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Is Silver the Next GameStop?

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As goes GameStop, so goes silver?

Silver prices surged in early trading Monday, jumping 11% to $30 an ounce, prompting investors to dive into ETFs like iShares Silver Trust (SLV) and the Aberdeen Standard Physical Silver Shares (SIVR), which surged almost as much as the metal. 

The iShares MSCI Global Silver and Metals Miners ETF (SLVP) and Global X Silver Miners ETF (SIL) also soared in early trading. By midmorning, those two ETF were trading about 50% higher than SLV and SIVR, which had retreated to gains closer to 6% in line with a retreat in silver prices.

The rally, which began last week when silver prices had gained 6%, has also spilled over into the market for physical silver bars and coins, according to Bloomberg

Bloomberg and other news sites say the frenzy in silver, like the GameStop mania, is due to heavy buying by traders in the WallStreetBets Reddit group, driving up prices to levels not supported by the market fundamentals.

Different Markets

But the market for silver is unlike the market for GameStop stock, which was heavily shorted by hedge funds, who became a target for Reddit day traders.

There are reportedly ample stocks of silver held by banks and warehouses of futures exchanges like the CME that would help the silver market avoid the type of short squeeze experienced by GameStop shares. That could account in part for the quick paring of early morning gains.

Dave Nadig, director of research of ETF Trends and ETF Database, tweeted that the rally in silver and silver ETFs “feels like ‘just’ a demand surge (still important, but there’s a difference between ‘up 10%’ – and ‘up 1200%,’ “ the latter referring the surge in GameStop shares. He added he was “not implying direction, just saying the convexity (thus amplitude) isn’t the same.”

Todd Rosenbluth, director of ETF and mutual fund research at CFRA, warned, “The Hot money can move out just as quickly as it can move in … Investors have to be in the right strategy for their goals, not necessarily for [the goals] of an investment community.” 

John LaForge, head of real asset strategy at Wells Fargo, said in an email that today’s action in silver “seems to be all about risk-on investors looking for something to pump up in the short term” and that “silver is an undervalued real asset long term.”

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