(ATF) Silver buying driven by Reddit investors is picking up pace, while SPACs that haven’t identified target acquisitions are also being bid up by online retail traders. Robinhood has raised another $2.4 billion to meet the continuing boom in demand.
A rise in the price of silver that started in the Asian morning continued throughout the global trading day on Monday February 1, as buying that was coordinated on Reddit forums sparked reaction from other market players.
Silver prices reached a fresh eight-year high above $30 an ounce and a global shortage of physical bars and coins exacerbated buying that was also seen in silver derivatives and related ETFs and mining stocks.
There was growing speculation that hedge funds and other institutional traders were trying to game the most recent speculative bubble by using ‘bots’ to post on Reddit forums and drive up prices in silver and other assets.
The US Commodity Futures Trading Commission “is communicating with fellow regulators, the exchanges, and stakeholders to address any potential threats to the integrity of the derivatives markets for silver, and remains vigilant in surveilling these markets for fraud and manipulation,” its acting chairman Rostin Behman said in a statement.
There was some selling of gold to fund silver purchases but a shift towards buying of gold - which is a hugely popular physical investment with Chinese and Indian customers - would not be a surprise if silver sustains its gains.
The GameStop phenomenon of online retail investors trying to identify the next stock or asset to buy that has previously been shorted by hedge funds is also now spreading beyond this goal to the special purpose acquisition company (SPAC) market.
SPACs are normally listed with a nominal $10 share price and trade close to that level while the sponsors look for a suitable target firm to take public.
A rise in the price of a SPAC much beyond $11 would in the past indicate that there had been leakage of information to the market ahead of a deal that is imminent.
But the Reddit-fuelled buying by retail investors is now spreading to SPACs that have shown no sign that they are about to close an acquisition.
SPACs formed by high profile investors like former Facebook executive Chamath Palihapitiya and ex-Citigroup banker Michael Klein are seeing buying from retail investors simply on the back of name recognition.
This has led to some SPACs being added to the list of names that have trading restrictions from popular online trading platforms, including Robinhood.
The surge in trading volumes on Robinhood has led to a sharp increase in its own capital needs to fund margin requirements with clearing houses, but the platform is managing to meet this demand for now.
Robinhood has raised another $2.4 billion in its second capital infusion within a week to meet its financing requirements.
Robinhood also continued to try to explain its policies to its retail investor users and to address concerns that it is changing trading limits to help the market makers who supply its revenue.
“Simply put, Robinhood limited buying in volatile securities to ensure it complied with deposit regulations,” it said in a blog post on February 1.
“Robinhood is about expanding everyday investors' ability to invest. To be the trusted and responsible platform you can rely on, Robinhood has to operate within the existing regulatory environment.”