EDITOR NOTE: The spike in silver prices following the GameStop short squeeze was concerning enough for CFTC regulators to step in to monitor the markets, from social media posts to trades placed on the exchanges. It’s a complicated situation as it concerns not only silver futures, but also silver equities (ETFs), and physical silver allocated toward those equity holdings. What’s become clear is that four banks hold the majority of short positions in the silver futures market. These are supposed “hedges” against price changes in the metals stored mostly for silver ETF investors. But if you look at the concentration of short positions, there are more shorts than there are silver positions to hedge. Any increase in long silver ETF positions, as had happened with GameStop, can force these short-selling institutions into a massive squeeze, as there’s not enough physical silver supply to offset the shorts and back the newly issued ETF shares. And should that happen in the next few days, as the March contract expires, silver prices may soar well past the $30 range.
U.S. regulators are closely monitoring derivatives markets after silver surged and the crippling Texas storms prompted a spike in spot prices for natural gas, the acting chairman of the Commodity Futures Trading Commission said.
The CFTC is keeping a particularly close eye on social media after bullish commentary on Reddit’s WallStreetBets forum helped drive silver futures to an almost eight-year high last month, Rostin Behnam told the CFTC’s Market Risk Advisory Committee Tuesday.
The regulator is also monitoring the Texas energy markets for any irregularities in the swaps and futures markets following the “tragic loss of life” caused by last week’s storms, Behnam said, adding that “we remain prepared to do whatever is necessary to protect the integrity of our markets.”
The CFTC has been under pressure to to prevent bubbles in the futures market like the one seen last month in the stock market, when the share price of video game retailer GameStop Corp. skyrocketed following widespread discussion on social media.
Originally posted on Yahoo! Finance