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  • Silver prices have surged amid increased retail interest as brokerages move to restrict speculation on stocks like GameStop.
  • XAG/USD has rallied over $2 from lows under $25.00 to highs of close to $27.00 on the day.

Spot silver prices (XAG/USD) saw a sudden surge in recent trade amid speculation that the reddit retail trader army, coordinating itself and emanating from the popular subreddit page WallStreetBets, may now turn its wrath onto perceived short-sellers of silver.

The move began shortly after the release of a batch of tier 1 US data, including an inline Q4 GDP growth reading and a slightly lower than expected weekly initial jobless claims number, but did not seem to have much to do with the data; XAG/USD surged from around $25.30 to nearly as high as the $27.00 level and the precious metal is now up north of 5.0% on the day. Gold also moved higher, though by a much lesser degree, and the move seems to have aided a broad pick up in risk appetite that saw US equity markets pick up ahead of the open and the US dollar fall.

Retail army refocuses pumping efforts elsewhere…

As a recap; retail traders have joined forces in recent days to pump a number of Wall Street’s most shorted small-cap stocks, with stocks such as GameStop (GME) seeing returns in excess of 2000% over the last few weeks. The aim has been to trigger a short-squeeze and to a large extent this does seem to have occurred; exact figures are not widely known right now but prominent hedge funds are reported to have incurred extreme losses, with many being forced to close out shorts.

However, the tide has turned against the retail army; retail-focused brokerages have increased trading restrictions on the likes of GME, AMC, BB and other retail short-squeeze favourites. As a result, GameStop opened down roughly 14% and others are seeing similar losses. Amid the surge in retail activity, outages have also been seen across a number of popular retail platforms such as Charles Schwab and E-Trade.

With trading activity increasingly restricted in their favourite stocks, Reddit traders appear to be turning their focus elsewhere. A number of microcap stocks that have thus far evaded broker restrictions have surged; for example, KYN Capital Group (KYNC), which surged over 180% on Wednesday, is already up in excess of 45% on Thursday.

Forcing a short-squeeze by bidding up the price of silver has also caught the imagination of the Reddit rebellion; this provocative post (link here), which claims that silver is highly manipulated, should be worth $1000 per troy ounce and told Redditors to “think about the banks like JP MORGAN you’d be destroying along the way”, urged retail traders to pump the iShares Silver Trust ETF (SLV). The trust is up 6.1%, roughly in line with the near 6% gains being seen in spot silver markets. Silver miners are seeing even more of a pump; First Majestic Silver Corp. (AG) shares have rocketed nearly 30% at the open.  

Potential market impact

A precious metal market short-squeeze of anything even close to what has already been seen in small-cap stocks such as GameStop could have a huge impact on currency markets, primarily through the avenue of undermining confidence in the fiat-based monetary system. As most people are aware, most major developed market central bank’s target inflation of about 2% per annum and, amid the shock of the pandemic which compounded pre-existing deflationary forces (such as globalisation, aging populations and technological innovation), central bank have been finding it increasingly difficult to meet their 2% inflation targets. As a result, central banks have turned to increasingly unorthodox methods of attempting to boost inflation, such as quantitative easing, which is essentially the creation of new money out of thin air to buy government (and bank and corporate) debt, in order to artificially supress interest rates and thus spur economic activity.

A key problem with such policies is that many fear that expansion of the money supply in such a way will boost inflation. Given that precious metals are seen as a hedge against inflation, any massive surge in precious metal prices might be seen as an early omen for an incoming surge in inflation. This would undermine confidence in fiat currencies across the globe, and the various winners and losers might be difficult to predict but given the fact that it is the global reserve currency, it would seem likely that the USD would have the most to lose from any precious metal price surge-induced loss of confidence in fiat currencies.

XAG/USD key levels