Silver Getting Squeezed: How Much Higher Can It Go?

Last week was an interesting one in stock markets, not for the overall performance of markets but rather because of one interesting sideshow: Gamestop. The ailing video game store’s stock became the centerpiece of a battle between Wall Street financial firms and anonymous investors on Reddit. Outside observers watched with great suspense as trading in Gamestop was shut down by numerous brokerages, resulting in outrage from both sides of the aisle in Washington. And now silver is getting caught up in the frenzy, with significant upward pressure on the silver price.

What Happened to Gamestop?

Gamestop wasn’t the only stock targeted either, as AMC, Nokia, and others saw similar action. That all resulted from a group of investors on Reddit who decided to target Gamestop and other stocks to purposely inflict a squeeze on short sellers.

In the case of Gamestop, the stock was massively overshorted, with total short exposure 40% in excess of the total number of the company’s shares in existence. That means that many of those shorting the stock didn’t actually own the stock, nor were they likely able to borrow it. That type of naked short selling is supposed to be illegal, yet it remains commonplace. And Reddit users decided to teach those engaging in the practice a lesson.

Through the WallStreetBets (WSB) subreddit, which currently boasts 8 million members, certain traders pumped up the idea of purchasing Gamestop shares. The company is going the way of Blockbuster, with foot traffic to physical stores nearly non-existent. It’s only a matter of time before the company goes under. So shorting the stock seems natural to do. But with so much oversubscription and naked shorting, the traders at WSB decided they wanted to teach hedge funds a lesson.

Who knows how many thousands or millions of investors banded together to buy Gamestop shares. But they did, driving the stock’s price up to well over $400 at one point, from $17.25 at the beginning of the year. That resulted in over $70 billion in losses to Wall Street firms and traders, with some large hedge funds requiring billions of dollars in loans to keep afloat.

Major brokerages such as Robinhood, Charles Schwab, Fidelity, and others severely limited trading in Gamestop and other firms that were targeted by WSB traders. That infuriated many, who saw the moves as an attempt on the part of the financial establishment to protect Wall Street financial institutions at the expense of retail traders. Yet despite the trading blocks, Gamestop’s share price remains elevated, as foreign traders sympathetic to WSB are jumping in to help out. The entire incident will likely lead to Congressional hearings, action by the SEC, and a reevaluation of stock trading and trading halts by brokerages.

So how did silver get caught up in all of this?

Silver Shorts Getting Squeezed

A narrative starting circulating throughout the media that silver would be the next target of the WSB short squeeze. It has long been known or at least speculated that paper silver, e.g. silver options and futures, silver exchange-traded funds (ETFs), etc. far outnumber the amount of physical silver available. That’s why, when it comes to investing in silver, investing in physical silver coins and bars such as through a silver IRA is often preferred to investing in paper silver.

As a result of the narrative of WSB targeting silver, the silver market surged. Demand for silver products skyrocketed, with many retailers halting sales of silver since they couldn’t source nearly enough coins to satisfy demand. Demand for some silver products is now tenfold what it would normally be, and prices for spot silver rose 15-20% at one point from last week’s levels.

But traders on WSB have denied being behind the run on silver. They claim that hedge funds, including those heavily exposed to Gamestop, are trying to push the WSB silver narrative to take attention away from Gamestop. Since holding Gamestop at elevated levels requires coordinated action from thousands or millions of individuals, anything that could split away some of those investors and get them to move out of Gamestop into other assets would help the hedge funds shorting Gamestop.

Whatever the truth behind the run, the reality is that silver is climbing in price, and availability of silver coins is declining. And as often occurs during runs of this nature, fears of shortages could continue to drive even more purchases, driving prices higher and reducing availability of silver coins in a self-perpetuating cycle.

Which Way Will Silver Go?

The current fluctuations in the silver price could only be temporary, particularly if they’re being driven by traders on Reddit who have no desire to remain invested in silver for the long haul. But there are indications that not all of this movement is the result of short-term traders, and that many who had been on the fence about precious metals have come to realize just how undervalued silver actually was.

Now that the cat is out of the bag, it will be hard, but not impossible, for silver to fall back to lower price levels. We’ll just have to wait and see whether the recent price movements in silver lead to a long-awaited decoupling between physical silver and paper silver. But regardless of where the silver price moves in the short term, silver should continue to climb in the long term, as all the conditions are right for continued gains.

A weak economy, more fiscal stimulus, and rising investor demand should combine to push the silver price higher over the long term, and no amount of short-term turbulence should be able to derail silver’s long-term prospects. For investors, however, investing in physical silver coins and bars remains one of the best ways to invest in silver.

With a silver IRA, investors can hold physical silver in an IRA, allowing them to benefit from the same tax advantages as any other IRA. You can even roll over or transfer assets from existing retirement accounts such as a 401(k), IRA, TSP, or similar account into a silver IRA, without tax consequences. That allows you to protect your existing retirement savings while simultaneously taking advantage of silver’s long-term price growth potential.

But as the recent run on silver is showing, it doesn’t take much to deplete stocks of silver coins and bars that are available on the market. And if you have $50,000 to $100,000 or more in retirement savings that you want to protect with silver, time is of the essence. Don’t wait until it’s too late to start thinking about buying silver. Call the precious metals experts at Goldco today to learn more about how silver can protect your hard-earned retirement savings.