Silver tumbles 7% from 8-year high as day-trader rally runs out of steam – GameStop and other hot stocks are also sliding

Silver prices soared on Monday but faltered on Tuesday

The silver price tumbled 7% from an 8-year high on Tuesday, as efforts by retail traders to jack up the price fizzled out, and other day-trader targets such as GameStop slumped.

On Monday, silver rose as much as 13% to above $30 an ounce, as amateur investors piled into the market, causing exchange-traded funds to surge and some online retailers to restrict transactions.

The rally in silver appeared to be a continuation of the day-trading frenzy that drove GameStop shares 400% higher last week, with the hashtag #silversqueeze trending on Twitter.

Yet the rally lost impetus on Tuesday morning, with the benchmark silver futures price sliding 7.2% to $27.30 an ounce as of 9.45am ET.

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CME Group, which runs the Chicago Mercantile Exchange, increased the margins investors need to post to trade silver futures by 17.9% on Monday, which analysts said tamped down activity.

BlackRock’s iShares Silver Trust exchange-traded fund fell sharply, opening sharply lower on Tuesday at around $25.28 after closing on Monday at $26.76.

Analysts said the rapid turn-around in the price of silver showed the difficulty retail traders face in trying to drive up the price.

Part of the energy behind the silver rally on Monday was that day traders on Reddit and elsewhere had encouraged each other to buy up the metal in the belief that major financial institutions are betting against it.

Many members of the Wall Street Bets forum criticised the idea of targeting silver, however, saying the focus should remain on GameStop. Some noted that major Wall Street banks, and the hedge fund Citadel Advisors, were the biggest holders of the iShares Silver ETF.

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Bank of America strategist Michael Widmer said in a note there were signs that silver purchases “in recent days have come from both the retail and institutional space.”

Adrian Ash, director of research at precious-metals platform BullionVault, told Insider that the sheer size of the silver market was a major problem for day traders thinking of targeting the metal.

“While silver is much more volatile than gold – with wholesale volumes only one-seventh the value – [it’s] still massively larger than GameStop at $8 billion per day,” Ash said.

GameStop shares slid 42% at the opening bell on Tuesday morning to around $125.00 as the retail frenzy appeared to peter out. Movie theater chain AMC was down around 40% to around $8.

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Reddit day traders look to silver as the next short-squeeze after being restricted from hot stocks

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Silver bullion

Reddit day traders are turning to silver for their next short-squeeze target after being restricted from hot stocks like GameStop and AMC on some trading platforms.

Reddit’s WallStreetBets has been the talk of the market over the past few weeks as the forum used retail traders’ purchasing power to put the squeeze on institutional investors and short-sellers.

Now it appears the day traders of Reddit have found their next target in precious metals.

“Silver Bullion Market is one of the most manipulated on earth. Any short squeeze in silver paper shorts would be EPIC,”  a user on Reddit’s WallStreetBets posted. “We know billion banks are manipulating gold and silver to cover real inflation. Both the industrial case and monetary case, debt printing has never been more favorable for the No. 1 inflation hedge Silver.”

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Another post on the site said, “inflation-adjusted Silver should be at 1000$ instead of 25$. Why not squeeze $SLV to real physical price. Think about the Gainz. If you don’t care about the gains, think about the banks like JP MORGAN you’d be destroying along the way.”

The iShares Silver Trust gained as much as 7.2% on Thursday morning after the posts, a significant move for an ETF that normally has low volatility.

Spot silver also gained 6.8% before paring gains, while individual names in the industry like First Majestic Silver were probably the biggest beneficiaries of the move.

Shares in First Majestic soared as much as 39% before paring gains. Still, First Majestic is up over 20% as of 2:35 PM EST.

“There’s a short squeeze going on in silver. The ‘hoodies’ are all rolling into silver, and the party is on,” Phil Streible, chief market strategist at Blue Line Futures, told Bloomberg. “All those other stocks like GameStop and AMC, they’re dumping because they’ve been restricted, and they gotta go into other short opportunities, and silver is an easily identifiable target.”

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Silver prices have been muted for months after falling from highs of $28.30 an ounce last August.

The precious metal is generally not a volatile commodity, making Thursday’s spike in price notable. Spot silver has traded between $14 and $28 for the past five years.

Precious metal bulls are taking note of the price action. Peter Schiff, CEO of Euro Pacific Capital, said on Twitter, “It looks like the #reddit raiders have turned their attention to #silver stocks. They’re getting smarter. Silver stocks are actually cheap, and represent good investment value. The fact that some investors were foolish enough to short these stocks makes their trade even better.”

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