Theories about the rise in the price of silver : The Indicator from Planet Money The price of silver shot up this week. Theories abound about what drove the trading.
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Hi Lo Silver

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Hi Lo Silver

Hi Lo Silver

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UNIDENTIFIED PERSON, BYLINE: NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

STACEY VANEK SMITH, HOST:

This is THE INDICATOR FROM PLANET MONEY. I'm Stacey Vanek Smith.

PADDY HIRSCH, HOST:

And I'm Paddy Hirsch. And over the last couple of weeks, we have seen some absolutely crazy volatility in the markets for certain shares.

VANEK SMITH: Yes, we have.

HIRSCH: Right. The video and computer game retailer GameStop - that's the big one - the movie theater company AMC and several more have seen all of these wild swings in their share prices.

VANEK SMITH: Yes. But this week, that volatility spread from the stock market into commodities, namely silver, which saw its price go up by as much as 13%, nearly $30 an ounce, which is very expensive for silver.

HIRSCH: Very expensive for silver - it may not sound like much, like 13%. But in silver, that is a lot. And there's no really clear reason for this.

VANEK SMITH: Exactly. And, of course, all the headlines came out, saying, Reddit has done it again, right? This roving band of Redditors from this message board called WallStreetBets - they were, of course, behind the big push in GameStop stock last week. And so everyone was like, oh, my gosh, the Redditors have done it again. Now they're going after silver. Now they're moving the price of metals.

HIRSCH: And there was a kind of - some initial silver boosting on Reddit. But after that, there was nothing. It kind of sort of fizzled out. And it was kind of a mystery.

VANEK SMITH: Yes. Yeah, people were saying like, well, maybe it wasn't actually Reddit after all. But nobody knew what this was coming from.

HIRSCH: Yeah. I mean, judging by the news coverage of the market, nobody could figure it out and - or who was behind it or what their motivation might be.

(SOUNDBITE OF MUSIC)

HIRSCH: So we did what we do best.

VANEK SMITH: Yes.

HIRSCH: And we called somebody up.

VANEK SMITH: We outsourced.

HIRSCH: So you actually trade silver day to day, is that right, Tai?

TAI WONG: Yes, I trade that every day, and I have for 15 years.

HIRSCH: Fifteen years - that's a serious amount of trading time. So more from a veteran silver trader after the break.

(SOUNDBITE OF MUSIC)

HIRSCH: Tai Wong is a director in global markets at the Bank of Montreal. He wanted us to stress that his comments reflect his personal opinions and are not the official position of the Bank of Montreal. So I asked him to give me his thoughts about the very essence of silver.

WONG: Sometimes, we call it in our circles the devil's metal because when it moves, it can sit for a long time and not move. But when it moves, it can move rapidly and with a certain amount of viciousness.

VANEK SMITH: The devil's metal - suddenly, commodities trading seems way more exciting than it usually does. Like, the devil's metal - it sounds very treacherous.

HIRSCH: (Laughter) So there are several theories that have been bouncing around the market now about this spike in silver and why it happened and who was behind it. And let's not forget. Silver's 13% swing obviously pales in comparison to the nearly 500% jump in price that GameStop stocks saw last week, but that doesn't mean that there weren't any casualties in the silver market.

VANEK SMITH: Yes, there were winners and losers.

HIRSCH: Right. And I asked Tai whether maybe that was the whole point; that like with GameStop stock, some traders might have tried to talk up the price of silver with the aim of hurting some big Wall Street players who are in the silver market. So that's the first theory, and it was one that Tai had heard as well.

WONG: The stories that made its way on Reddit, which - one was that JPMorgan was, you know, desperately short silver and would have to cover it. And this was a way to get at JPMorgan, which is the biggest bank in the United States. That conspiracy theory has been around for a long time. It is also a canard. JPMorgan is one of the biggest bullion banks in the world. They lend a lot of metal out, but they typically do not lend it out uncollateralized. They lend metal, but you have to give them dollars. So while they may be short metal in a location for a short period of time, it's never anything that could come anywhere near to bringing a major bank, you know, to its knees, much less JPMorgan.

