Silver price hits eight-year high; Robinhood raises another $2.4bn – as it happened

Graeme Wearden

from Economics | The Guardian on 2021-02-01 19:58 (#5DJWE)

Rolling coverage of the latest economic and financial news

Latest: Robinhood has now raised $3.4bn in last week
Funds will help trading app meet clearinghouse demands
GameStop falls, but rebounds from lows
Silver hits $30 for first time since 2013
Introduction: Silver price soars as retail frenzy continues
WallStreetBets post argues silver squeeze is hedge fund plot

7.58pm GMT

Right, time to recap:

As S3 short insight data shows, GameStop shares shorted significantly declined as short sellers began liquidating their holdings. Over the last few days, GameStop short interest has decreased from $11.20 billion to $8.82 billion. Short sellers bought to cover and trimmed positions as they incurred large mark-to-market losses. GME shares shorted are now 27.13 million.

GME price volatility has been remarkably high, and the stock has gained +400% over the last week. Long shareholders have been able to support GME's stock price and rally it to historically high levels.

$GME short interest is $8.82BN; 27.12M shs shorted; 53.15% SI % Float; 34.1% S3 SI % Float; 26% borrow fee and easing to 10%. Shs shorted have decreased by -35.2M over the last week. Shorts are down -$13.38BN in 2021, which includes up +$1.93BN on today's -22% move. @CNBC #s3data pic.twitter.com/aPiczeDgqK

7.28pm GMT

Hang on... Robinhood have just raised the limit on buying GameStop shares again.

It will now let users hold up to 20 shares in the company, up from 4 earlier this afternoon, (and just one at the start of the day) [full details here].

Robinhood raises trading limit on GameStop further to 20 shares https://t.co/vfEAjBLZMd

7.13pm GMT

These seem to be the new limits on Robinhood stock purchases, with today's $2.4bn cash injection giving the app more firepower to meet clearinghouse deposit requirements. Update, this post is now out of date.....

Update - Robinhood stock purchase limit right now:

AMC Entertainment $AMC - 75 shares from 10
BlackBerry Limited $BB - 700 shares
Koss Corporation $KOSS - 25 shares from 2
GameStop Corp. $GME - 4 share from 1
Express, Incorp. $EXPR - 200 shares from 20

6.53pm GMT

UK financial services firm Hargreaves Lansdown has also benefitted from the renewed interest in investing, as my colleague Kalyeena Makortoff explains:

Britain's largest retail investment company, Hargreaves Lansdown, reported a rise in half-year profits today, as vaccine hopes and the US election result prompted an influx of younger clients looking to invest in stock markets.

The broker said it had attracted 3.2bn worth of new business and another 84,000 clients since June, as the Covid outbreak reinforced the importance of saving as well as investing. Nearly half of all new clients were aged between 30 and 54.

6.31pm GMT

European stock markets had a solid day, recovering some of last week's losses.

The Europe-wide Stoxx 600 index closed 1.2% higher, despite concerns over the pace of Covid-19 vaccine rollouts in the EU.

A decent start to the month after a difficult opening month of the year, with Europe ending the day up around 1% and US stocks also enjoying modest gains.

Mining stocks the latest beneficiaries of the Reddit frenzy but gains are more widespread than just these stocks. Of course, stock markets are coming off a tough start to the year, in particular the last few weeks, so we may just be seeing a little bit of reprieve led by the miners.

6.19pm GMT

Robinhood's new $2.4bn cash injection comes as it rushes to shore up finances that have been strained by a sharp rise in trading on its platform, says the Financial Times.

They add:

The latest round of convertible debt financing - which allows investors to convert their debt into equity - comes as Robinhood faces mounting deposit requirements at clearing houses where its trades are settled.

Robinhood chief executive Vlad Tenev said late on Sunday that its equities clearing house had asked for $3bn of margin deposits on Thursday - a day marked by chaotic trading in popular stocks - before lowering the request to $700m after the company limited trading in certain stocks.

