The internet has been on fire with the David vs. Goliath battle between Wall Street professional investors and Main Street retail investors. The story started with the Gamestop stock and spread to AMC, Blackberry and Nokia equities and then even bled over to silver. What is going on, and what does it mean for silver and gold?
Source: AS
Factors Tied to Recent Silver Popularity
Let’s start with Gamestop. Gamestop is a retailer of computer games and related products including action figures, playing cards and memorabilia. With COVID and internet-based availability of games, professional investors came to believe that Gamestop was not going to do well and its stock value would fall. So these professional investors, including a Hedge Fund owned by Steve Cohen new owner of the NY Mets decided to ‘short’ this stock as a way to make money when a stock’s value goes down. They sold shares in Gamestop without really owning what they sold (yes this is legal) and promised to deliver these shares in the future. Their bet was that the stock would go down before they had to deliver the stock they sold, so they could buy it at a lower price and then sell it at the higher price they had sold it at. Again, somehow this is all legal- but risky.
Small Investors
Some small investors discovered what was happening and told their friends on shared social media that this was happening and that it if they worked together to buy up available Gamestop shares, they could make a lot of money and stick-it to Wall Street. How would that work? Remember these companies that sold the stock need to buy it before their contract to sell shares comes due. They HAVE TO buy it, and whatever price they can. The ‘Davids’ in this story worked together to pump up the price and corner the market on available shares. (It is not exactly clear that this was legal). Gamestop’s stock price went from around $20 / share to over $400 / share. And a lot of people made a bunch of money. Wall Street freaked out. Washington freaked out. And even some social media sites freaked out. David had beaten Goliath. But as all this has settled out, Gamestop’s price has crashed as have many of the other stocks involved in this short. While Goliath probably got beat, there are probably a bunch of other Davids who got in late and lost a bunch of money.
Source: Banknote World
Outlook
While Gamestop and AMC were starting to cool down, attention shifted to silver. Some people on these social media sites mentioned silver as another potential opportunity. Based on these rumors, some people bought silver coins, silver bars and shares in silver mining companies. Overnight silver went up more than 10%. Shares in several mining companies jumped also. But just as quickly the prices dropped nearly to the same price before the rumor. It is likely some average people invested based on the rumor and lost a bunch of money.
There are also some rumors about gold right now. No one knows if silver or gold are good investments. As most financial advisors say, it is good to diversify which means having some money in precious metals. But these get-rich quick schemes and especially putting your money into any investment based on a rumor or social media is dangerous and risky. Buy silver and gold if you think there will be long term appreciation of value- not 200% in a week like the wild and rare ride with Gamestop.
***Disclaimer – This is not financial advice in any way shape or form. Article and information presented is only for educational purposes.***
