Betting on silver causes distortions in the real world

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Betting on silver causes distortions in the real world
Betting On Silver Causes Distortions In The Real World

Online retail investors are giving silver the same Gamestop treatment. The white metal’s price soared more than 11% on Monday, to an eight-year high of $ 30.03 an ounce, as small investors tried to repeat the coordinated purchase that boosted the U.S. retailer’s market value of computer games over $ 20 billion. The difference is that large swings in commodities have potentially greater global economic ramifications.

Online discussions last week emphasized silver and suggested buying exchange-traded funds as a way to quickly boost its value. This is because these vehicles, which are easily accessible to retail investors, end up paying for the physical metal that backs the ETF units.

Followers of the Reddit forums and other portals pounced; the larger funds probably took advantage of the rising tide as well. Thus, a record A $ 40 million (US $ 30.6 million) entered the Physical Silver fund of Australian ETF Securities on Monday. Other funds could also see large capital inflows.

Unlike gold, which is used primarily for speculation, silver has wide applications in the real world. Industrial users account for about four fifths of consumption, and the other fifth is reserved for investment. Almost all computers, cell phones, automobiles and household appliances contain this white metal, according to the global employers’ Silver Institute. It is also used to make solar panels. Therefore, a prolonged period of high silver prices would drive up the cost of these goods.

Regulators are already on the lookout for the dangers of excessive equity volatility. But trying to tackle these swings in the precious metals market can be more difficult than addressing swings in the price of a listed stock. There are multiple silver exchange traded funds around the world, and there is also a physical market. Trying to pin market manipulation to an online crowd can also be a problem.

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The Hunt brothers of Texas, who hoarded silver in an attempt to control world prices in the late 1970s, went bankrupt after the market collapsed in 1980. Even so, they ended up being convicted of conspiring to manipulate the market. . It is possible that the new silver crisis will also be reversed. But it will be difficult for regulators to be so tough when the push to raise prices comes from internet forums.