The members of the WallStreetBets subreddit declared war on hedge funds, inflated the price of GameStop stocks, and decided against leaving the market in peace. They’re working on silver presently. Let’s find out what they’re up to and what might be the consequences.
What’s going on?
Last week, on a popular subreddit for individual investors WallStreetBets, which has grown from 4.4 to 8.4 million members thanks to the latest events, users started discussing investments in silver. They say it’s time to put the heat on banks that are shamelessly trying to raise money on the falling silver price.
The call for a short-squeeze – which means a surge in quotations that makes shortists close their positions – migrated from Reddit to Twitter. There has even appeared such a hashtag as #silversqueeze.
What‘s happened to the silver price?
Last week, futures for the metal grew by 13.1%, from 25.5 to 28.8 USD per ounce. However, things started to get hot this week. On Monday, February 1st, the quotations leaped above 30 USD per ounce, which is the high since 2013, according to Financial Times.
For a fairer picture, we’d add that trades closed at 29.42 USD that day. Anyway, on the next day, the quotations headed steeply downwards. On February 2nd, the Chicago Mercantile Exchange, or CME, increased marginal requirements for trading precious metals, and silver prices lost 10.25%, dropping to 26.4 USD per ounce.
In an official press release, the CME explained its actions by an attempt to normalize the estimation of market volatility and guarantee adequate securing of trades.
What is it with the stocks of silver makers?
From January 28th through February 1st, the stock price of Couer Mining grew by 24.1%, from 8.98 to 11.14 USD. As for Pan American Silver, its stock price increased by 16.3%, from 31.28 to 36.38 USD.
Pay special attention to the stocks of the iShares Silver Trust. During the days specified above, they grew from 24.72 to 26.76 USD per stock, which means growth by 8.25%. On Friday only, the net inflow of assets in this trust reached 944 million USD.
However, the above-mentioned stocks dropped alongside silver quotations: Couer Mining lost 18.94%, Pan American Silver – 13.41%, iShares Silver Trust – 8.3%.
What’s the difference from the story with GameStop?
Inflating the quotations of precious metals requires tangible investments because the market is noticeably deep. For example, in the middle of last month, the capitalization of GameStop was below 1.4 billion USD, while there is silver for 48 billion USD just in safes in London.
Moreover, by increasing the net money flow into the iShares Silver Trust, Reddit investors enrich their main enemy – the Citadel Advisors hedge fund. Remember that this is the company that holds 6 million stocks of the trust, being its largest shareholder.
Anyway, a successful “silver-squeeze” looks almost impossible when managing companies have been playing long since September 2019.
After the scandalous rally in GameStop stocks, investors decided to tackle silver. They even managed to heat the price up to 30 USD per ounce, repeating the record of 2013. However, such impressive growth changed for a no less impressive decrease – by 10.25%.
Many experts agree that such actions not only destabilize the market but also distort the real price of this or that entity, which, in turn, makes the adequacy and reliability of the main landmarks for trades seem dubious.
As for you, do you really think that individual investors can harm markets so much?