Stocks finish calmer, while silver prices surge as Reddit traders change focus
NEW YORK, NY — The erratic trading in shares of underdog companies like GameStop that turned markets combustible last week migrated to commodities on Monday, sending silver prices surging to an eight-year high.
Stocks closed higher on Wall Street Monday afternoon, recovering some of the ground they lost last week in their biggest weekly drop since October.
The S&P 500 index rose 1.6%. Investors large and small continued to focus on GameStop and other stocks targeted by online traders hoping to inflict damage on hedge funds.
Meanwhile, the price of silver futures rose by 9% as trading in the precious metal became another target for online investors seeking to go up against big Wall Street players. It was its highest price in eight years.
Silver prices that have gone haywire appear, at least in part, to be an outgrowth of the “WallStreetBets” forum on Reddit.
An online army of Reddit traders banded together for the past week to snap up thousands of shares of GameStop, AMC and other struggling chains, stocks that have been heavily shorted (bets that the stock will fall) by a number of hedge funds. In the process, they’ve done heavy damage to those hedge funds in a stunning reversal of financial power on Wall Street.
But the rush into silver futures has created confusion amid the chaos, with some retail traders on Reddit calling the surge in commodity prices a “false flag.”
“IT’S A TRAP!” one Redditor warned.
Some of these smaller traders believe the hedge funds that were pillaged last week are behind the surge in silver. Communications on messaging boards claim hedge funds have now become active on Reddit anonymously, attempting to drive them out of GameStop bets and into silver, but only after hedge funds had taken huge positions.
If it is a trap, no one can say for sure.
The number of GameStop shares that have been shorted (bets that the stock will fall), were slashed by more than half in recent days, according to a report Monday by the analytics firm S3 Partners.
Shares of GameStop Corp., which signaled a seismic and perhaps short-lived power shift in financial markets, fell 25% Monday. But the stock price, as it has been for more than a week, is tremendously volatile.
The battle over GameStop, according to Morgan Stanley, may have played a part in igniting a market correction.
The “correction has arrived,” wrote analyst Michael Wilson, saying that in addition to other market forces, aggressive short squeezes have “led to a significant degrossing by hedge funds,”
“Markets corrected 3-5% with many of our favored trades taking a much needed and expected hit,” Wilson wrote. “This is normal in an exuberant bull market, but we don’t think the correction is over until leverage is reduced further by both institutional and retail investors.”
The narrative has burst from financial pages, reaching even the White House, where President Joe Biden and Treasury Secretary Janet Yellen were peppered with questions about it last week.
On Monday, White House press secretary Jen Psaki was asked about GameStop and said that the volatility raises “an important set of policy issues.”
“We think congressional attention to these issues is appropriate,” Psaki adds.
The story has also moved out of Reddit chatrooms and into places where silver actually trades hands. Coin dealers were being overwhelmed by orders Monday.
The Silver Mountain, a Netherlands-based bullion dealer, said on its website that, “Due to extreme market volatility we cannot accept any new orders at this moment,” adding it hoped to reopen by the afternoon.
