➤ Silver is the precious metal that is most vulnerable to "accelerated retail demand," according to HSBC Chief Precious Metals Analyst Jim Steel.

➤ While silver is often subject to "sharp moves," the retail-driven price jump was "definitely newsworthy," Steel said.

➤ Major silver runs in the past included up to $50 in 1979-1980 with the Hunt Brothers bubble and up to nearly $50 in 2011 on expectations for strong photovoltaic and solar panel demand.

HSBC Chief Precious Metals Analyst Jim Steel. Source: HSBC Bank PLC

As February kicked off, excitement surrounding a rally in GameStop Corp. stock and the r/WallStreetBets subreddit grew to such an extent that when silver prices and equities subsequently jumped, analysts, observers and media attributed the gains to the same phenomenon.

S&P Global Market Intelligence spoke with HSBC Chief Precious Metals Analyst Jim Steel to discuss the silver rally, whether social media played a role, and the precedent for the event. The following conversation has been edited for length and clarity.

S&P Global Market Intelligence: Could you give your take on what has happened in the silver market since the end of January?

Jim Steel: I would say that of all the precious metals, silver is always open to increased retail demand. It has name recognition the way gold does, but it is much more cost effective. Retail audiences may not be as familiar with the platinum group metals nor set up to trade them. So there is always a really nice retail bid in the silver market versus some of the other precious metals.

Also, we have an active silver coin market and bar market, which again, because of the lower price of silver compared to gold, opens [it] up to more retail interest. So if you're going to get an accelerated retail demand for any of the precious metals for whatever reason, it's likely to be translated immediately in the silver market rather than some of the other markets.

Why it became so popular on social media I don't have an answer for, but it certainly did. We had very strong buying ... through the [exchange-traded funds] coming through on Friday and Monday.

How do we know there was increased retail interest in silver? There is conjecture on social media sites, including the subreddit r/WallStreetBets, that the media was somehow fabricating or inflating the retail interest increase.

We know there were 37 million ounces created in ETFs on Friday, and that seemed to come through areas that were retail. They're not set up for futures by and large, and they wouldn't come on the interbank market or the OTC [Bulletin Board] or anything like that, so that would imply the demand was heavily retail. Also, coin and small bar demand jumped, and that would be retail demand as well.

I'm not saying it was entirely retail, just that the retailer buyers were the leaders. The actual division, I don't know, but it had a big retail component.

Do we know how much of this retail interest was driven by social media versus general interest? Is there any way to know how much Reddit users contributed?

No, other than the coincidence of it being talked about on social media and then the buying. I don't go on social media myself, but I know it was being talked about.

How significant was this jump in silver price compared to history?

Silver tends to have a higher volatility than gold, but on Friday and Monday, it was much, much higher. We do often get sharp moves on silver. It's really a percentage issue. It's not an expensive metal compared to the others. It's a market that is a little smaller, a little thinner, so it is easy to get that movement, just like thinner stocks.

We have historically had two major runs. One was 1979-1980, the Hunt Brothers, we ran up to $50 at that time. The Hunts ... were on their way to purchasing a third of the world silver supply. That was an enormous move. That's $50 in 1979 or 1980 dollars. The other big move was in 2011 when the market again ran up to just a shade under $50. That was supported by very optimistic views of photovoltaic and solar panel demand. The market also began to run up earlier in this century when China emerged as a major industrial source, a major importer of silver.

So, there have been times when the market has moved up very significantly, much more than we've seen very recently. And there have been times when it has been very low. In the 1990s, we went down to $3.50 at one point, which actually led to some mine closures. And when the Hunt Brothers liquidated, we went into a profound bear market.

How would you characterize the silver market over the past week, given its history?

[A price] 15% higher is important, ... $30/oz, which was eight-year highs ... was definitely newsworthy. It caught the attention of many people.

[In gold,] we have not even gotten back to the January high of Jan. 6, whereas silver surpassed it. The value of silver has gained significantly on gold over the period we are talking about. The gold-silver ratio fell to 63-to-1 from way above 70-to-1.

So the gold lagged this time and the silver took off, which is the opposite of what happened in the second quarter of 2020 when the industrial demand for silver dropped significantly because of the COVID-19 shutdowns and retrenchment. That pushed the gold ratio to an all-time high, and then we saw silver catch gold.

This time, it was the opposite. Silver moved very strongly, and the gold-silver ratio contracted instead of expanding. One of the reasons I think that silver has not been able to make further gains is because gold has not moved. This was taken, I think, as a cautionary note by some in the silver community.

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