By Tom Westbrook
SINGAPORE (Reuters) - Silver prices surged to an eight-year high on Monday, silver-mining stocks leapt and bullion dealers were scrambling as small-time investors piled in to the metal, the latest target of a retail-trading frenzy that has set financial markets on edge.
Organised in online forums and traded with fee-free brokers, such as Robinhood, the phenomenon has driven a 1500% rally in the shares of videogame retailer GameStop (NYSE:GME) as the crowd scoops up assets big fund managers had bet against.
The action in silver, following thousands of Reddit posts and hundreds of YouTube videos suggesting that a rise in the physical price could again hurt large investors with bets on it falling, marks a foray into a much bigger and more liquid market.
Spot silver leapt more than 11% in London to $30.03 an ounce, taking gains to about 19% since last Wednesday and the price to its highest since February 2013.
The feverish buying extended to silver mining stocks in Australia and China and to online dealers, with large U.S. broker Apmex warning of processing delays while it secures more bullion and Money Metals exchange suspending trade until mid-morning Monday.
"The Reddit crowd has turned its sights on a bigger whale in terms of trying to catalyse something of a short squeeze in the silver market," said Kyle Rodda, an analyst at brokerage IG Markets in Melbourne.
"This is their big, bold Moby Dick moment," he said.
Volumes in small miners' stocks in Australia were unprecedented and jumps in some exploration firms, which do not actually produce silver, topped 90%.
"Just do it," wrote an investor who went by the name of MaDCrazy on Chinese microblogging website Weibo and seemed to sum up the zeitgeist.
"For me, it's a small gamble without any analysis whatsoever."
(GRAPHIC: Silver prices versus ETF silver holdings - https://fingfx.thomsonreuters.com/gfx/ce/yxmvjywngpr/SilverETFHoldingsvsPrices.png)
FUND FOCUS
The popularity of dabbling in stockmarkets has grown during the COVID-19 pandemic as volatility, stimulus cheques and lockdowns have driven account openings and investment.
The craze hit fever pitch last week when the GameStop pile-on resulted in a "short squeeze," which turned price gains stratospheric as hedge funds with bets against the stock desperately bought it at high prices to close their positions.
Now it is silver's turn and once again the scale of buying is catching the professionals by surprise.
"We took an aggressive position this weekend, but clearly could not have predicted the volumes that were seen," Apmex CEO Ken Lewis wrote in a message posted on the broker's homepage.
"Once we exceeded our comfort levels, we had little choice but to stop the sale of silver," he said.
Online discussion had turned to silver late last week as Reddit posts suggested that higher prices could hurt banks with large short positions, and said buying easy-to-access exchange-traded silver funds could quickly ramp up the metal's value.
That occurred in Asia on Monday with a record A$40 million($30.6 million) pouring into Australian ETF Securities' Physical Silver fund by afternoon.
"It's quite a big day of flows on what was previously around a A$220-odd million fund," said Evan Metcalf, ETF Securities' head of product.
"Our product being listed on the ASX kind of gave people a head start timing-wise as well because it's open before U.S. and European markets."
A silver ETF in Japan surged 11% and all eyes are on possible gains later in the day by iShares' U.S.-listed $16.5 billion Silver Trust ETF which rose 5.6% last week.
Funds invested in ETFs drive silver prices because they end up paying for the physical metal to back the ETF's units.
Global short interest in silver, or the cumulative value of bets it falls in price, is equivalent to about 900 million ounces - just short of global annual production.
Banks and brokers hold most of that, with about 610 million ounces, but it is not clear whether they are net short on the metal or whether their bets offset very big physical holdings.
(GRAPHIC: Comex silver futures prices vs trader short positions - https://fingfx.thomsonreuters.com/gfx/ce/qzjvqmlwxvx/ComexSilverCFTCPositions.png)
TEARS
Broader markets swung from losses to gains in Asia as investors seem torn between whether the retail frenzy is an entertaining sideshow or a harbinger of doom.
So far, the Redditers are rolling on. Several of the renegade traders are millionaires on paper and their hedge fund adversaries are nursing their wounds. Melvin Capital, which bet against GameStop, lost 53% in January.
Robinhood, the Redditers' main broker, has also backed down and lifted some of the buying restrictions it imposed last week, although limits remain on eight companies including GameStop, AMC Entertainment and BlackBerry.
And in South Korea retail traders dubbed "ants" are seeking to press their advantage by demanding the government abandon a plan to lift a pandemic-imposed short-selling ban.
However with regulators circling both Robinhood and the Redditers' forums, the battle is far from over.
"I'll tell you one thing, absolute guarantee this ends in tears, I just don't know when," said CMC's McCarthy.
($1 = 1.3072 Australian dollars)