Robinhood raises $2.4bn in second cash injection in four days https://t.co/ROrQPA1ysx via @financialtimes

5.45pm GMT

In another interesting development, Robinhood has raised another $2.4bn from shareholders -- just days after investors agreed to provide $1bn to help it through the turmoil that hit markets last week.

Robinhood says the funds will help it continue to invest in record customer growth".

This funding is a strong sign of confidence from investors and will help us build for the future and continue to serve people through the exponential growth we've seen this year.

We're witnessing a movement of everyday people taking control of their own financial futures, many investing for the first time through Robinhood. With this funding, we'll build and enhance our products that give more people access to the financial system.

We've raised $3.4 billion to invest in record customer growth. With this funding, we'll build and enhance our products that give more people access to the financial system. https://t.co/4gcfY5PCBa

The huge infusion-the $3.4 billion raised since last Thursday is more than the company has raised in total up until that point-gives Robinhood a war chest to cover a surge in collateral requirements stemming from the trading boom, the people said.

It should also allow the company to support the hundreds of thousands of new accounts users opened since Thursday and to remove many of the trading restrictions that angered customers of the popular brokerage, the people said.

In an interview posted online late Sunday, Robinhood Chief Executive Vlad Tenev said the clearinghouse initially asked for $3 billion to back up the trades-about an order of magnitude more than what it typically is."

He spoke Sunday night in an interview alongside Tesla Inc. boss Elon Musk on a live stream of Clubhouse, an invitation-only social-networking app popular in Silicon Valley.

WSJ EXCLUSIVE: Robinhood raised another $2.4 billion from shareholders days after investors agreed to pump $1 billion into the online brokerage to help it ride out a trading frenzy in popular stocks including GameStop https://t.co/rLDr54g1CB

5.31pm GMT

Trading app RobinHood has relaxed its restrictions on purchasing GameStop shares.

Users can now buy four GameStop shares, up from one previously. However, that still includes any stock already held by a customer [details here].

Clients can buy 75 shares of AMC, higher than the earlier restriction of just 10 shares. Robinhood clients can now buy 200 shares of Express, instead of the previous cap of 20 shares. However, if a clients owns more than 200 shares of Express, they cannot buy anymore shares of the embattled retailer.

The amount required by clearinghouses to cover the settlement period of some securities rose tremendously this week. How much? To put it in perspective, this week alone, our clearinghouse-mandated deposit requirements related to equities increased ten-fold. And that's what led us to put temporary buying restrictions in place on a small number of securities that the clearinghouses had raised their deposit requirements on.

It was not because we wanted to stop people from buying these stocks. We did this because the required amount we had to deposit with the clearinghouse was so large-with individual volatile securities accounting for hundreds of millions of dollars in deposit requirements-that we had to take steps to limit buying in those volatile securities to ensure we could comfortably meet our requirements.

5.05pm GMT

Bloomberg is reporting that hedge funds have cut some of their short bets against GameStop, having incurred hefty losses during last week's short squeeze.

They say:

After absorbing a $20 billion hit, bears appear to have started covering their GameStop Corp. positions in earnest.

Short interest in the video-game retailer plummeted to 39% of free-floating shares, from 114% in mid-January, according to IHS Markit Ltd. data. Data from S3 Partners, another market intelligence firm, showed a similar pattern, with GameStop's short sales having fallen to about 50% of its total stock available to trade, down from a high of roughly 140% reached earlier this year.

Short squeezes can only last as long as there is a large short position in a stock. Once that dissipates, the situation changes completely," said Matt Maley, chief market strategist at Miller Tabak & Co.

Short interest in GameStop plummeted to 39% of free-floating shares, from 114% in mid-January https://t.co/bs8eU4yJuC pic.twitter.com/Q5u5B1pQ4j

GameStop had 27.13 million shares shorted, down 35 million over the prior week, according to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.

