Is silver the next GameStop?

By Dale Gillham. Published at Feb 5, 2021, in Market Wrap

Last week we saw a significant display of herd mentality, as masses of retail investors pushed up the price of the US stock, Gamestop. This week retail investors turned their attention to silver, attempting to push this commodity to unprecedented highs.

Last weekend, there were many posts and videos on social media and chat platforms encouraging people to buy up big on silver and silver stocks, as they were alleging that silver was the next short squeeze for hedge funds.

On Monday, silver rose due to demand, as retail traders rushed to grab a bargain like shoppers outside Myer during Boxing Day sales. However, silver quickly retreated to trade lower than it opened on Monday and, as of writing, silver is still trading at these levels. Therefore, retail investors are most likely holding on to losses and wondering what occurred.

Many Australians, trying to get in hoping to make it big, were blindly buying silver stocks unaware of the risks they were taking. If we consider Australian silver miners, outside of S32 the majority are very small. For example, Golden Deep (GED), one of the biggest movers in this latest dash for cash by retail traders only trades 120 million shares at around $0.01, meaning $1.2 million dollars of stock was traded on Monday. However, on a normal trading day, typically one to two million shares, equivalent to $10,000 to $20,000 dollars, turns over on GED.

While I appreciate the desire to make money, there are always those who like to chase rainbows hoping to find that elusive pot of gold, which is why lotteries are so popular.

However, unlike the lottery where you only pay a few dollars for a ticket, those who chase rainbows in the stock market typically lose thousands of dollars and sometimes much more. Reading chat forums or watching YouTube videos hoping to find the next big winner is a pursuit that generally results in the opposite occurring and rather being a master of the market, many become a statistic.

When it comes to the stock market, the rules do not change and those who choose to ignore them do so at their own peril. My advice is do not invest in something you do not know or understand, always do your research so you know why you are buying and always ensure you have an exit strategy. Finally, yet just as importantly, avoid following the herd at all costs.

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