Why is the silver price touching its eight-year high?

Metal Ounce Gram
Gold £1275.917 £41.022
Silver £16.291 £0.524
Platinum £683.419 £21.972
Palladium £1517.647 £48.793
Updated 02:04 20/09/21
Time Zone: UTC
Why is the silver price touching its eight-year high? Previous item Silver Beats Gold as... Next item Should I Buy Silver or...

Did you know that in ancient Egypt, silver was a more precious metal than gold?

This meant that the price of silver in ancient Egypt was more than gold, as it was scarcer than other precious metals. Silver is one of the oldest metals to be discovered, and we can even find traces of its use back to around 400BC. What happened in the past has passed, but what’s happening now with silver prices should be of concern. Silver prices shot up by almost 9% on February 01, 2021. How and why did this happen?

Here is what happened and why:

A quick summary of events with the price of silver:

  • Silver price on 31st January, 2021; 21:30:: 867.75 USD/kg or 26.99 USD/oz
  • Silver price on February 01, 2021; 13:30:: 946.85 USD/kg or 29.23 USD/oz
  • A 9.11% gain in less than 24 hours
  • Reddit army of retail investors decided to attack one the profit of the banks and hedge funds.
  • Traders invested around $1 billion in iShares silver trust, an ETF (Exchange Traded Fund) pumping the silver price to reach a new eight-year high.

The Reddit community showed that they can create havoc in the financial market. The collective and coordinated efforts of these arm-chair traders affected the “Gamestop” share price, but this wasn’t enough. Their sights were set on Silver too. To give you a rough idea about the power of Reddit users, the Gamestop share price was around 14 USD on December 14, 2020, and it reached the new height of 347.51 USD on January 27, 2021. A dramatic 2400% increase in less than two months. This cost hedge funds like Melvin Capital to lose a huge chunk of their money as they held short positions on this stock.

What does short-selling mean?

‘Short-selling’ or ‘shorting’ means that you borrow securities (which are of course not yours) and then sell them in a huge number, creating a downward directional movement. When the prices of securities go up, investors buy it again and return the security to your lender – the difference is your profit.

For a layman, it simply means that companies will make a profit when the price of a security goes down.

Concerns:

“It’s a very different target, but the fact that you can move silver, such a large market, is an indication to everybody that they have to take these new technicals seriously,” said Allianz, the Chief Economic Advisor, Mohamed El-Erian on Squawk Box.

Philip Newman, a founding partner of Metals Focus, added: “iShares Silver Trust had about 1,000 tonnes go in on Friday – that is unbelievable, absolutely nuts, it’s like 14 days of global mine supply in a day went into one product.”

Concluding Note:

Silver prices are now back to where it all started, i.e., around $27 USD/oz. Although it reached the same level as before, the momentarily gain of the silver price was interesting, and it gave some people the opportunity to make money quickly and depicted the power of Reddit army of retail investors.