US Close – Closing Time for the Reddit-fueled party, Silver mania, Stocks rebound, Gold rises, Bitcoin tumbles

The social media retailed-frenzy trading party could be slowly ending.  Like all good roller coaster rides, they all come to an end.  Over the weekend, I was inundated with calls and text messages from former colleagues that left Wall Street, old friends with limited exposure to stocks, and active traders who live and breathe for moments like this.  The current wave relentless enthusiasm reminds me of the dot-com bubble and the subprime mortgage crisis that led to the Great Recession.  Fortunately for the major indexes, this retail-driven frenzy is limited to a handful of small cap stocks and silver. 

Silver

It took a few days for the market to strongly react, but last week’s WallStreetBets (WSB) post labeling the next big trade to punish the banks was with frenzied buying of everything silver.  WSB cited the big banks are short silver and that their army of traders need to buy physical coins and do their magic on ETFs and options.  It is unclear if the big banks are short silver, but they have been refuting that claim.  Regardless, the silver trade has three players, someone is short, the retail guy buying coins and options, and hedge funds on the sidelines looking to take advantage of momentum. 

After rising towards an 8-year high, silver has settled down as the reddit-fueled trader is learning that no one has a significant short position and that the silver market is much bigger than some of the small cap stocks they have been trading.  Silver coin purchases and call option bets are not enough of a driver to send silver prices skyrocketing to record high levels. 

Stocks

US stocks are rising as spillover fears of more incredible dislocations from the Reddit-fueled uncontrolled speculation have eased.  Investors are once again finding comfort with the mega-cap tech stocks and that should remain the case until COVID variant risks are alleviated.  The playbook for a return to normal and a rotation back to small caps is not going away, it is just being delayed a little while longer. 

Gold

Gold prices pared gains after the ISM report showed the manufacturing sector is performing well albeit at a slower pace.  Lawmakers are also entering a critical stage in COVID relief bill negotiations.  Republicans have countered President Biden’s $1.9 trillion plan with a $618 billion counteroffer.  If Biden can get a partisan agreement around $1.2 trillion, that will be very positive for the prospects of getting infrastructure spending passed a lot sooner.   

For gold to become attractive again, it needs to see the Biden administration be able to work with Republicans on this stimulus plan.  If DC can become functional, that could be the catalyst that helps gold get its groove back. 

Oil

Oil prices are rallying alongside US stocks and as optimism improves that the world is getting closer to returning to pre-pandemic crude demand levels.  The world is seeing several COVID vaccines get the greenlight and it seems progress is being made on fixing production and distribution concerns. 

Crude prices are also benefiting from continued compliance from OPEC producers.  WTI crude has been fairly rangebound over the past couple weeks as the short-term hit to crude demand was not accompanied with cheating from the OPEC, and also benefited from Nigerian and Libyan production disruptions.

Bitcoin

Bitcoin is becoming a small casualty in the Reddit-inspired army of traders.  One of the key audiences that Bitcoin has maintained a loyal following is with millennial traders, but now some of them are dabbling with silver trading.  Most of today’s losses for Bitcoin stemmed from the strong dollar, but some ebbing interest in cryptocurrencies could continue if the silver frenzy stays a while longer.  Bitcoin is still stuck between the $30,000 and $40,000 range, but that could change if the focus for institutional traders remains on dislocations that social media traders are piling into.   

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