We may be witnessing history in the making with regard to precious metals. The shocking rise in silver, platinum and palladium left many investors stunned last week, as all three metals continued their ascent, facing no resistance on their path higher. Silver closed last Friday’s session at $46 per ounce – $3 higher than the week prior – and is now up 60% since the start of the year. Meanwhile, platinum and palladium both achieved double-digit gains last week with the former now rising to prices not seen in over a decade. Precious metals are rising in unison once again this morning, with gold tapping $3,800 and silver striking $47 per ounce. A reminder that silver is now only $3 away from a new all-time high. The global pivot towards safe-haven assets is an increasingly popular trade, but only partially explains the rise in prices observed so far. On the other side of the equation, the supply side is struggling to keep up with the relentless demand. Gold and silver ETFs are soaking up huge inflows of cash from institutions and retail alike. Jewellers are reporting a scarcity of scrap gold because so few are selling in the current market. Mining companies around the world are having to increase output targets to cover the renewed demand, with many reporting record-high profits. The first Friday of the month lies ahead, but non-farm payrolls may have to wait. The US government is facing a possible shutdown unless funding legislation is passed before the end of the fiscal year on the 30th of September. As grateful as we are for the work carried out by the Bureau of Labor Statistics, its operations are considered non-essential and will therefore be affected by the shutdown unless such is averted. If NFPs are released as planned, forecasts are currently indicating 39,000 new jobs. A low figure on the face of it, but the labour force participation rate is shrinking rapidly due to huge numbers of workers reaching retirement age. Unemployment is expected to remain at 4.3%. Tomorrow’s JOLT survey on the other hand should be published in a timely manner with or without a government shutdown and may offer some emergency insights on the US labour market. Wednesday’s ADP employment change will likewise be unaffected by any disruption to federal operations. Wednesday also marks the start of China’s Golden Week, meaning Chinese markets will remain closed until the 8th of October. Beyond American employment figures, this week features a heavy dose of manufacturing and services PMIs from the four corners of the world, while the Reserve Bank of Australia convenes tomorrow to decide the interest rate on the Australian dollar. For now, all eyes are on precious metals. #Gold #Silver #Palladium
Investors shunned gold yesterday, turning instead towards the wider precious metals market. Industrial demand is driving the likes of silver, platinum, palladium and copper to highs not seen in months, or in some cases, years. Silver is an essential element for solar panels, batteries and other electronics, while platinum is crucial for systems such as catalytic converters, used to reduce emissions. Given their critical role in green energy technologies, both metals exploded to the upside yesterday following an announcement from Chinese Premier Xi Jinping, who pledged new green energy targets for the world’s second-largest economy. Silver pushed past $45 per ounce on Thursday, meaning it only has another $5 to go before setting a new, all-time record high. Meanwhile, platinum gained over 3% over the same time frame to close comfortably above $1,500 an ounce, matching prices from back in 2013. Palladium and copper are also on the front foot this week, with the former up 9% since Monday. Second-quarter GDP figures were revised to the upside yesterday, indicating that the US economy grew by 3.8% in Q2, surpassing initial estimates of just 3%. The correction was mostly due to a revision in consumer spending as opposed to any rebalancing of trade flows. Yesterday also revealed better-than-expected jobless claims, an improved trade balance and higher durable goods orders. Strong growth figures obviously counter the narrative of a troubled economy, which in turn temper the Fed’s willingness to intervene too drastically during the next couple of FOMC meetings. Interest rate traders are still leaning in favour of a further 50 basis points in cuts before the end of the year but FedWatch is currently only pointing to a 60% chance of that happening. The combined data led to a strong move in the dollar, which dragged the DXY back up to the mid-98 level by yesterday’s close. The shift in expectations contributed to a broad selloff in assets, with US and European indices ceding ground during yesterday’s session and Asian stock markets reacting poorly this morning. The selloff extended to cryptocurrencies, leading to Bitcoin falling below $110k and Ethereum losing $4,000. Expectations could shift again later today however, with the release of the latest PCE Price Index and Michigan Consumer Sentiment. The PCE data has long been held in high regard by the Fed and so any unexpected reading will have further consequences for interest rate predictions. Busy end to the week. #Silver #Platinum #USD