GameStop shares shorted fall by over half in week -- S3 Partners https://t.co/yeptGh3NRS pic.twitter.com/hFyD8zYdB8

4.42pm GMT

Shares in Koss Corporation, the headphone manufacturer popular with WallStreetBets, have dropped almost 40% so far today.

But, that still leaves Koss up around 1,000% so far this year. Its shares surged during last week's short squeeze megarally - and strengthened further after it posted strong sales growth.

4.06pm GMT

GameStop shares have resumed trading after that short halt, and they've recovered some ground -- now down 25% today at $243.

3.50pm GMT

The GameStop selloff has gathered pace.

The stock has dropped as much as 34% to $213, a drop of around $111 today, triggering a short halt to trading.

BREAKING:

*GAMESTOP SHARES DROP MORE THAN 30% AMID ONGOING RETAIL TRADING FRENZY$GME pic.twitter.com/ZzhgGk5ScD

$GME crashing 35%. Stock now halted https://t.co/HVDdMXvAM1 pic.twitter.com/PvBeVk8kJD

$GME halted down -34%

3.29pm GMT

GameStop shares have dropped, as the gripping tussle between hedge funds and Wall Street Bets' army of small investors resumes.

GME fell around 20% in early trading to $262, having closed at $325 per share on Friday night.

It's early. But $GME down nearly 20% so far today. Let's see where stock is in a few hours though.

A 20% drop for GameStop #GME in opening trades.#Silversqueeze propels silver up 13%.

3.13pm GMT

The US stock market has opened higher, as shares recover from last week's sharp falls.

The Dow Jones industrial average is up 58 points, or 0.2%, at 30,041 points.

3.06pm GMT

Bloomberg also points out that a short squeeze in silver is hard to pull off.

That's partly due to the size of the market, and also because many investors have long positions (unlike GameStop, where hedge funds had shorted around 140% of the outstanding stock - creating the conditions for last week's historic squeeze).

For all the talk of a short squeeze -- money managers have been net-long on silver since mid-2019, according to CFTC datahttps://t.co/8bUXOponWb via @markets pic.twitter.com/dfGKsFT9Gg

For one, the scope for a short squeeze in silver is far less obvious: money managers have had a net-long position on the metal since mid-2019, futures and options data from the Commodity Futures Trading Commission show.

The market for silver is also by some measures much deeper than those for smaller stocks like GameStop. The bricks-and-mortar video game retailer had a market capitalization of about $1.4 billion in mid-January, before the Reddit frenzy sent the company's value soaring more than 16-fold.

2.58pm GMT

Neil Wilson of Markets.com suggests that large investors may also be driving the silver price rally, rather than it simply being caused by retail traders.

He also warns that such speculation is risky, and usually ends badly for some of those who get caught up:

The fact that such a large and liquid market as silver can be targeted by retail investors says much about the shift we are witnessing, though despite appearances this morning it's going to a lot harder to squeeze silver shorts as the market is so much deeper and more liquid.

We should also note that some bigger smart money may have be front-running this trade to piggyback the rally and further fuelling the move up. (George Soros: When I see a bubble forming, I rush in to buy, adding fuel to the fire.")

2.53pm GMT

Allianz's Mohamed El-Erian has tweeted that GameStop and silver are not the same kind of short squeeze trade (as some WallStreetBets posts have also been pointing out).

El-Erian also cautions that the silver squeeze could undermine the squeeze on hedge funds who shorted GameStop's shares, as the GME trade depends on keeping retail investors on board (rather than selling to the hedge funds).

.#GameStop and #silver are not the same for those pursuing the short squeeze trade
The silver market is much larger;
Existing shorts are smaller;
Some of the #HedgeFunds that are short #GME are said to be long silver
Bottom line: A dissimilar trade that eats away at #GME gains https://t.co/TMfpkr7QDE

2.28pm GMT

Pretty decent move on the day for silver: pic.twitter.com/SFXxSCLF0m

1.53pm GMT

Another post currently high on r/WallStreetBets is also warning against trying to engineer a short squeeze in silver to drive the price up.

