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Army of day-traders piling into silver? As prices rally, analysts point to $40 and higher

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(Kitco News) Silver saw some breakout trading action on Thursday, with prices up 5% on the day amid a sudden rise in investor interest.

March silver futures saw substantial gains in the morning trading session, last at $26.66, up 5.01% on the day.

The fundamentals behind silver have been solid for some time. The precious metal is even identified as the asset to outperform others in 2021 after lagging the market for many years. So, has its time finally come?

Analysts pointed to new money coming into the silver space. They cited increased interest from an army of day-traders likely coming in from platforms like Reddit.

One doesn't have to look too far to find new investor interest in silver. For example, Reddit's Wall Street Bets (WSB) has a new subreddit titled: 'The biggest short squeeze in the world $SLV Silver $25 to 1000$.'

"There's an uptick on Reddit's WSB when it comes to SLV. It is a short-covering rally type of play to try to front-run it and push it higher. SLV needs to buy futures to balance the rising interest as well, pushing prices higher," said RJO Futures senior commodities broker Daniel Pavilonis.

The WSB subreddit was credit with leading the squeeze on GameStop this week. And now, analysts are not surprised to see something similar happen in silver but with a critical difference — Silver has good fundamentals and a very supportive macro environment.

"We see the same thing happen in the silver market. Reddit reports are now referencing silver ETFs and silver mining companies," LaSalle Futures Group senior market strategist Charlie Nedoss told Kitco News. "In the past, there has been talk of big shorting happening in silver."

This silver trend becomes even more visible if you look at some silver stocks Thursday morning, with First Majestic Silver (NYSE:AG) up 40% in pre-market trading and now up 30.66%, Nedoss said.

The sudden surge in its stock even forced First Majestic Silver to issue a statement: "At the request of IIROC ("Investment Industry Regulatory Organization of Canada"), First Majestic Silver Corp. wishes to confirm that it is not aware of any material, undisclosed information related to the company that would account for the recent increase in the market price and level of trading volume of its ordinary shares," the company said on Thursday.

This is all not that surprising, granted the impact the day-traders have had on the equity markets this year, Nedoss reminded.

Whether the Reddit traders are grouping together or not, the higher interest in silver could trigger a powerful move in prices, said Pavilonis.

"Silver has a lot of potential. All it takes is to have a good story that attracts people who are not typically watching the metals and bring it to the forefront," he told Kitco News.

And silver's outlook for 2021 is very promising, which is why the all-time highs of $50 are in play, Pavilonis pointed out. "If we break out of the $29 level, there is open air space all the way back up to $50. We could start wrapping up close to there. A move to $40 is a probability and could happen pretty quickly."

From a technical perspective, silver has spent the past few weeks testing its 50-day moving average of $25.20, Nedoss pointed out, adding that the metal can easily hit $30 if the $28.10 level is breached.

"On the upside, I am watching from where we sold off earlier — $27.33. If we take that out, we can test $28.10, and a close above that brings up to $30," he noted.

Silver's drivers

Silver's primary drivers this year are inflation, stimulus, economic recovery and supply shortages.

More and more people are realizing that inflation could pose a serious risk this year as governments continue to print more money, said Pavilonis.

"Ultimately, people are looking a bit further out as COVID cases are dropping. States will open up as vaccines are on their way along with more stimulus. People are putting that puzzle together and seeing there will be more inflation," he said. "With more money being printed and high inflation, we could see a lot higher silver prices."

The biggest thing going for silver this year is its role as an inflation hedge, Pavilonis stated. "If we see a period of inflation as we did in 1970-80, silver will do well just like then. Even with Fed raising rates to highest levels back then, silver went up to $50."

On top of that, there are still supply issues, and as the economy begins to recover and the EV story becomes more prominent in the U.S., silver will be looked at as a green metal that is also relatively cheap, Pavilonis added.

Live 24 hours silver chart [ Kitco Inc. ]

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