After hitting record intra-day highs on Tuesday, US indices were quickly brought back down to reality after Chairman Powell suggested that by many measures, equity prices were “fairly highly valued”. Not the harshest of judgements by any means, but stocks had been looking for an excuse to come down from recent highs and Powell’s speech seemed to fit the bill. The Fed Chairman hastened to add that this is "not a time of elevated financial stability risks". Futures contracts are marginally in the black going into today’s session. Powell’s words also reached the ears of precious metals traders, cutting short yesterday’s rallies in gold and silver. Gold came within $10 of $3,800 before giving up some of its gains, while silver closed the day almost flat, although crucially remained above $44 per ounce. With nowhere else to go, the recent gains in gold and silver are currently spilling over into other metals, namely platinum and palladium. Platinum rose over 4% yesterday to breach $1,500 for the first time since 2014 and both metals continued to surge in early morning trading in Asia. The current climate heavily favours precious metals as central banks around the world continue to move away from US treasuries. Given the lower rates on the USD, and the prospect of even lower rates in the near future, hoarding dollars now makes less sense than at previous times. With stock markets at record highs, precious metals are seen as the obvious play by many investors. Cryptocurrencies on the other hand are facing a bit of a conundrum. The massive liquidation event on Monday culminated in over $1.5 billion in bullish positions being wiped out, but despite the selloff, prices have shown surprising resilience. The larger caps have incurred only modest losses so far but the overall direction of travel remains unclear. The rise in prices seen across cryptocurrencies over the summer was fuelled in large part by firms publicly launching digital-asset treasuries. Michael Saylor’s Strategy acquired another 850 BTC on Monday, bumping the company’s holdings up to a colossal 640,000 BTC. Japan’s Metaplanet meanwhile purchased 5,419 BTC at the start of the week, making the company the fifth largest corporate Bitcoin holder with 25,555 BTC in its war chest. Funds far and wide continue to top up their stacks with various digital assets, the obvious question being how the sustained buying pressure will translate into price action. #Platinum #Crypto
The story of the beleaguered video game retailer is one for the history books. In many ways, the famous short squeeze that occurred back in early 2021 changed the game forever. A success story no doubt, but not one without its fallen victims. The GME squeeze unveils much about the shadowy nature of institutional finance, while the underlying movement betrays the darker side of investment psychology. What is GameStop? Under its current name, GameStop has been around since 1999. The company was ideally situated to capture the growth of the video games industry, expanding massively throughout the early 2000s. Hard to believe for the younger generations out there but back in the old days, if people wanted to buy a book, film or video game, they would actually have to walk into a shop and purchase a physical copy. In North America, GameStop became the go-to place for consoles, games and various collectables. It was also home to a thriving second-hand marketplace, from which the company profited enormously. It was nerd heaven. Alas, all good things must come to an end. As with many businesses that depended heavily on in-store traffic, the company suffered greatly from the advent of online commerce. Steam, the digital distributor for PC games, officially went live in 2003 and prompted the likes of Sony and Microsoft to open online stores of their own. It would take a while, but by around 2015, the scales would permanently tip in favour of digital sales and would never again favour physical media. The COVID years would accelerate the process even further and by 2023, it was estimated that over 80% of all video game sales were exclusively digital in nature. Just as Amazon crushed brick-and-mortar bookshops and online streaming services destroyed Blockbuster, digital video game sales had a disastrous impact on GameStop and other video game retailers. The setup In 2002, GameStop was listed on the New York Stock Exchange under the ticker GME. The stock fared well initially, but later on prices would start to reflect the company’s financial struggles, with shares falling to lows of $0.70 in 2020. Understandable, given the underlying