In 1896, former U.S. lawmaker and silver lover
William Jennings Bryan
attacked those that would “crucify mankind upon a cross of gold.” Reddit investors now risk building their own cross of silver.
On Monday, the price of silver futures jumped about 11% to around $30 an ounce—its biggest one-day move since 2009—after becoming the latest target of the individual investors who spent last week foiling Wall Street’s short bets. By coordinating security purchases online, these amateur day traders have triggered surges in unloved stocks such as
and
“Silver Bullion Market is one of the most manipulated on earth,” user RocketBoomGo wrote Saturday on Reddit, encouraging individual investors to push the silver price up to $1,000. “Any short squeeze in silver paper shorts would be EPIC. We know [that a] billion banks are manipulating gold and silver to cover real inflation.”
The Reddit crowd may have—so far—been successful in upending the market for little-traded stocks. In the far more liquid silver market, though, they may have worse luck.
Previous attempts to corner the silver market have failed. Back in 1979, three of the sons of Texan oil billionaire
H.L. Hunt
managed to push silver prices up eightfold, only for them to crash following a change in rules on leveraged purchases of commodities—notably on March 27, 1980, known as “Silver Thursday.” That happened despite the Hunt brothers owning more than a third of the world’s nongovernmental supply of silver, which speaks to the difficulty of manipulating this market. Given retail traders’ financial resources, the chances of them inflating a bubble that hurts Wall Street more than themselves seem even slimmer than with GameStop shares.
To be sure, as with the videogame retailer, there are some reasonable arguments as to why silver might have been undervalued. Precious metals tend to be inversely correlated to the yields of inflation-protected Treasurys, which are hovering around all-time lows. Also, silver and platinum used to trade roughly in lockstep with gold, but have consistently underperformed the yellow metal for about a decade. A catch up could be in order, especially if the post-pandemic recovery boosts industrial demand for silver and platinum.
More likely, though, many retail traders have fallen prey to the siren song of precious metals as “real money.”
So-called gold bugs are convinced that “real inflation” is much higher than reported consumer-price increases. They believe that an age of paper-money printing by central banks will eventually force a return to something like the Gold Standard that reigned before World War I, when prices were allegedly set by the market-determined flow of specie.
Silver bugs, who could be construed as having the Argentine version of this pathology, are fewer in number but even more passionate. They hark back to an even earlier era when both precious metals served as commodity money, and to the “bimetallist” debates of the late 19th century that were led by politicians of the U.S. populist movement such as Mr. Bryan.
But most of these ideas are based on misconceptions about how the Gold Standard and commodity money actually worked. Claims of runaway inflation in the present also aren’t backed up by evidence.
Reddit investors may still have room to upend some hedge fund trades. But they would do well to stay away from the shiniest targets.
Write to Jon Sindreu at jon.sindreu@wsj.com
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