Silver surges to 30 dollars on retail buying frenzy Silver surges to 30 dollars on retail buying frenzy Silver surges to 30 dollars on retail buying frenzy

Silver surges to 30 dollars on retail buying frenzy

Ole Hansen

Head of Commodity Strategy

Summary:  Frenzied silver buying has accelerated following a weekend of intense focus on social media. The price has raced above $30/oz to its highest level since 2013 with retail traders, following their successful attack against short sellers in US small cap stocks, now targeting banks who they believe hold large naked short position in the futures market. In this we take a closer look at the narrative behind the move and what may happen next.

I have rarely seen a weekend where the social media has been so busy focusing on silver. The white metal has now rallied by more than 16% since last Wednesday when the rWallStreetBets group on Reddit began focusing on silver as another potential candidate for a major short squeeze. The reason being  the expected existence of a massive bullion bank short in both gold and silver futures that for years and allegedly supported by central banks has helped keep the price down. This due to the narrative that rising gold and silver prices would reflect an increasing lack of confidence in the financial system and specifically in the dollar. This driving a belief held by many, that the big banks work with the Federal Reserve in maintaining confidence in the dollar and the system at large by suppressing the price of precious metals.

I believe this is a false narrative but whether or not it is true does not matter in the short term. The belief that it is possible to push the market has taken hold and so far today the COMEX silver future trades up more than 10% and in the process it has taken out the high from last August. Momentum, especially in silver can drive the market very far within a short period of time. Last year silver experienced three bear market moves of 39, 21 and 25 percent and three bull market moves of 156, 23 and 29 percent. With this in mind silver could easily extend its current gains, especially if the hedge funds start joining the bid, especially following the break $28/oz, the high from early January.

The long term chart is pointing to some resistance on spot silver at $30.5/oz, the 50% retracement of the 2011 to 2020 sell-off. Above that level, the next major level of resistance is not before $35/oz. Failure to forge higher, however could see a dramatic turnaround with the market then focusing on closing the gap to Friday's high at $27.65/oz.


Source: Saxo Group

In the week to January 26, the day before the short squeeze in the now famous GME and AMC tickers helped send the broader market lower and the VIX index sharply higher, the open interest in silver futures, the real target for this onslaught, was split as per the chart below. The bullion banks belong to the swap category and as of last Tuesday they held a net-short of 22k lots, a very manageable 20% of the daily turnover in Comex silver futures. Swap dealers offer hedges to all sorts of market participants, including producers and they often find themselves being long the cash market which is then being offset in the more liquid futures market.

The irony of trying to hurt the swap short is that a rally will put millions of dollars into the pockets of hedge funds and other large money managers who ahead of last weeks surge held 44.3k lots long, a long that since Wednesday have netted them a profit close to 900 million dollars. The biggest net short of 57.2k lots was held by producers and they are unlikely to buy back their short as they are hedging future production and will deliver physical silver against their short obligation. 

The surge in silver has left gold stranded and still trading within its established range. This development has resulted in the gold-silver ratio (Ticker: XAUXAG) collapsing to a 6 1/2-year low below 63 and well below the long-term average closer to 70. 

Apart from an unprecedented pick up in retail demand for silver coins and small bars, the biggest pickup in demand has come through exchange-traded funds. The number of shares in the largest ETF, the iShares Silver Trust (Ticker: SLV:arcx) saw its biggest one-day increase on Friday. The ETF is backed by physical silver held in vaults, meaning it needs to buy the precious metal when the number of shares grow. 

Silver has seen its fair share of market surges and short squeezes with the most famous being the Hunt Brothers attempt in 1979-80 to corner the market by accumulating billions of dollars worth of silver. The price saw a four-fold increase before collapsing straight back to the starting point after the brothers were sanctioned for market manipulation. 

Another major rally unfolded between 2008 and 2011 which resulted in the price almost reaching $50/oz before another spectacular collapse unfolded. The rally back then was driven by the aftermath of the global financial crisis which saw metals rally on a combination of  quantitative easing, surging demand from China and the weaker dollar. Silver in addition went through a period of tightening supply which all supported the rally before its spectacular collapse from where it has now managed to recover half. 

Source: Saxo Group

Last week we released our Quarterly Outlook and in it we described the reasons for our positive precious metal outlook: “Silver has returned to its long-term value against gold with the prospect of a further upside depending on the strength of both industrial and investment demand. The green transformation could spark a surprise in terms of industrial demand with the photovoltaic (PV) market expected to be strong as many countries embark on renewable energy projects. Based on our forecast for gold to reach $2200/oz, silver’s high beta should encourage a continued outperformance with the gold-silver ratio heading towards the low 60s during 2021, thereby driving the price of silver towards $35/oz.”

Conclusion: No matter if the “bullion bank short” is true or not, silver has by now received so much attention and interest that we are likely to see it as well as silver mining stocks and ETF’s trade bid for a while. In order to proper gauge the overall impact on the markets ability to function and with that also the speculation about a futures short squeeze, it is important to watch the spread between physical silver and the futures price. Any signs of stress with regards to shorts getting hurt would see the spread, also called the Exchange for physical (ETP) blow out. So far today, the spread has widened from around flat to a current futures premium of 45 cents/oz. Any further widening will point to stress in the market with increased need to borrow silver to cover short commitments. 


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992