fundamentals, but the price action was not entirely organic. By late 2020, GameStop was one of the most shorted stocks on the market, with over 100% of its float being shorted. This meant that more shares were being shorted than were actually available for trading – a particularly risky position for those who were short on the stock. This fact did not escape the attention of the subreddit /wallstreetbets, which discovered that investment firm Melvin Capital, among others, were heavily involved. The internet smelled blood. Our beloved video game store being exploited for financial gain by cold-hearted hedge funds? Not on our watch. Before long, a plan to force a short squeeze on the stock began to take shape. As a reminder, a short squeeze occurs when the price of an asset rises sharply, forcing those who are shorting to cover their positions in order to avoid getting margin called. This creates more buying pressure, which drives the price to higher levels still, forcing yet more parties to cover their shorts, and so on and so forth, culminating in a drastic increase in price. The squeeze The idea was an easy sell. Soon enough, investment communities from the four corners of the internet came together to stick it to the man. Users on Wall Street Bets and further afield started buying GME shares and call options in increasingly high volumes. The high short interest and low float made the stock ripe for the taking. Buy pressure began to mount. From a price perspective, things kicked off in earnest on Wednesday the 13th of January 2021. GME opened the day at $20.44 and peaked at an intra-day high of $38.64 per share. Commendable, but a mere taste of what was to come. By the 25th of January, GME had breached the $100 mark. Now people were really paying attention. Institutional money had a stake in this game and at this point, it was on the wrong side of the trade. Incredibly, hitting three figures was just the beginning. The buying pressure was relentless. The frenzy continued for another few days until the 28th of January, when GameStop hit $483 per share intra-day and even surpassed $500 in pre-market extended trading. A 2000% gain in a couple of weeks. It was a staggering achievement. Melvin Capital The short squeeze would ultimately be ruinous for Melvin Capital. The fund was forced to close its position and by the end of January, it had lost over 50% of its assets. Other hedge funds, including Citadel, would attempt to bail out the firm with a multi-billion-dollar injection of cash but the effort proved to be in vain. Melvin Capital lingered on for a couple more years, but the deathblow had been dealt. In 2022, the fund announced its permanent closure and returned all remaining funds to its investors. The battle was over and the underdog had won. A fairy-tale finish on the face of it, but there is much more to this story than meets the eye. Robinhood and the DTCC A major character in this story, not mentioned until now, is the trading platform Robinhood. With its wide array of commission-free trading options, Robinhood has grown massively over the years and played a pivotal role in the GameStop short squeeze. The platform was the perfect tool to attract retail interest to the movement and users flocked to it in droves to buy GME stock. The massive surge in buying pressure would not have been possible without Robinhood. With that said, the platform is equally responsible for the sharp decline in GME following the $483 peak. On the 28th of January, Robinhood restricted trading on GME and its customers were barred from buying any more shares. Users could only sell the shares already in their possession. The reason Robinhood did this is because they were facing a $3 billion margin call from the Depository Trust & Clearing Corporation (DTCC). When trading stocks, it is important to understand that simply hitting the buy or sell button does not result in an immediate swap of ownership. A better way of viewing the trade is that the broker, in this case Robinhood, temporarily attributes the stock to a new user and then passes this information on to the DTCC, which settles everything in the background. At the time of the GME squeeze, this process took two working days (as of last year, it now only takes one). This is an entirely standard practice and allows for a much more fluid user experience. The DTCC is a critical piece of settlement infrastructure, without which modern trading would look very different. Because of the lag between the broker and the DTCC, brokers have to meet certain margin requirements, as per financial regulations. During the time of the short squeeze, the extreme volatility in GME stock combined with unprecedented buying pressure created massive margin demands from the DTCC, which Robinhood was temporarily unable to match. To address this, Robinhood paused the buying of GME shares and drew on existing credit lines to raise