Stock market investors have been on a wild ride this year.
In January 2021, retail investors on Reddit conspired to ‘short squeeze’ a number of stocks that hedge funds had betted against, bumping their prices up dramatically. We’re still seeing the impacts of this today, as the market remains very volatile.
Meme stocks like GameStop and AMC got the most attention for their short squeezes, but they weren’t the only ones affected. Online investment communities also targeted the silver market for a short squeeze, although it didn’t fully come to fruition. In this article, we’ll take a closer look at short squeezes and the silver market to see what’s happening.
What is a short squeeze?
In order to understand what’s happening with the silver market and the broader investment market in general, you need to know what a short squeeze is. A short squeeze is when a commodity’s price goes up dramatically. This forces investors who have shorted it to buy more in order to prevent future losses. As these investors continue to buy more, the price of the commodity goes up even higher.
Stocks are usually the target for these short squeezes. Short squeezes can also happen with other commodities like silver, although it is rare. We’ll talk about why it’s difficult to short squeeze silver and other physical commodities later in the article.
What happened with the market in January 2021?
In early 2021, retail investors in a Reddit forum called WallStreetBets noticed that GameStop stock might be undervalued. They also noticed that institutional investors had shorted the stock heavily. Because of this, they realized that they could trigger a short squeeze by buying up GameStop shares. Many individual investors were angry about wealth inequality in the US and wanted to ‘get back’ at hedge funds by short squeezing stocks they had positions in.
Once they realized that this strategy could work, they targeted a number of other stocks that institutional investors had shorted, like AMC, Nokia, and BlackBerry. However, none of these stocks saw quite the same results as GameStop. The stock saw a steady rise in price from January 21st to January 26th. Tesla CEO Elon Musk tweeted about it on the 26th, and the next day the stock went up even more by about 134 percent. As a result of the extreme volatility in the market, the popular trading app Robinhood limited trades on GameStop and other meme stocks temporarily, causing a huge amount of controversy.
GameStop stock continues to be very volatile now, over a month later. Additionally,individual investors realized they could work together to short squeeze other commodities. This is when they realized they could target the silver market.
How has the silver market been affected?
It’s important to note that the price of silver had been steadily increasing in the second half of 2020, before the short squeezes began. There are a few key reasons for this. The first was the economic downturn as a result of the COVID-19 pandemic. During economic downturns, many investors choose to buy physical commodities, like silver, instead of digital assets like stocks and ETFs. This is because silver cannot fully lose its value due to its physical status.
Some investors had also been interested in silver because of its use in electronic devices, most notably electric cars. In an increasingly digital society, we can expect to see continued demand for electronic devices. We can also expect to see demand for electric cars increase in the future as a way of combatting climate change. Demand for these products would in theory increase the demand for silver as well.
About a week after the GameStop short squeeze, the general silver market started moving upward. Silver futures hit their highest point since 2013. The iShares Silver Trust, an ETF that tracks the price of silver, also went up, as did silver mining stocks. Many people suspected that a short squeeze on the silver market could be in the works. However, this didn’t really come to fruition. While the general silver market has performed well over the past six weeks, there hasn’t been a dramatic increase that would indicate a squeeze.
Many people wondered why Reddit investors would target silver for their next squeeze. Banks traditionally have short positions in silver, so investors could have been targeting them. Many people interested in shorting silver also appeared to be heavily invested in cryptocurrencies. There was a belief that moving precious metals like silver could encourage people to switch to cryptocurrencies in the long run. They would do this by reducing silver liquidity, which could send the price higher.
Why didn’t the silver short squeeze happen?
Although the entire silver market seemed primed for a short squeeze, it ultimately didn’t happen. Silver is a physical commodity that trades in a way that is much different from stocks. Because of this, it would be very difficult for retail investors to move the market dramatically enough to cause a squeeze.
In order to cause a short squeeze, many retail investors were focused on the iShares Silver Trust as well as smaller ETFs in the silver industry. While these ETFs did go up in price, it’s virtually impossible to squeeze them. This is because ETFs only make up a very small percentage of the silver market. There are huge quantities of physical silver that trade on the market, but the average retail investor likely doesn’t have access or doesn’t know how to trade these.
Additionally, there aren’t enough institutional investors shorting the silver market to cause a traditional short squeeze. While some banks do short silver, this just isn’t common enough to make a short squeeze a viable prospect.
Should you buy silver now?
Just because the short squeeze didn’t happen doesn’t mean you shouldn’t invest in silver. Silver has long been considered an excellent investment during tough economic times. This silver market’s excellent performance last year seems to prove this. While gold was long touted as the best precious metal to invest in, silver offers some unique benefits. It’s notably cheaper than gold, and because of this, you’re likely to see better returns as the market moves.
Silver’s status as an industrial commodity is another reason to consider buying it. As we mentioned previously, silver is used in many different types of manufacturing. Some products that require silver to make include electric switches, solar panels, batteries, and certain types of paint. Silver also has fascinating applications in dentistry and the broader healthcare industry.
In contrast, gold doesn’t have as many industrial applications. While it’s highly valuable, gold doesn’t get used up at the same rate that silver does. This means that silver has a steady stream of demand, which is important for any investment.
Given its steady growth on the market over the last year, silver seems to be a smart investment right now. If you haven’t added any precious metals to your portfolio, now may be the right time to invest in silver.
How can you invest in silver?
There are a few different ways to invest in silver. For the average retail investor, one of the best ways to invest is through the iShares Silver Trust and silver mining stocks. These stocks are easy to purchase through popular investment platforms like Robinhood and WeBull. Many of today’s trading apps will even let you buy fractional shares, which is a great option for investing beginners that don’t have a lot of capital to work with.
You can also buy silver bars or silver coins. Many people prefer to invest in physical silver because it could not ever fully lose value, unlike digital assets like stocks or ETFs. Buying physical silver is a little bit more difficult than investing in digital assets, because you’ll need to find a trusted dealer. You’ll also need to make sure you have a safe place to store the silver. If you want to include physical silver as part of an IRA, you can, but you’ll need to meet strict government requirements in terms of how the silver is stored.
The short squeezes that happened in early 2021 are unlike anything we’ve seen before on the market. While there’s definitely been some volatility in the silver market, we didn’t see the dramatic short squeeze that many people were anticipating.
However, the gradual rise in silver prices during the last year has made this precious metal one that every investor should keep an eye on.
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