The Reasons Silver Doesn’t Need Reddit Support to Break to Higher Levels

Justin Freeman

Is Silver the Next Reddit Target?

The start of the week saw attention move from the US stocks GameStop and AMC towards the silver market. In the first few hours of the week’s trading, the metal increased in price by 8%, which marked the largest intra-day price move since 2013.

The murky world of WallStreetBets

Media reports suggested that members of the WallStreetBets (WSB) Reddit forum could be behind the move but comments made on the site stated that was not the case. The silver story they said was:

“A media attempt to drive money away from GME and confuse us investors.”

As is the way in these clouded and frenzied markets, that news saw the price spike quickly followed by a slump that has carried on through the week.

Source: Pepperstone

The Case for Silver

There could, however, be legs in the silver story, a possibility supported by price rises being forecast in a detailed report released by Citi analysts.

  • Massive amounts of money printing by central banks looks unlikely to end anytime soon. The US Federal Reserve’s January statement forecasts extra liquidity will continue to be pumped into the financial markets throughout 2021.
  • Low yields on government bonds and savings accounts minimise the opportunity cost of holding silver. That could trigger a rise in inflation which is historically associated with an increase in the price of silver and gold.
  • Silver is used widely in industrial production. Any uptick in global growth would be expected to increase the demand for the metal.

Silver – 4h chart

Source: Pepperstone

The metal is sitting on the 61.8% Fib retracement from a technical analysis perspective. The current sideways trading does not necessarily represent bullish price action but it does suggest that price could have bottomed out.

Does Reddit Matter When Trading Silver?

The Reddit-WSB story appears to have come and gone. The fact that silver ended up posting multi-year highs on the back of internet chatter is itself quite remarkable. Allianz chief economic advisor Mohamed El-Eria was speaking with Squawk Box when he said:

“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.”

Source: CNBC

For silver bulls, the reasoning behind their positions is less dramatic.

The Price of Silver in Context

Last week’s WSB Reddit events have left the wider markets in a jittery state.

Risk-on currencies such as EURUSD and GBPUSD have been trading sideways but on Thursday’s open were seen testing the lower end of their 4-hour channels.

GBPUSD – 4h chart

Source: Pepperstone

EURUSD – 4h chart

Source: Pepperstone

While currencies have seen a move to USD and away from risk stock, indices have moved in the other direction: an interesting divergence between the forex and equity markets. Fans of silver will hope it’s the equity desks that prevail. The risk of USD strengthening being the main lingering doubt in the mind of the silver bulls.

UK100 – 4h chart

Source: Pepperstone

US30 – 4h chart

Source: Pepperstone

 

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Justin Freeman
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