Silver futures and ETF prices tumbled on Tuesday, giving back much of the gains made over the prior few days, as it seems the attempted short squeeze in the silver market by retail traders has quickly lost momentum.
The move in silver dragged down gold, where April gold futures lost more than $26 or 1.35%. Silver futures tumbled roughly 10% to trade near the $26.50 level.
Silver’s monstrous pullback from Monday’s eight-year high of $30.35 in the March futures suggests a failure by retail traders to maintain a short squeeze. The big jump in silver futures caught the attention of the Commodity Futures Trading Commission (CFTC), with acting Chairman Rostin Behnam stating that the futures regulator is “closely monitoring” the activity.
The CME Group raised Comex 5000 Silver Futures maintenance margins by 17.9% on Monday, in an effort to discourage the highly speculative behavior in the market, said IG Market analyst Kyle Rodda.
The retail mania that started last week in speculative stocks and later bled over into silver futures has left global dealers jostling for bars and coins to meet demand, while also pushing the U.S. Commodities regulator to monitor the market.
Analysts were monitoring the situation as well, looking to see if the move in silver would top out or continue. Although silver increases are thought to be heavily tied to the Reddit trading rooms, since silver moved up without similar spikes in other precious and industrial metal “suggests that it’s an outlier of sorts and therefore vulnerable to come down quite strongly,” said ED&F Man Capital Markets analyst Edward Meir. He added that it hasn’t topped out just yet.
In what has been extremely volatile activity, the industrial metal’s prices also fell after some Reddit members asked individual traders to skip the silver trade as there are no holders of massive silver short positions. “It’s just wild market behavior with a low level of predictability,” Rodda said.
“March silver futures bulls ran out of gas after pushing prices to an eight-year high Monday. The silver bulls still have the overall near-term technical advantage. Silver bulls’ next upside price objective is closing prices above solid technical resistance at this week’s high of $30.35 an ounce. The next downside price objective for the bears is closing prices below solid support at $25.00. First resistance is seen at $27.00 and then at $27.77. Next support is seen at today’s low of $26.46 and then at $26.00,” wrote Jim Wyckoff of Kitco.
Investors looking to allocate silver into their portfolios using ETFs have several options. The iShares Silver Trust (SLV) is a popular choice, and recently boasted $171.1 million dollars in inflows. Aberdeen also has quite a collection of metals ETFs, including those focused on silver. Aberdeen’s suite includes the Aberdeen Standard Gold ETF Trust (SGOL), which comes with a 0.17% expense ratio, and the Aberdeen Standard Physical Silver Shares ETF (SIVR), which has a 0.30% expense ratio. Lastly, the Aberdeen Standard Physical Precious Metals Basket Shares (NYSEArca: GLTR), which has a 0.60% expense ratio, offers a cornucopia of metals including gold, silver, platinum, and palladium.
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