Kyle Rodda, an analyst at brokerage IG Markets in Melbourne.

"This is their big, bold Moby Dick moment."

The popularity of dabbling in stock markets has grown globally during the Covid-19 pandemic as volatility, stimulus cheques and lockdowns drove account openings and investment.

The trend has turbocharged a long equities rally, and begun to make brokers in places like South Korea a little worried as investor loan volumes rise to record highs.

The craze hit fever pitch last week when the GameStop pile-on resulted in a "short squeeze", which turned price gains stratospheric as hedge funds with bets against the stock desperately bought it at high prices to close their positions.

Meanwhile, progressive United States senators Bernie Sanders and Elizabeth Warren called on Sunday for action against what they said were Wall Street abuses by hedge funds revealed by the recent frenzy over GameStop shares.

"We need an SEC investigation," Ms Warren told CNN, referring to the federal Securities and Exchange Commission.

"What's happening with GameStop is just a reminder of what's been going on on Wall Street now for years," the Democratic senator said.

"It's a rigged game, and it's been a set of players who come in and manipulate the market."

The SEC said last Friday that it was "closely monitoring and evaluating the extreme price volatility of certain stocks' trading prices" and would "act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited" by federal law.

But Ms Warren called for more decisive action. "It is time for the SEC to get off their duffs and do their jobs," she said.

"We need more regulation about market manipulation."

Independent senator Sanders was similarly critical.

"I have long believed that the business model of Wall Street is flawed," he told ABC's This Week. "We have to take a very hard look at the kind of illegal activities and outrageous behaviour on the part of the hedge funds and other Wall Street players."

Shares in GameStop, which has been financially ailing, soared during the Reddit group's massive buying initiative - mounted in protest against the hedge funds' betting on GameStop's demise.

To cover their losses, the hedge funds had to buy back, at higher prices, the shares they had sold.

Mr Brian Deese, a top economic adviser to President Joe Biden, said on Sunday that the SEC is "focused on understanding fully what happened here".

But he said the new administration is concentrating first on alleviating the economic pain flowing from the Covid-19 pandemic.

REUTERS, AGENCE FRANCE-PRESSE

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A version of this article appeared in the print edition of The Straits Times on February 02, 2021, with the headline Silver swept up in trading frenzy while US senators call for probe. Subscribe