billions in emergency funding. Such measures take time. The company would resume full trading a few days later, but by then the damage had been done. Without having access to Robinhood’s books, the justification given does in fact appear to be valid, but try telling that to those who bought at $400+. Many a bag holder was created that day. Things get even juicier when considering that Citadel Securities was acting as a market maker for Robinhood, handling a significant portion of the platform’s order flow. Does the name ring a bell? Citadel was one of the hedge funds that bailed out Melvin Capital to prevent it from defaulting following the squeeze. The waters become increasingly murky. Given the above, it is easy to see why the halt in trading was seen as a way of screwing over retail investors in favour of institutional hedge funds such as Melvin Capital and Citadel. As for why Citadel tried to bail out Melvin Capital, the explanation given essentially boils down to containment. As intertwined as such players are, stopping one domino from falling prevents wider contagion. So the story goes. An investigation was conducted, but to no one’s surprise, no evidence of wrongdoing was unearthed. A hundred arguments could be made either way on this case. Perhaps a more neutral way of looking at these events is that while the likes of Robinhood, Melvin and Citadel did nothing technically wrong, the opaque and incestuous nature of institutional finance leaves retail with an unwinnable battle. If only some kind of transparent blockchain-based clearing system could be implemented. Wouldn’t that be nice. Forgotten remnants The story should probably have ended there, but it did not. Despite the obvious success of the short squeeze, for some, it was not enough. For the die-hard enthusiasts, Robinhood’s controversial actions had doused the fire, which should have raged on to the destruction of far greater players. Justice had not been served. Almost five years after it all kicked off, there persists a community of investors resolutely committed to the movement. Many within this community believe that the real short squeeze has not yet occurred. The events of January 2021 were just a warm-up. The mother of all short squeezes, or MOASS as it is often called, patiently bides its time. It is certainly the case that the actions of Robinhood cut the run short. It is also true that short interest on the stock remains high – around 16% at the time of writing. Unfortunately, this is where the rational argument ends and the darker side of investment psychology takes over. The sad truth of the matter is that many GME investors are underwater and have been for some time, which inevitably promotes the deadly sunken cost fallacy. Investors continue to hold onto a losing position because they have already poured significant time, money and energy into it. With every passing day, it becomes harder to let go. Fear sets in but results in no action. Valid concerns are waved away. The communities persist, but the hype gradually fades. Those who remain become increasingly less vocal. An inconvenient truth is that over the last four years, most GME investors would have been better off parking their funds in the S&P 500. For some, commitment to the cause trumps any notion of financial gain. They are in the movement because they genuinely believe in the cause. The anti-establishment sentiment is more than enough for many people, which is absolutely fair enough. More generally, the online culture that has developed over the years now constitutes a familiar, meme-rich environment that investors far and wide proudly call home. GameStop is not alone in this regard. A number of other stocks have acquired devotees of their own, such as Bed Bath and Beyond (BBBY) and AMC Entertainment (AMC). GameStop’s legacy The events surrounding GameStop had a lasting impact on the financial world. In many ways, the GME short squeeze represented a shift in market power from traditional hedge funds to retail investors. Current situation aside, the fact remains that the GameStop community won and Melvin Capital lost. As retail investors gain ever more powerful tools and as markets become ever more transparent, one wonders how many more GME events we will see in the future. On a dourer note, dedication to a company and its stock price seems like light-hearted fun on the face of it, but runs the risk of turning into something far more worrisome. The biggest problem with remaining steadfastly committed to a given stock is the opportunity cost of doing so. Sticking to a singular asset cuts an investor off from every other opportunity. Unwavering devotion is a noble trait in many circles, but arguably not in financial ones. Do not marry your bags. Footnote: GameStop executed a 4-for-1 stock split in 2022, meaning all the prices discussed above would need to be divided by four to reach the current pricing.