Titled There is no silver short squeeze happening. NONE. NEVER.", it argues that:

Silver might go up nicely and for a time but don't get high on hopium, this is not gonna got in the 100s.

A corner in the silver market has been tried before - and let's be clear, that is what is being attempted now. In 1980, a rule change by the government destroyed the corner. #silverthursday. https://t.co/qBKXhvvyPe

Almost a fresh 8-year high for silver $SLV this morning as it traded a few cents past last summer's highs.

Whether it's WallStBets target or not, it appears the mere suggestion is enough for a short-term (at least) rocket. pic.twitter.com/fbGKpc4gWA

12.21pm GMT

Media news: The New European, the weekly title launched five years ago to battle Brexit, has been bought by a consortium of investors including ex-BBC director general and New York Times chief Mark Thompson and Lionel Barber, the former editor of the Financial Times.

A group of around 10 investors are backing a management buyout of The New European from Norwich-based publisher Archant, which was bought by private equity group Rcapital Partners last year.

Since the Referendum, The New European has shown that there is a significant market for high-quality, informative, provocative and entertaining journalism written for an audience who care deeply about both Britain and Europe's future.

With new investment capital in place and seasoned media investors, we have a very clear vision of how we can better enhance the experience for our readers and employ new innovations and product developments."

11.43am GMT

Investors in China also drove up silver prices today, Reuters reports:

China's domestic silver prices rose to their highest since September. Prices on the Shanghai Futures Exchange closed up 9.27% at 5,939 yuan per kilogram....

Since last week's Reddit discussions to buy long, funds have flowed into the silver market," said Xu Ying, precious metals senior analyst at Orient Securities Research.

Buying into 'poor man's gold', Chinese investors jump on silver https://t.co/7HUQ2SQAOd pic.twitter.com/Fmj5H8r2JJ

11.32am GMT

Silver has dipped back below its eight-year high over $30 per ounce, but is still up around 10% today at $29.49/oz (compared with around $25/oz a week ago).

Carlo Alberto De Casa, chief analyst at ActivTrades, says silver's gains are startling'.

Silver is skyrocketing today, jumping by over 10% in a matter of hours to reach its highest in 8 years while gold is up a meagre 1%. Moving silver, however, is not the same as moving GameStop. There are in fact many markets linked to silver, including the physical market, futures, ETFs, CFDs and many other derivatives of the precious metal. The overall trading volumes are also different.

Fear, however, is pushing many of the traders who have shorts on silver to start covering their positions. Sellers of the physical metal are also rushing to cover their short positions, to avoid finding themselves at a loss in the face of the startling increases.

11.19am GMT

Adrian Ash, director of research at physical trading platform BullionVault, says the surge in silver in the last few days is quite remarkable:

We've seen people try to corner the market in silver before, but the size and speed of the Reddit Ramp is off the charts for silver. The billionaire Hunt brothers took a decade to build their position in the 1970s, and Warren Buffett built his mid-1990s' holdings over a couple of months. Both helped drive the price higher, but nothing like as fast as the hive mind' of Reddit has spiked silver 20% since Wednesday night.

The flood of new interest in silver has emptied coin shops, but there's plenty of metal in wholesale storage, and any talk of a shortage' will in truth refer more to trucking and handling capacity rather than physical stockpiles.

11.18am GMT

Sorry, there was a typo in that last post (now fixed, so please refresh).

To clarify, most of the top posts on WallStreetBets today are about the squeeze on hedge funds who shorted GameStop and AMC. The highest post about silver is cautioning against the silver squeeze.

11.03am GMT

It's notable that the only prominent post on WallStreetBets about silver is the one warning against the silver squeeze.

As flagged before, that post argues that talk of a silver squeeze' is a coordinated attack from hedge funds, to take the focus off GameStop.

By buying silver/going long on silver, you would be directly putting money into the pockets of the EXACT HEDGE FUNDS ON THE OTHER SIDE OF $GME The hedge funds are LONG silver NOT short silver.

