Silver prices surge to an eight-year high as small-time investors combine forces to take down Wall Street hedge funds using the stock of a troubled video-game store, GameStop.
The price of silver has rallied as the online trading movement – driven by Reddit users – fuelling the rise of unloved shares like GameStop took a shine to the precious metal.
Silver prices on Monday surged to an eight-month high after silver-mining stocks leaped and coin-selling websites were swamped as small-time investors piled into the metal, the latest target of a retail-trading frenzy that has sent financial markets on edge and users to trend #silversqueeze. WallStreetBets, a subreddit that took on Wall Street last week to rally prices in GameStop and other viral stocks, has been abuzz with how to use silver to take down the fiscal elite.
The feverish buying extended to silver mining stocks in Australia and China and to online dealers, with large US broker Apmex warning of processing delays while it secures more bullion and Money Metals exchange suspending trade until mid-morning on Monday.
"The Reddit crowd has turned its sights on a bigger whale in terms of trying to catalyse something of a short squeeze in the silver market," said Kyle Rodda, an analyst at brokerage IG Markets in Melbourne.
"This is their big, bold Moby Dick moment," he said.
APMEX, JM Bullion, SD Bullion all citing unprecedented demand for physical silver... #silversqueeze— Tyler Winklevoss (@tyler) January 31, 2021
Using stock of troubled video-game store
Stock markets were roiled last week after a spike in retail demand to buy the stocks most bet against by hedge funds drove huge gains in companies such as GameStop Corp and prompted fresh concern that Covid-19 monetary and fiscal support measures were fuelling a market bubble.
With chatrooms abuzz with talk that silver was the new target, silver-exposed stocks, funds and coins jumped, helping push spot silver up more than 11 percent, with London-listed miners up strongly, including Fresnillo, up 18 percent.
After falling 3.6 percent last week – its biggest weekly fall in three months – the MSCI All-Country World Index was up 0.5 percent in early deals, tracking overnight gains in Asia.
MSCI's broadest index of Asia-Pacific shares outside Japan climbed 1.9 percent while Japan's Nikkei added 1.5 percent and Chinese blue chips rose 1.2 percent after the country's central bank injected more cash into money markets.
Futures for the S&P 500 and NASDAQ, meanwhile, both pointed to a stronger open on Wall Street, up around 1 percent.
While the retail battle versus Wall Street, coordinated over online forums such as Reddit created some systemic risks, the bigger danger was in the tech sector, where some stocks had "eye-watering valuations," Deutsche Bank analyst Jim Reid said.
"Retail has in many parts driven such valuations in the last 10 months. If this pops the wider market will have bigger issues than last week."
Gold followed silver higher, up 1 percent to $1,864 an ounce, while oil also tracked the gains in other commodities, with both Brent crude and its US peer up around 1 percent.
Now there is no retail physical silver left, the only route open to silver exposure is via listed equities and ETF’s ..— Willem Middelkoop (@wmiddelkoop) January 31, 2021
expect many to gap open +10-20% ..
based on historical conditions they could easily run 100% next week (happened in 2002 as well) #silversqueeze
Duel with small investors over GameStop
Across most of America, GameStop is just a place to buy a video game.
On Wall Street, though, it has become a battleground where swarms of smaller investors saw themselves making an epic stand against the one percent.
The funds serving the financial elite started to walk away in defeat last week. Big bets they made that GameStop's stock would fall went wrong, leaving them facing billions of dollars in collective losses.
All the wild action pushed GameStop's stock as high as $380 on Wednesday, up from $18 just a few weeks ago.
The stunning seizure of power gives some validation to smaller-pocketed investors, many of whom are encouraging each other on Reddit and are trading stocks for the first time thanks to brokerages offering free-trading apps.
It has also left more investors on Wall Street asking if the stock market is in a dangerous bubble about to pop, as AMC Entertainment, Bed Bath & Beyond and other downtrodden stocks suddenly soar as well.
While the stock market tussle continued to grab the headlines, analysts cautioned the bigger concern was economic momentum in the United States and Europe as coronavirus lockdowns bite.
Indeed, two surveys from China showed factory activity slowed in January as restrictions took a toll in some regions.
In the eurozone, manufacturing growth remained resilient at the start of the year but the pace waned from December. Data from Britain will be in focus later in the European session.
While the coronavirus vaccine rollout globally remains slow, with concern about whether they will work on new Covid strains, Europe was also bolstered by news that it would receive a further 9 million doses from AstraZeneca in the first quarter.
"It is these considerations, not what is happening to a video game retailer day to day, that has weighed on risk assets," said John Briggs, global head of strategy at NatWest Markets.
"So much of the market's valuations, risk in particular, is premised on the fact we can see a light at the end of the Covid tunnel."
Higher yields combined with the more cautious market mood have seen the safe-haven dollar steady above its recent lows.
The dollar index stood at 90.722, having bounced from a trough of 89.206 hit early in January.
The euro, meanwhile, fell 0.3 percent to $1.2100, well off its recent peak at $1.2349, while the pound was the biggest gainer in the G10 group of currencies, up 0.3 percent on the day at $1.3732.
CHART OF THE DAY: Silver is up 10% this morning -- the biggest intraday move since 2008 (and only 5th since 1981 of a >10% move). But the daily gain is far away from the big swings of late 1979 and early 1980 when the Hunt brothers attempted to corner the market | #silversqueeze pic.twitter.com/YICLoLHqK1— Javier Blas (@JavierBlas) February 1, 2021
Future of GameStop stocks?
Two investment firms that had placed bets for money-losing GameStop’s stock to fall have essentially thrown in the towel.
One, Citron Research, acknowledged last week in a YouTube video that it unwound the majority of its bet and took "a loss, 100 percent" to do so.
But Andrew Left, who runs Citron, said that does not change his view that GameStop’s stock will eventually go down.
"We move on," Left said. "Nothing has changed with GameStop except the stock price."
He also said he has "respect for the market," which can run stock prices up much higher than where critics say they should be, at least for a while.
Melvin Capital is also exiting GameStop, with manager Gabe Plotkin telling CNBC that the hedge fund was taking a significant loss. He denied rumours that the hedge fund will fail. The size of the losses taken by Citron and Melvin are unknown.
Before its recent explosion, GameStop's stock had been struggling for a long time. The company has been losing money for years as sales of video games increasingly go online, and its stock fell for six straight years before rebounding in 2020.
That pushed many professional investors to make bets that GameStop's stock will decline even further. In such bets, called "short sales," investors borrow a share and sell it in hopes of buying it back later at a lower price and pocketing the difference.
GameStop is one of the most shorted stocks on Wall Street.
Smaller investors are, meanwhile, exhorting each other online to keep GameStop's stock rolling higher.
The raucous discussions on Reddit, Facebook and even Telegram are full of sarcasm, self-deprecation, and emojis of rocket ships signifying the belief that GameStop's stock will fly to the moon.