Is The Silver Market Really Being Manipulated? Part 1
The Reddit Rampage of 2021 has now set its sights on something higher than hedge funds running overly short books – the Man himself.
Not the Wall Street man, the Man. As in, the Man who prints the USD, Man.
Hyped up on, (take your pick) talk/rumors/conspiracy theories/undeniable fact, r/ Wallstreetbets has, at time of writing, poured into the silver market, caused a brief spike in prices, and then seen most of the gains given back.
Their rationale here seems to be twofold.
Firstly to replicate the success of their stampeding into GME and the stock of other small, heavily shorted companies.
Secondly, to make a longer term bet on sound, physical money over the fiat USD.
The fuel driving the first of their reasons is their belief that silver is primed for a short squeeze because the Wall Street banks, that is, the sellside, have been manipulating the price of silver lower for years.
That seems to be the connection the Redditors are drawing – sellside heavily short because of their manipulation, let’s squeeze them like we did GME!
Unfortunately for them, given silver’s refusal to skyrocket like GME, it turns out that the silver market either wasn’t manipulated the way they thought it was; the dark manipulative forces were far too strong, or some combination of the two.
At this point, it should have been apparent to at least some of the crowd that piled into the silver long play that they grossly underestimated the silver market’s size and complexity.
Simply put, the silver market is too big to manipulate in the same way one would go about manipulating stock prices.
That is not to say that silver cannot, and has not been manipulated, because it can. It just does not happen in the way the Reddit crowd thinks it does.
Most people seem to think that silver is manipulated lower by shorts pushing the price of the metal down in the same way equity short sellers sell stock and push share prices down.
This simply is not the case because silver is a truly international market that trades easily and smoothly across multiple time zones, and also over a variety of market types.
These include, broadly, physical spot silver, physical forwards and swaps, futures, options on futures, options on spot, leasing (combination of forward and spot transactions), ETFs, and equities in the form of silver miners and ETFs.
Most of these markets trade over the counter (OTC), and in very large volumes. This makes consistently suppressing the price of silver over the time scale alleged by Redditors championing the long silver trade very, very difficult.
It would be an undertaking that would require a magnitude of resources and consistent, coordinated collusion that is just impractical.
Instead, silver is manipulated in a different way.
Market makers manipulate short term prices by spoofing orders. This means that they place bids/offers that they do not intend to honor, and then proceed to very quickly cancel them. Spoofing is manipulative because, if a trader (or the algorithm) is quick enough, other market participants will look at the spoofed order and adjust their own bids/offers accordingly.
This allows traders, if they so choose, to execute their real orders against higher or lower bids/offers that they tricked someone else into placing.
Current regulation classifies spoofing as an illegal activity, but clearly such manipulation cannot result in large scale suppression of silver prices – it is simply too ad hoc and small scale.
To be continued…
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