The plunge in silver has crushed the Dreams of the retail investors on the Reddit forums. They woke up and realized that they had all been duped by the “silver shorting theory”.
The Reddit forums have changed completely. The top ten “silver”-related posts, nine of which said that silver short-selling was a scam; and the post that called on retail investors to “create the biggest short-selling in the history of silver” had been deleted without a trace. The group of people who bought and bought back then are now crying in a group.
Many people did not expect the retracement to come so quickly. After seeing silver’s epic rise on Monday, many people only started to open or add to their positions yesterday, and on Tuesday the world’s largest silver ETF – iShares Silver Trust position increased by 1,766.16 tons from the previous day, refreshing the largest increase on record. As a result, all of these people have fallen into the “new leek”, spot silver closed down more than 8% yesterday, the largest single-day decline since August last year.
Where exactly did these retail investors fall?
At the Time of the silver surge, some Wall Street analysts have expressed some concerns.
Some analysts mentioned that retail investors are not the only reason for the surge in silver a few days ago, some hedge funds “short covering” and “no war” is also the driver, the market size of silver, institutional standing and other factors will become the silver price continues to The biggest resistance to the “hot speculation”. At the same time, the abnormal spike in silver prices will lead to the CFTC and other regulatory agencies were forced to raise the margin, a move that may force some investors out of the market.
In response, it has been pointed out that the Reddit forum’s so-called silver short-selling theory may itself be wrong.
The first is the “misconception” about the shortage of silver. Analysts at the Financial Times point out that the global silver market has been in a state of oversupply for many years, which reduces the likelihood of creating a supply shortage in the physical market, and data shows that there is no net short position for hedge funds in the silver futures market.
“There is no shortage of silver per se. There may be a shortage of silver coins and small bullion, but there is still an abundance of silver bullion. The market is tight right now, but part of that is due to seasonal demand.”
Secondly, there is the issue of banks’ short silver positions. Bernard Dahdah, an analyst at Natixis, mentioned that bullion banks such as HSBC and JP Morgan do not have speculative “naked shorts” in silver at all, and if they did, they could have made money by selling silver to ETFs and then helping miners hedge their exposure. make money. The analyst noted that, in fact, most market participants are long silver, so banks can also make profits when silver prices rise.
A BBH Bank report points out that the silver short-selling theory ignores one of the biggest problems: physical positions. the GME’s short-selling quotes do not apply to the silver market because the commodity market is not very similar to the stock market.
“Unlike the stock market, in the commodities market it is difficult to say exactly how many investors are short or short. the CFTC position reports do tell us something about what is happening in the silver futures market, but these data ignore the physical holdings component, and a significant portion of the silver market has investors who hold physical silver.
Many banks that trade physical commodities use it to hedge their price risk, and even if the CFTC data shows that the institution has a net short position, those positions are likely to be offset by physical holdings. Assuming the bank does have a large short position, but those short positions have been in place for some time.”
Forbes analyst Simon Constable hit the nail on the head when he pointed out that the problem seems to boil down to Reddit netizens’ misunderstanding of the silver market and their ignorance of how the commodities market works. From this perspective, the retail investors have themselves to blame for being “strung out” this time.
The other, more tantalizing, eye-catching, and unsettling point of view is that the retail investors were simply tricked. Even the initial initiation of the short-selling war in silver may have been a set-up by the institutions for retail investors.
In the aftermath of the silver crash, it was soon discovered that two posts on Reddit last week by user jjalaj30, the same user who encouraged retail investors to push for “an unprecedented short sale in the silver market,” had been deleted, arguably spearheading the silver shorting wave.
Users found that the account was registered nine months ago, but only two posts were made, both of which came after the GME stock price spike.
Some Reddit users have speculated that the forum may have been infiltrated by enemy forces, who are “fueling” the recent silver market. But a more chilling scenario is that they may have been there before.
Yafu Guo, president of New York-based TJF, commented.
“I carefully studied their post calling for long silver, and from the content, it is definitely not something that ordinary retail investors can write, and the post even mentions JP Morgan’s short position. If there was no institutional shadow, at least someone working at a financial institution was involved on an individual basis.”
The final winner, always, is Wall Street?
Whether it is the retail investors on Reddit did not recognize the situation and entered the huge losses, or as the conspiracy theory says – the hedge funds took advantage of the retail investors, this silver forced short war to the end, the retail investors must not be the winner.
Financial Times analysts Henry Sanderson and Neil Hume mentioned that last week hedge funds and speculators increased their positions sharply, with the number of net long Comex Gold contracts increasing by 44,000 lots, and these people also sat on the dividends of the silver rally.
Of course, like hedge funds, I believe many retail investors caught the silver surge, but how many traders were able to survive last night’s 9% drop? Institutions, with their huge funds, remain calm even in the face of huge market retracements; but how many retail investors who are chasing the upside do not change their faces when the big drop occurs?
Of course, past results tell retail investors that you can indeed beat the institutions. Since last March, retail investors have outperformed the broader market and hedge fund investors.
Goldman Sachs reports that retail investors have returned 179% since the March 2020 low, which exceeds the 72% return of the S&P 500 and the 106% return of hedge funds.
Arthur Hoga, chief market strategist at National Securities Corp. reported last December that retail investors appear to have been playing a risky game all year, for example by going on a sweeping spree into stocks of companies on the verge of bankruptcy.
Some may counter that, unlike those junk stocks, silver is a long-term investment value with favorable fundamentals to support it. Goldman Sachs, while admitting that silver’s short-selling market will not occur, still sees silver as the precious metal of choice.
However, retail investors keep adding leverage to burst the market, such a position even if it can carry this retracement, may not survive the next big drop.
As Steve Forbes, managing editor of the business magazine Forbes, put it.
“If the Fed prints too much money, then the price of silver, gold and other commodities will rise sharply. But that could be months away …… If you want to buy silver now, remember not to borrow money to buy it.”
This is probably the most important lesson that retail investors should learn from this incident.
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