At first glance, claims that Reddit users are pumping stock in silver mining companies appear to be true. Prices on shares in mining companies have risen to record highs, and major outlets are claiming that the surge is due to the Reddit group r/WallStreetBets that surged other stocks recent weeks. But users in the Reddit group, which is still focused on GameStop (NYSE: GME) and AMC (NYSE: AMC) theaters, say otherwise.
After last week saw stock prices in GameStop soar, everyone appears to be wondering what the next stock will be that will get similar treatment. In the days following GameStop’s trip to the moon, other seemingly forgotten early aughts retailers saw their own stocks rise as well. Stock in AMC Theaters, for example, skyrocketed during a time when the business itself was considering bankruptcy. On Friday, stock in AMC closed at about $13.33 after hitting a 52 week high earlier in the week. GameStop, which sold for less than $5 per share only a year ago, closed at $328.24 per share on Friday after soaring to nearly $500 earlier in the week.
Meanwhile, hedge funds like Melvin Capital, which shorted stocks like GameStop and AMC heavily in order to turn a profit, are bleeding cash. It’s estimated that Melvin Capital, which was valued at around $12.5 billion dollars just last month, is now only worth a little over $8 billion, which includes a $2.75 billion emergency investment that the hedge fund got last week from other hedge funds like Citadel LLC.
A glance at news outlets like the Wall Street Journal and CNBC on Monday would have you think that retail traders have abandoned GameStop and AMC for equities in silver mining companies and ETFs like iShares Silver Trust. The outlets claim that Redditors have noticed that silver is also supposedly heavily shorted, and that the recent Biden Administration Executive Order on sustainability and electric vehicles will send silver demand up, as silver is needed to make parts in the technologies that are about to take off. There are problems with this theory that I’ll get into later.
A glance at r/WallStreetBets, however, reveals the opposite. “The Silver Squeeze is a hedge-fund coordinated attack so they can keep fighting the $GME fight,” alleges one user on the r/WallStreetBets forum. Another post claims that Citadel LLC holds 6 million shares in silver ETFs—data that is backed up by research published in Bloomberg as of last September. According to that data, Citadel would see significant gains from increased interest in the ETF, though allegations that Citadel itself urged media outlets to report that Reddit is after silver remain just that—allegations. If true, it would imply that Citadel is engaging in market manipulation at the expense of retail investors—and in a commodity that, realistically, can’t be inflated beyond its actual value. Citadel did not immediately respond to Grit Daily’s request for comment.
Redditors, who have driven up the price in over-shorted stock like GameStop and AMC in recent days, are not only in it for the money. They want to destroy the hedge funds that hold much of the wealth in the United States. Posts on the forum over the weekend were filled with personal vendettas against the hedge funds that crashed the stock market in 2008. The users on the forum today were children in 2008, and many saw the economic crash destroy their families and livelihoods.
Users on the internet forum were able to leverage their power to come together and trigger a short squeeze on GameStop and AMC. The strategy worked, but since many retail investors are novice, at best, it also created a gateway for tons of misinformation to receive viral attention. That’s where silver comes in. Here and there, Reddit users throughout the weekend claimed that silver ETFs like iShares Silver Trust were ripe for another short squeeze. Prices on the ETF were under $50 too, so retail investors with little cash could seemingly make their money go further if they invested in silver over GameStop, which is hundreds of dollars per share. But as the weekend went on, more users began to question who was behind the posts claiming silver would take off.
Meanwhile, users on r/WallStreetBets are still pouring in to get a piece of the pie. In the last week alone, the Subreddit has earned over 6 million new users and has become a household name around the globe. Planes are flying banners with the name of the sub around places like Miami Beach and San Francisco, and billboards are popping up around the United States to raise awareness on the short squeeze of GameStop and AMC. But a short squeeze on silver? It’s not going to happen. Plus, with all of the free publicity, r/WallStreetBets is an invaluable marketing opportunity for the next hot stock.
The Motley Fool points out that a short squeeze on silver funds like iShares Silver Trust—an ETF—is unlikely. In order for a short squeeze to be successful, there needs to be a greater demand for stock than there is stock available to buy, forcing the hedge funds that short sold to buy back stock at a higher price. ETFs work differently and can create more shares as it sees fit in order to prevent shares in silver ETFs from rising too high above the actual market value of the metal.
That being said, it’s unlikely that we’ll see prices in silver rise to the levels of stocks that are currently being short squeezed because silver itself isn’t that valuable. Reddit users are keen on sticking with GameStop and AMC, despite restrictions on apps like Robinhood from purchasing more. Interest in a few other stocks like Nokia (NASDAQ: NOK) and BlackBerry (NYSE: BB) have been fleeting—though those seem to reflect more traditional pump and dump situations as the number of shares that were short sold in those stocks are much lower.
I’m not a financial advisor and this isn’t financial advice, but it doesn’t take much expertise to understand that investing in highly volatile stocks like GameStop and AMC come with their own risks. It also doesn’t take a lot of expertise to see the writing on the wall in r/WallStreetBets—there is a lot of misinformation, and possible disinformation, floating around the online community. Retail investors should proceed with caution when seeking financial advice from public online forums—especially ones that have earned millions of new users in a matter of days.
