A new Reddit community called the Silver Stackers are snatching up silver in the hopes of driving prices of the white metal up. Will it work?
While it remains in a position of relative strength versus gold, silver still hasn’t confirmed a bottom and remains under its key 25-day and 50-day moving averages as of this writing.
Investor sentiment for silver has been running too high for comfort lately which, from a contrarian’s perspective, is a concern. The elevated bullish sentiment on the white metal is preventing short interest from building to levels that would support a bull’s raid on the market to “run the shorts.”
Another near-term concern is in the physical bullion market, where a growing number of Reddit-inspired small investors are snapping up bullion coins in the hopes of galvanizing a massive short-covering event.
The basis of the movement is a Reddit community called Wall Street Silver, and its members call themselves “silver stackers,” or “apes”—an insider reference to the movie Planet of the Apes.
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What are Silver Stackers?
Many within this community believe that by purchasing as many bars and coins as they can, they can collectively run up silver prices by 100% or even 1,000%, “to the point where they can call the shots against the so-called bullion banks, the large financial institutions which lead trade in precious metals,” in the words of a recent Reuters article.
How much of an impact these Reddit community members are having on physical bullion supply is certainly questionable. But I don’t like seeing this much bullish retail trader sentiment for silver in a time in which the U.S. dollar (in which silver is priced) has been strengthening.
Ideally, traders should become more bearish as prices fall, not the other way around.
While there are times when even the retail crowd can end up correctly buying near a market low, in most cases, when the crowd starts buying physical silver hand-over-fist like the silver stackers have, they’re usually premature in their optimism. For this reason, I am avoiding making any buy recommendations in the silver ETFs right now in my Sector Xpress Gold & Metals Advisor newsletter until we see definite technical evidence that the market has been fully cleared of selling pressure and is ripe for another extended rally.
At any rate, we’ll know the bottom is in for the latest internal correction when the silver price surges above its key moving averages, as mentioned earlier.
Fundamentally, however, nothing has changed to alter silver’s positive longer-term outlook. Indeed, a growing number of industry experts believe silver could go as high as $50 in the year ahead if the White House’s renewable energy plan is fully implemented. This would have the effect of increasing silver demand for use in electric vehicles (EV), solar panels and other alt-energy applications in which the metal is widely utilized.
Additional anticipated uses for silver in the foreseeable future include the continued 5G wireless network rollout. For these reasons, I expect that silver’s recent woes will prove to be but a temporary setback in the face of a bull market that should be able to regain traction at some point in the coming months.
Expect a Silver Rebound
My observation is that purely emotion-driven price declines are reversed fairly quickly. So, if I’m correct that last week’s silver market slam was primarily a news-driven event courtesy of the silver stackers (and not fundamental in nature), then we should see silver hitting bottom in the next few days. Assuming this happens, we could soon have another trading opportunity in silver.
If and when that happens, I will recommend the best silver stocks and ETFs to buy to play the rebound in my Sector Xpress Gold & Metals Advisor newsletter, where I already have a portfolio full of other precious metals investing plays. To subscribe, click here.
Do you own any silver stocks or ETFs in your portfolio? Tell us about them in the comments below!
*Editor’s Note: This post was excerpted from the latest issue of the Sector Xpress Gold & Metals Advisor.
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