Silver Rises With Hype It’s the Next GameStop, but a Backlash Mutes Gains
After the frenzied price swings of companies like GameStop and AMC Entertainment caught the financial world last week, everyone wondered what the internet investor army would be targeting next.
The answer seemed to be silver, at least for a moment.
Over the weekend, the precious metal saw a surge in interest and a surge in online chatter about the chances of generating a price surge that caught the world’s attention last week.
On Monday, the price of silver rose as much as 11.5 percent in early trading – to its highest level in eight years – but gravity soon prevailed and pulled it back as efforts attracted the users of the influential Wall Street Bets forum Collecting from Reddit just failed.
By mid-morning silver had given up some of its early gains, and by 3 p.m. it was trading at $ 29.418 an ounce, up 9 percent. That was still the highest level since the beginning of 2013.
At Wall Street Bets, where users have largely endorsed GameStop and put pressure on hedge funds, some users turned down the nascent online silver crusade to rob the GameStop rally of its momentum.
Some posters referred to it as a trap set by hedge funds losing money with the rise of GameStop, and urged their fellow traders to turn their attention to companies that had trimmed shares in the video game retailer.
GameStop versus Wall Street
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- Stocks of GameStop, the video game retailer, have risen because amateur investors starting at Reddit have bet heavily on the company’s stock.
- The wave gained momentum when large hedge funds short-sold GameStop stock – essentially betting against the company’s success.
- Sudden demand pushed the stock price from less than $ 20 in December to around $ 300 on Monday. At least on paper.
- It’s not just GameStop. Amateur investors have supported other companies that many large investors have shunned, such as AMC and BlackBerry.
- This bubble around GameStop forced large investors to raise funds to cover their losses or to shed shares in other companies.
A private investor, Randi Mailloux of Westfield, Massachusetts, said she believed Wall Street firms were behind the silver push. As a self-described Wall Street Bets lurker, she said that large hedge funds are “trying to get people to lose interest in GameStop, sell their stocks and move on to something else.”
Just as regulators have been closely monitoring activity in GameStop and other stocks, the Commodity Futures Trading Commission said it was keeping an eye on silver. Acting chairman Rostin Behnam said the commission is coordinating with other regulators and the commodity exchanges to “address potential threats to the integrity of the silver derivatives markets and continue to monitor those markets for fraud and manipulation”.
The surge in trading of some stocks – including GameStop, AMC, and BlackBerry – over the past week has rocked Wall Street, forcing popular trading platforms like Robinhood to curb trading. Rising prices hit hedge fund short sellers and generally unsettled the markets, putting the S&P 500 in the red for January.
Skepticism about the recent online silver hype isn’t the only reason GameStop’s remarkable run may be unlikely to repeat, however.
The silver market is different from that for beleaguered companies that have caught the attention of day traders who have been buoyed by memes on Reddit. These stocks have been targeted by hedge funds that are betting on falling prices. By pushing them higher instead, traders “pushed” the short companies, forcing them to buy the stocks.
The price of silver, on the other hand, had risen before the latest interest. It rose nearly 50 percent last year, and some institutional investors expected silver to outperform gold this year.
Silver is a much larger market, so it is more difficult for a relatively small group of traders to influence. And then there is a logistical hurdle in commodity trading: private investors who want to drive the silver price up would have to pick up the metal instead of buying shares in online accounts or buying options contracts.
The silver market has had restrictions on excessively speculative behavior since the early 1980s after Nelson and William Hunt – brothers who were heirs to an oil fortune – failed to corner it. They amassed roughly half of the world’s tradable silver supply before the move imploded on March 27, 1980 after market regulators intervened and restricted further purchases. The metal fell from a recent high of $ 50.35 to $ 10.80 an ounce, costing the Hunts an estimated $ 1 billion in losses.
But the online skepticism that greeted the rally on Monday didn’t help.
“It’s sketchy,” said Ms. Mailloux. “Somebody wrote a story about silver when the Wall Street Bets guys wanted to do this short push.”
However, the increased online interest had a noticeable effect. The shares in companies that mine silver rose. Fresnillo closed 9 percent but also well below its highest point of the day and Polymetal International rose 5 percent. Both were among the UK’s biggest winners on the FTSE 100 index. On the New York Stock Exchange, Silvercorp Metals rose 15 percent and Fortuna Silver Mines rose 12 percent.
Retail websites for buying silver coins and bars said they were seeing high demand and there would be delays in shipping orders.
The iShares Silver Trust, a large BlackRock publicly traded product that tracks the metal, reported a record net inflow of $ 944 million on Friday, requiring the purchase of 34 million ounces of silver.
Retail purchases increased prices more than analysts expected.
“The frenzy of retail buying has pushed silver prices up again for the time being,” JPMorgan Chase analysts wrote on Monday.
Some traders said it was difficult to keep up with demand.
Moneymetals.com announced that it was not taking new orders for most of its silver products on Monday, and it was also restricting some gold purchases. Another trader, APMEX, said it saw a surge in new customers over the weekend.
“We have made strategic decisions to source additional metal and block any metal we find in the market,” said Ken Lewis, CEO of APMEX, in a statement posted on the company’s website. “We anticipate that premiums will go up and up quickly as we see a significant increase in our costs if we can even locate the metal.”
Gillian Friedman contributed to the coverage.