10.15am GMT

The Financial Times flags up that those hoping to hurt Wall Street banks by piling into silver could get stung.

It's a fools' errand, it's financial anarchy; somebody is going to get hurt," said Ross Norman, a veteran precious metals trader....

Around $6bn worth of silver traded hands in the silver market in November, according to the latest statistics from the London Bullion Market Association. London's vaults hold around 33,475 tonnes of silver, valued at $23.8bn, they said in January.

Mr Norman said the Reddit forum's targeting of large banks was misplaced, since the lenders used futures contracts to hedge their physical holdings of silver, meaning they were not speculating on the price falling.

9.34am GMT

Silver has continued to surge, and briefly traded over the $30 per ounce mark as today's sharp rally continues.

That's silver's highest level since February 2013, up over 10% today, amid the scramble for silver coins and bars and talk that silver could be the next squeeze.

Spot silver refreshes its new high since Feb 2013, trading at over $30/oz.#silversqueeze #silver pic.twitter.com/s79jCWqhZT

Spot silver rises 10%, hitting $30 per ounce for the first time since Feb 2013 | #WSB #silversqueeze

By buying silver/going long on silver, you would be directly putting money into the pockets of the EXACT HEDGE FUNDS ON THE OTHER SIDE OF $GME The hedge funds are LONG silver NOT short silver.

Yet silver differs in important ways from stocks like GameStop. For one, the scope for a short squeeze in silver is far less obvious: money managers have had a net-long position on the metal since mid-2019, futures and options data from the Commodity Futures Trading Commission show.

9.14am GMT

Wall Street is on track to open higher today, after sharp falls last week.

Mohamed El-Erian, chief economic adviser for Allianz, says there is talk that the rush into silver could take some pressure off the hedge funds who have shorted GameStop and AMC Entertainment (although only if enough retail investors change their focus...).

Lots of chatter starting to accumulate on whether #silver (and, perhaps, commodities somewhat more broadly) may be the next stop in the #reddit-inspired #trade. #markets #investors #investors pic.twitter.com/Bh8qzxKCIU

It's getting stranger in #markets! #Silver is now up 10%. Meanwhile, US stock futures have turned positive making some draw a line between the two, arguing that, with the #reddit trade shifting to silver,#HedgeFunds will be under less pressure and won't be forced to sell #stocks. https://t.co/0Iu9BapLqr

8.54am GMT

Shares in silver miner Fresnillo have surged by 19% in early trading in London.

The broader market is rallying too, with the FTSE 100 index gaining 50 points to 6457 points. That recovers some of last week's losses, which saw the Footsie' end at a five-week low on Friday as the GameStop frenzy roiled markets.

8.40am GMT

Dr Elvis Jarnecic, senior lecturer at the University of Sydney Business School, said silver was a much much more liquid market with a lot more buyers and sellers" so that the newly empowered investors will represent much less significant percentage of traders.

Jarnecic was critical of what he described as market manipulation.

If institutions did this to inflate prices in this way away from fundamental values they'd receive enormous fines in regards to manipulating the market."

8.34am GMT

U.S. bullion broker Apmex has warned that it expects a 1-3 delay in processing silver transactions, due to a surge of orders in recent days.

Ken Lewis, CEO of Apmex (which sells silver coins and bars) says a dramatic shift in silver demand" forced the company to stop sales over the weekend.

In the last week, we have seen a dramatic shift in Silver demand from our customers. For example, the ratio of ounces sold per day was running about two times earlier in the week and closer to four times the average demand by the end of the week. Once markets closed on Friday, we saw demand hit as much as six times a typical business day and more than 12 times a normal weekend day. Combined with the extremely high demand levels, we are also seeing a surge in new customers. On Saturday alone, we added as many new customers as we usually add in a week.