VANEK SMITH: So this was a Reddit (ph) going after JPMorgan.

HIRSCH: No, JPMorgan - not in the crosshairs.

VANEK SMITH: Got it.

HIRSCH: So theory two then - so there was this buzz going around that maybe some of the short sellers who got squeezed on GameStop last week might have been trying to distract what Tai likes to call the Reddit legions to shift their attention and their money and their trading activity to silver.

WONG: That seems a little far-fetched. I think if you were short GME and AMC, you're entirely consumed with trying to make sure your position worked out or you had enough funding to hold as long as you could. I'm not sure those would be the folks who would open up, you know, another front in the war, so to speak, against the Redditors. You can't dismiss it completely out of hand, but that seems fairly unlikely.

VANEK SMITH: So this wasn't, like, the short sellers strike back.

HIRSCH: (Laughter) No.

VANEK SMITH: OK.

HIRSCH: Well, maybe not.

VANEK SMITH: Or maybe it was just a bad strike.

HIRSCH: Maybe just a bad strike.

VANEK SMITH: A weak strike.

HIRSCH: So theory three then - that some traders who are long silver, which means that they own it and expect it to rise in price - maybe they kind of infiltrated the Reddit message boards in order to jack up the price of silver so that they could then make some money.

VANEK SMITH: Yeah, they were like double agents.

HIRSCH: Kind of double agents in the market, exactly.

WONG: That - you know, that is an appealing narrative. If you're long and you're trying to, you know, push up the market with news like this, even though you could certainly create a Reddit account and use a VPN and try to keep your anonymity, this would clearly be considered, I think, market manipulation. Now, I'm not an attorney, but this is the type of thing that might lend a, you know, clever entrepreneur a long stay in a federal penitentiary. And that's a pretty steep price to pay.

VANEK SMITH: So if you're a silver trader and you join Reddit and say like, hey, everybody, jump into silver, you could literally go to jail.

HIRSCH: You could literally go to jail, so that seems like the stakes would be a little bit too high for me.

VANEK SMITH: That is a high price to pay for the devil's metal.

HIRSCH: (Laughter) Indeed, so it's maybe not that either. But the fact is that something did happen to silver this week. Tai reckons it was like a combination of rumors and the willingness of silver traders to grasp this opportunity that was presented to them by this price surge.

WONG: The mindset of market makers and many traders are, oh, you want to push it. You push it as much as you like. And once you're done, we'll see, you know, where we end up. And, you know, we'll go on trading and doing what we typically do.

HIRSCH: In other words, Tai says those silver traders were quite happy to jump on that silver wave and ride it until it peaked. But he stresses that the whole thing started with Reddit because that is where the exaltations to buy silver were first posted.

VANEK SMITH: Yes. I mean, this has been kind of a crazy story for the past couple of weeks. Like, who is this roving band of Redditors that is suddenly moving markets and, like, grabbing headlines and deciding to, like, go all-in on stocks like GameStop and AMC and silver and like, you know - who is this group of people?

(SOUNDBITE OF MUSIC)

VANEK SMITH: So, Paddy, like I said, we did what we do best, and we called someone. And tomorrow, we will talk with a WallStreetBets Redditor who goes by the username MIA4real.

HIRSCH: MIA4real - and tomorrow, we get to the bottom of who these people are and what they want by using subtle and sophisticated interviewing techniques honed over years in a career in professional journalism.

VANEK SMITH: So, like, I don't know. What do you want?

(LAUGHTER)

VANEK SMITH: MIA4real, like, what do - like, what do you want? Yeah. Well, you know, sometimes, you just got to cut to the chase, Paddy.

(SOUNDBITE OF MUSIC)

HIRSCH: This episode of THE INDICATOR was produced by Dave Blanchard and fact-checked by Sam Tsai (ph). THE INDICATOR FROM PLANET MONEY is a production of NPR.

(SOUNDBITE OF MUSIC)

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