When you think of bull runs in precious metals, you tend to think of the extended decade-long rises in price, which are easy to observe gaining momentum. Whether it was the 1970s bull run in silver, which culminated in the dramatic events of Silver Thursday in 1980, where prices went parabolic, or the bull run which ended in 2011, buyers of precious metals tend to know which way the winds are blowing.
However, an army of Reddit users appear to have been responsible for a series of ambitious market fluctuations, which saw not only GameStop soar in value, but silver as well. How did this happen, and what does it suggest about the future of silver?
Reddit propelled silver higher
For the last decade or so, precious metals buyers had feared that silver was trapped in a long-term period of declining or stable prices, otherwise known as a secular bear market. Since 2011, buyers have been burnt, buying into short-term price rallies, only to lose out, as the price tumbled to new lows.
However, buyers were in for a shock, as was UK Bullion, when a sudden influx of new buyers entered the fray at the end of January 2021, inspired by a few posts on a Reddit forum known as r/wallstreetbets. Having managed to orchestrate a short squeeze on an underestimated company called GameStop, this Reddit army concentrated its fire on silver for a moment.
Here at UK Bullion, the impact was impossible to ignore. In the space of just 24 hours, we recorded a volume of sales equivalent to what we would usually expect over the course of three weeks. Buyers were reaching out in any way possible, to get their hands on some of the cheaper, more affordable items we had to offer, doing their bit to bid the price of silver higher.
The price spiked by almost 20 per cent in just three trading days, so some lucky buyers managed to make a quick profit, while the price was right.
Remembering Silver Thursday
The silver markets are no stranger to sudden price rises. March 1980 goes down in history as one of the most dramatic moments in the silver markets. After a decade of high inflation in the UK, the US and Europe, money poured into safe havens such as gold and silver. By 1979, an ounce of silver was worth £5 as a yearly average. In the first three months of 1980, something remarkable happened.
The Soviet Union’s invasion of Afghanistan in late 1979 kicked off a long-running conflict in the Middle East, sparking fears of a third world war. Understandably, precious metals soared even higher in value. Intriguingly, the events leading up to Silver Thursday resulted in silver outperforming gold by a significant margin.
Nelson and Herbert Hunt, sons to a wealthy oil tycoon, had decided to invest much of their inheritance into the commodities markets, which proved to be a lucrative bet in the 1970s. The Hunt brothers began buying large quantities of physical silver as well as futures contracts. However, rather than closing these contracts with cash settlements, they opted to take delivery of the silver.
This stockpiling effort helped push silver to astronomical levels. By January 1980, the price of silver rose to an all-time high of over £21 per ounce, several times its value during the previous year. The Hunt brothers performed something of a short squeeze, whereby their purchases vastly outnumbered the amount of short positions in the silver market.
Holders of silver items were keen to cash in on high prices, allowing the Hunt brothers to consume an even greater share of the world’s silver supplies, as the brothers continued to take receipt on their futures contracts. Things came to a head, when the US Government was made aware of the market manipulation. Swift action was taken to limit the creation of new long positions, causing the bull market to stop dead in its tracks.
Barely two months after peaking at its record high, silver quickly reversed these gains. Mid-March 1980 saw some of the hardest selling, and for the next 20 years, the price of silver dwindled, falling to a low of £3 by 2001.
The 2011 spike
Markets rarely repeat themselves, but they are said to rhyme. The lows of 2001 turned out to be an ideal time to put some money aside to buy silver, as the global economy entered into a new era. The US dollar began to lose its value over the coming decade, while China and other emerging economies developed a seemingly insatiable demand for raw materials. This dynamic fuelled what economists call the 2000s commodity supercycle.
Commodities such as oil, copper, gold, silver and much more enjoyed significant increases in value during the 2000s, and as we saw in the 1970s, much of the great gains to be made in silver were to be had in the final months of that new decade-long bull run.
While the crisis of 2008 dented markets for understandable reasons, investors put stock in the idea of a reflation trade between 2009-11, as the global economy gathered steam. Billions of dollars’ worth of quantitative easing and fiscal stimulus were buoying the global economy, and much of this exuberance was reflected in the demand for raw materials.
A short-lived viral campaign called Crash JP Morgan, Buy Silver, coined by Max Keiser, a presenter on Russian state-sponsored broadcaster RT, potentially added to the momentum behind this 2011 bull run, before prices topped out in 2011. The campaign was notable, as it aimed to intentionally damage JP Morgan’s finances directly – in a similar way to the fact that the Redditors’ GameStop short squeeze gambit was designed to make life tough for short selling hedge funds – as the financial institution had invested heavily in a short position in silver.
Silver is particularly valuable as a precious metal, for its industrial uses. Being significantly cheaper than gold has its benefits, as silver is often viewed as a much more affordable entry point for those wishing to cash in on precious metals.
Watch out for the next spike
We can’t tell you when the next spike in silver prices will occur, or exactly how high the price could go specifically. What we can say for sure is that anything can happen. As the events of the Reddit short squeeze have shown, a few app-based traders and a bit of determination is all it takes to push prices by a large amount in a short space of time.
We can’t all have the privilege of having billions of dollars to corner the silver markets like the Hunt brothers did in 1980, but by getting in touch with UK Bullion today, you can find an array of silver bullion, coins and other items to get your piece of the action.
Call us on 0800 090 3256 to get in touch with our team, to learn more about buying silver with UK Bullion.