The run on silver won't squeeze bullion banks - Natixis
(Kitco News) - The silver market is seeing a historic run with price pushing to an eight-year high as organized retail investors buy the precious metal en masse; however, some analysts note that the surging price action might not be sustainable.
In a report published on Monday, Bernard Dahdah, precious metals analyst at Natixis said that the new interest in silver could harm the precious metal ’s long-term potential. While the silver is holding on to strong gains Monday, the market is well off its highs above $30 an ounce. March silver futures last traded at $29.04 an ounce, up nearly 8% on the day.
Dahdah noted that there are a lot of misconceptions as retail investors, organized through social media, try to force the silver price higher. He added that unlike some stocks that were targeted last week, the silver market does not have a significant short position.
“There is a misunderstanding from the proponents on Reddit that the bullion banks are outright short, when in reality they are only trading the spread. There are two risks that the bullion banks face, but which retail investors can ’t reasonably influence: 1) Dollar funding issues 2) physical delivery problems. he said. “Banks will make a profit from commissions taken on processing the requests of physically-backed ETFs (ironically those attacking them are indirectly handing them their own money), hedging the mining companies and a general uptick in business on the back of volatility.”
Dahdah added that the fallout from higher silver prices is that the CME might be forced to raise its margins for the precious metal. This move could force some investors out of the marketplace, he added.“In 2011, when silver prices rallied, initial and maintenance requirements at the CME rose by 84% in eight days. This, in turn, led to a 20% drop in silver prices as some speculators were unable or unwilling to bear the costs of holding positions,” he said.