Traders Look to Squeeze Silver Next As GME Shorts Cover

After frenzied retail trading activity and a historic short squeeze caused GameStop shares to climb over 1,600% in January, the focus in now on silver.

Last week, the price of the precious started to rise amid chatter on social media, and there's now speculation it could be the next retail investor-driven short squeeze. The spot price crossed $30 an ounce today to the highest level since Feb. 2013, according to Reuters, and the iShares Silver Trust (SLV) is up over 10% in pre-market trading. With over $16.4 billion in net assets, it's the largest ETF tracking the precious metal, and it saw nearly $1 billion in inflows on Friday, according to issuer BlackRock. Shares in China Silver Group closed up 65% in Hong Kong and shares in Australia's Silver Mines were 49% higher. In the U.S., stocks like Pan American Silver and Wheaton Precious Metals are set to soar. The chart below shows U.S. search interest in "buy silver" has skyrocketed lately.

search interest buy silver
Source: Google Trends.

Apmex, one of the world's biggest online retailers of precious metals, had to suspend the sale of silver due to tremendous demand. In a statement, it revealed that once markets closed on Friday, demand hit as much as six times a typical business day and more than 12 times a normal weekend day. On Saturday it added as many new customers as it usually does in a week.

It's unclear if anything resembling a short squeeze will actually materialize in the market or the rally will just continue until the hype dies down. (Recommended reading this Monday morning: Silver Thursday: How Two Wealthy Traders Cornered The Market and from February 5, 1998, Buffett's Purchases Push Silver Past $7 an Ounce.)

GameStop Update: Shorts Covering

According to the experts at S3 Partners, there's been a decline in GameStop shares shorted overall. Short sellers jumped at the opportunity to trim and liquidate their holdings at lower mark-to-market losses when the stock took a beating in the latter part of last week. This "significant" short covering contributed to Friday's 67.8% gains.

But the battle isn't over yet, and the stock price should remain volatile. "The short side may be covering at the moment, but they can turn on a dime and resume short-selling as stock loan availability from previous short covers hits the market," wrote managing director of predictive analytics Ihor Dusaniwsky. "If long-side buying turns into profit-taking, new short sellers may jump back into the fray and help push GME stock prices down."

Robinhood, recently hit with a class action lawsuit, has narrowed the list of high-flying stocks it has buying limits on from 50 to eight. They are AMC, BlackBerry, Express, GameStop, Genius Brands, Koss, Naked Brand, and Nokia. Reddit co-founder and tech investor Alexis Ohanian believes the decision discount brokers made last week to restrict retail trading will push society towards decentralized finance or DeFi solutions. 

GameStop's rise is also impacting ETF holdings in a big way and has possibly exposed a flaw in passive investing in such turbulent times. See below the constituents of SPDR S&P Retail ETF (XRT), where GameStop now has an almost 20% weighting. Its weighting in the ETFMG Video Game Tech ETF (GAMR) is above 27%.


XRT holdings
Source: ETF Database.

ETF Database

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