The investor frenzy that stoked wild gains in everything from GameStop Corp. to silver is showing signs of fatigue.
The metal dropped more than 5% on the Comex Tuesday, sinking from an eight-year high after margin requirements were raised and analysts cautioned against chasing the rally. GameStop, whose Reddit-inspired surge set off a flurry of buying in other heavily shorted stocks, sank 16% in after-hours U.S. trading on Monday, extending a 31% plunge during the regular session.
Other high-flyers including AMC Entertainment Holdings Inc. and Koss Corp. also slumped in late New York trading. Some of last week’s biggest gainers in Asia, including China Literature Ltd., lagged behind benchmark indexes on Tuesday.
It’s anyone’s guess whether this marks an inflection point for the manic gains that have spread from one asset to the next in recent weeks. But the pullback lends credence to market watchers who’ve said it was only a matter of time before the rallies began to fade.
Silver’s retracement “isn’t surprising, as any longer-term price upside due to social media-driven collaboration and conspiracy theories was always going to be unsustainable,” said Gavin Wendt, a senior resource analyst at MineLife Pty. “There is a big difference however between trying to manipulate trading in an equity compared to a major exchange-traded commodity.”
Silver soared as much as 13% on Monday after becoming one of the latest -- and biggest -- investments to gain attention in Reddit’s WallStreetBets forum.
It remains unclear who authored the posts that ignited the huge run-up, or who exactly was behind the trading. Reddit posters themselves now seem conflicted about the trade and market watchers have cautioned chasing up a commodity would be a tougher proposition than squeezing single stocks.
The speculative activity hatched online has captivated global markets after triggering huge gyrations in stocks like GameStop, though fears that the frenzy could derail the equity bull market have begun to recede. U.S. regulators have said that they are closely tracking developments.
Most-active silver futures declined as much as 5.5% to $27.81 an ounce on the Comex after the CME Group said margins will rise to $16,500 per contract from $14,000, effective Feb. 2. The decision was based on “the normal review of market volatility to ensure adequate collateral coverage,” it said.
“Fundamentally I don’t believe that there are any significant short positions in the silver market, as the outlook for silver is robust this year, coming off a strong performance in 2020,” Wendt said.
As the frenzy built, BlackRock Inc.’s iShares Silver Trust recorded an unprecedented $944 million net inflow on Friday, followed by another $551 million on Monday after a since-removed post appeared on the WallStreetBets forum that encouraged traders to pile into the exchange-traded product. That move now appears to be fizzling out, with some on Reddit urging their fellow investors to back away from silver.
“We suspect that prices will remain volatile,” James Steel, chief precious metals analyst at HSBC Securities (USA) Inc., said in a note before the margin increase was announced. “Beyond this week, and possibly sooner, we believe the new entrants into the market may tire and begin to liquidate silver holdings, with a commensurate price impact. Buyer beware!”
— With assistance by Jake Lloyd-Smith, Ranjeetha Pakiam, and Sunil Jagtiani
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