Market Sees Silver Lining In End To Retail-driven Rally

Silver prices stabilised on Wednesday after a fall of more than 8% in the previous session brought a social media inspired buying spree that began last week to an abrupt halt.

Spot silver was up 0.2% to $26.66 an ounce by 1153 GMT, having earlier risen as much as 2.1%.

Prices surged to $30.03 on Monday, their highest since February 2013, after investors attempted to replicate a retail-driven rally in GameStop shares.

“As soon as they withdraw the money, it’s going to reverse again,” Julius Baer analyst Carsten Menke said.

The trigger for Tuesday’s reversal was a hike in margins by the CME Group, Menke said, adding that “another reason why silver struggled is that gold failed to move higher”.

Silver’s plunge came after CME Group raised maintenance margins on silver futures by 17.9% on Monday to tackle market volatility.

“Silver prices are now finding an equilibrium that better reflects supply-demand fundamentals, with the WallStreetBets mania having simmered down,” said FXTM market analyst Han Tan.

The buying spree left silver dealers scrambling to find supplies for retail buyers, while one billion ounces of silver was traded in London on Monday.

Analysts expect some volatility to continue even though posts on WallStreetBets, the Reddit forum that fuelled the retail frenzy, urged traders to steer clear of silver.

Holdings in iShares Silver Trust, the largest silver-backed ETF, jumped by a record 57.8 million ounces, data showed on Tuesday.

Silver prices and iShares Silver ETF https://fingfx.thomsonreuters.com/gfx/ce/ygdpzaomevw/Pasted%20image%201612348330667.png

“If silver does not stir higher again, market attention will likely shift back to gold,” HSBC analyst James Steel said.

Spot gold fell 0.2% to $1,833.81 per ounce. U.S. gold futures added 0.1% to $1,835.80.

Platinum shed 0.3% to $1,091.50 and palladium rose 0.3% to $2,248.19.

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