Could a “Silver Squeeze” Be the Next Big WallStreetBets Trade?

The next big possible moneymaking move to come out of the “WallStreetBets” Reddit forum was all the talk of financial media today.

After a post titled “THE BIGGEST SHORT SQUEEZE IN THE WORLD $SLV Silver $25 to $1000” gained a lot of traction on the site, it’s leaving investors wondering if silver will be the next GameStop-like trade.

The person who posted the thread on Reddit believes that silver is one of the most manipulated markets on Earth with billions of dollars’ worth of short interest exposure from hedge funds.

He or she also believes that silver is a good hedge against inflation and all the money printing from government central banks around the world.

This speculation has led some investors buying the iShares Silver Trust ETF (NYSEARCA: SLV) and even physical silver from local coin dealers.

By the end of the trading session, silver closed 8% higher – its largest gain in about a decade.

finviz dynamic chart for  SLV

But there are two main risks you should be aware of…

First, the SLV ETF can and will issue new shares to buy physical silver as demand for the ETF increases.

This is important to know because those new shares can be shorted by short sellers.

This is a key difference from the limited supply of shares that companies like GameStop (NYSE: GME), AMC Entertainment (NYSE: AMC), Bed Bath & Beyond (NYSE: BBBY), and all the other stocks from the “Big Short Squeeze” have.

And I highly doubt these companies will issue new shares anytime soon; unless they will unless they want to face scrutiny from the SEC.

The second major risk of this potential “silver squeeze” is the sheer size of the silver market compared to the small and mid-cap stocks WallStreetBets (WSB) sent soaring in the past two weeks.

You see, GameStop only had a ~$500 million market cap back in September, when the trade starting gaining momentum on the forum.

With such a small size, that means it doesn’t take much capital to send the stock significantly higher.

WallStreetBets traders were able to bid the GME market cap as high as $33.7 billion on Jan. 27.

But that’s peanuts in the grand scheme of things.

With a $1.63 trillion market cap, that means silver is more than 48 times bigger than GameStop at its all-time highs.

So, it would take substantially more capital to move the silver market 40x (from $25 to $1,000 like the WSB Reddit user suggested).

Be careful out there and do your homework before betting on any of these momentum plays.

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