Tiny but vital metal markets rush to adjust to Chinese clampdown
A bigger clampdown looks set to have far-reaching ramifications for supply chains feeding American defense and chip-making industries.
Gold prices received a slight boost on Monday amid the market frenzy over its sister metal silver, whose price surged more than 11% earlier to an 8-year high.
Spot gold rose 0.8% to $1,863.70 an ounce by 11:50 a.m. EST, trading at a near two-week high. US gold futures on the Comex were also 0.8% higher at $1,865.50 per ounce.
Silver – often dubbed “poor man’s gold” as it is impacted by the same factors as bullion but is much cheaper to buy – has risen nearly 15% since last Thursday, when posts began circulating on Reddit urging retail investors to buy silver mining stocks and iShares Silver Trust, an exchange-traded fund (ETF) backed by physical silver bars, in a similar fashion to the GameStop short squeeze.
“Since last week’s Reddit discussions to buy long, funds have flowed into the silver market,” Xu Ying, precious metals senior analyst at Orient Securities Research, told Reuters.
“In the short term, silver’s rise has little to do with fundamentals. Sentiment to go long is high, the market rally is not over yet.”
Speaking to CNBC on the latest silver rally, Commerzbank’s head of commodities research Eugen Weinberg said the buying craze could go on for some time, with other metals and commodities also seeing rallies.
Weinberg suggested that the vast liquidity made available by central banks in US and Europe will continue to inflate certain asset prices.
“The excess liquidity in the system, it is likely to create bubbles not only in silver but also probably commodities and other asset classes going forward,” he said.
He added that, given the link between the physical availability of silver and the market demand, the rally might also “provoke some physical scarcity at times.”
However, Weinberg pointed out that the Reddit rush into unfavored stocks and silver would unlikely have such a big effect in larger markets such as gold.
“But there are huge amounts of metals that are probably all right now on the radar screen, starting from platinum, palladium and other smaller precious (metals) which are easier to hold, easier to buy via ETFs. But it might also go towards the larger commodities.”
“I wouldn’t be even excluding the likes of oil being also addressed by the retail investors going forward, although the effect on silver and other smaller markets is likely to be more pronounced.”
(With files from Reuters)