Any Precious Metal dealer will take a long position in the futures market to protect against spot price exposure when the markets open. We do this because it is our goal not to take a speculative position on metal. The weekends are unique as we are not able to real-time hedge our position. We took an aggressive position this weekend, but clearly could not have predicted the volumes that were seen. We have partnerships around to world that allowed us to cover these long positions, but only to a point. Once we exceeded our comfort levels, we had little choice but to stop the sale of Silver on our website. This was a difficult decision to make and unprecedented in our history.

Bullion broker Apmex says silver demand is delaying transactions https://t.co/9kU3vGfXdS pic.twitter.com/7O3aCkbmIr

Retail sites for silver have been overwhelmed with demand for bars and coins, suggesting the frenzy that roiled commodities markets last week is spilling over into physical assets.

Sites from Money Metals and SD Bullion to JM Bullion and Apmex, the Walmart of precious metals products in North America, said over the weekend they were unable to process orders until Asian markets open because of unprecedented demand. The start of Monday's trading session saw silver futures jump more than 8% as a frenzy that roiled stocks last week spread.

8.16am GMT

Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, says a mass move' of retail investors have piled into silver, sending its price rocketing today.

On Sunday, silver coins and bars were taken by assault; outlets were unable to process orders until markets opened in Asia. Silver jumpstarted the week hitting $29 an ounce, as pajama traders piled into the metal they considered undervalued in a mass move.

This time, the move didn't come as a pure surprise, as last week's rush to iShares Silver Trust has thrown the foundation of what we saw on Sunday. From a pricing perspective, we had already discussed the fact that silver lagged behind gold amid an impressive flight to safety sent the yellow metal to its all-time highs last year. Empirical data shows that the gold-silver ratio stands near 60 on average, and the price of an ounce of silver could have well consolidated within the $30-32 band given that the gold price held ground near $1800 per ounce.

For silver though, the rally could be short-lived as some leading members of Reddit wallstreetbets platform are already divided over the question, and advise against the move in silver.

One important thing to remember in this game is, if you lose full support, and momentum, it's over. This is why, the speculative rush is a prosperous, but a dangerous game.

7.40am GMT

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Having blasted GameStop's shares dramatically higher in the last week, some of the new wave of retail traders shaking up Wall Street have another target -- silver.

#Silver starts week 7% higher.#silversqueeze pic.twitter.com/SZec9fEkxP

Wow.

The 37.05m increase in the number of shares of the iShares Silver Trust on Friday was the biggest one-day increase since the ETF started trading in April 2006. pic.twitter.com/lTC2oxYsuL

Like the GameStop situation, there's a back-story to the attempted pumping over silver prices: angered by the perception of a manipulated market for paper silver, the traders are looking squeeze the shorts on the silver market, and force correction in price that, so the argument goes, better reflects the supply and demand of the underlying commodity.

With a large physical off-exchange market, and a lot more liquidity theoretically, then the sparely traded stocks dallied with so far, the retail wolf pack is in dangerous waters.

The wolves of Wall Street may well be luring them into a trap in their Bunker Hunt for Reddit October.

Interesting from Goldman re the WSB risk: In recent years elevated crowding, low turnover, and high concentration have been consistent patterns, boosting the risk that one fund's unwind could snowball through the market.'

This too: last week represented the largest active hedge fund de-grossing since February 2009 ... despite this active deleveraging , hedge fund net and gross exposures on a mark-to-market basis both remain close to the highest levels on record' pic.twitter.com/wUtAuuc5pK

European Opening Calls:#FTSE 6424 +0.26%#DAX 13543 +0.82%#CAC 5440 +0.75%#AEX 642 +0.71%#MIB 21724 +0.70%#IBEX 7813 +0.71%#OMX 1957 +0.41%#STOXX 3511 +0.84%#IGOpeningCall

Aust Jan manufacturing PMI +3.2pts to a strong 55.3, similar to Markit PMI at 57.2.
Gains were broad based.
(Goldman Sachs chart) pic.twitter.com/eJTHM36mcY

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