Autumn is officially here and Q4 is just around the corner. The summer months have been undeniably kind to stock markets, particularly in the US and in Asia. Last Friday saw the Dow, S&P 500 and Nasdaq all close at record highs, with the latter in particular closing the week 2.2% in the black. The Nikkei 225 proved eager to preserve the momentum this morning in Japan, pumping over 1% before traders even had a chance to sit down for lunch. US futures markets fell slightly on Sunday night, but sentiment going into this week is largely neutral. Although last week’s Fed decision had been heavily priced in, markets were still grateful for the reassurance. By all accounts, rate cuts are set to continue at a slow and steady pace, which suits most investors just fine. Future rate cuts play into the hands of precious metals, which continued to exhibit strong buying pressure last Friday. Gold gained over 1% on the day to close the week at $3,684 per ounce, but the real action is currently unfolding in the silver markets. The white metal gained a massive 3% on Friday to break through $43 per ounce and wasted no time this morning in pushing even higher. Silver is already half way to $44 and is inching ever closer to a record high of its own. Unfortunately for crypto holders, the bullishness in precious metals is not spilling over into digital assets. Cryptocurrencies are currently undergoing massive liquidations across the board, with Bitcoin dipping below $112k as billions worth of positions are getting wiped out. An absolute bloodbath is unfolding in the broader altcoin market, with some projects boasting double-digit losses. Nothing to speak of on the economic calendar today, although a number of FOMC members are set to deliver speeches throughout the day, including newly-appointed board governor Stephen Miran. Tuesday brings us more Fed talk, this time from Chairman Powell himself, as well as manufacturing and services PMIs from Australia, Europe, the US and then Japan late at night. The Swiss National Bank is expected to hold rates steady on the Swiss Franc at 0% on Thursday before US GDP data drops later in the day. Finally, Friday will see the release of the latest PCE Price Index – a key marker for US inflation – followed by Michigan Consumer Sentiment to close out the week. #Silver #Crypto #StockMarket
In a strongly telegraphed move, the Federal Reserve finally lowered rates on the dollar on Wednesday by a quarter of a percentage point. The decision was almost unanimous, with only one of the twelve FOMC members opting for a bigger, 0.5% cut. The board spoke of the US economy being in broadly sound shape and that weakness in the labour market was something that lower interest rates would help to alleviate. Critics of Fed Chairman Jerome Powell have been calling for a rate cut since the start of the year, and although Wednesday’s decision was a welcome one, for many it came too late. Two more 25-bps rate cuts are expected before the end of the year: the first on the 29th of October, the second on the 10th of December. The dollar reacted positively to the announcement, gaining against other major currencies over the last two sessions, although the DXY remains near yearly lows. Gold and silver experienced some degree of profit taking on Wednesday, suggesting that some market participants were expecting a larger cut. Silver opened with renewed vigour this morning however, as prices pushed back over $42 an ounce with absolutely no resistance in the early Asian session. The Bank of Japan elected to maintain a 0.5% interest rate on the yen this morning, surprising no one. As the only newsworthy event of the day, traders are looking at an empty economic calendar to finish off the week. A huge announcement from Nvidia (NVDA) sent shockwaves around financial circles on Thursday. A surprising alliance has emerged after the largest company in the world pledged a $5 billion investment in fellow chipmaker Intel (INTC). The deal secures Nvidia an approximately 4% stake in Intel and follows a similar move by the U.S. government, which took a 10% stake last month. Technologically, Intel will produce custom chips for Nvidia to use in its AI infrastructure platforms, while Nvidia technology will be implemented in Intel chips designed for personal computers. Intel shares surged by 22% by yesterday’s close following the announcement. Intel has been struggling financially for some time but remains of high strategic importance because it is the only high-end chipmaker still manufacturing in the US and has contracts to produce chips for the Department of Defense. Interestingly, the partnership between Nvidia and Intel was achieved independently of the U.S. government’s stake, which constitutes a separate agreement. #Gold #Nvidia #Intel
