What Is the Silver Short Squeeze and Is There Any Validity to It

What is a Short Squeeze?

Some silver investors are interested in the theoretical concept of a silver short squeeze. The short squeeze is a phenomenon that occurs when a group of investors comes together and creates a bit of a run on a particular stock or commodity. An example of a short squeeze happened in January of 2021 with the GameStop fiasco. Here, online investors banded together and bought a considerable amount of GameStop stocks and that is how a short squeeze begins.

As many GameStop shares were sold short, the price increase caused considerable losses for other investors. This resulted in a rush to try and buy back shares which created further losses as this effort only added to the escalating price of the stock. By the end of the month, GameStop shares went from $17.25 to about $345. Clearly, that’s a remarkable jump but also unsustainable. Shortly thereafter, the short squeeze was done and GameStop’s stock came tumbling down. 

Can Investors Initiate a Short Squeeze with Physical Silver and Other Precious Metals?

Gold could be susceptible to a short squeeze but it might prove more difficult to squeeze than other precious metals such as silver. The issue with gold is that most of it is traded electronically, by ETF or Exchange Traded Fund. This means most investors own a piece of paper saying that they own a volume of gold. This is fine unless a considerable number of investors decided together that they wanted to trade in that paper for their physical gold. A silver short squeeze, on the other hand, might be easier to execute. 

This would likely create a ‘run’ on gold depositories and bullion banks. A short squeeze would then be in effect and the price of gold would jump.  

The Short Squeeze on Silver

Believe it or not, the silver short squeeze has already been attempted and it did have a slight effect on the pricing of silver. The same group of GameStop investors attempted to short squeeze silver in September of 2021. Initially, the investors succeeded but the silver short squeeze was, well, short lived. 

Following a few days of coordinated buying, the physical silver short squeeze did have an impact. The price of silver rose by about 5 dollars an ounce, a considerable jump for the precious metal. However, the price soon came back down and stabilized. The silver short squeeze was over almost as soon as it began. 

This attempted silver short squeeze failed because silver is a much larger commodity than gaming stock. Big players can have a short-term net effect on silver prices, but as this market is so large and so liquid, the ability to squeeze silver, physical or otherwise, is more than a bit limited. So, yes, there are nefarious groups of investors who can plan for a short squeeze but there are also considerable limitations as it comes to pushing a squeeze on silver and other precious metals.

Back to "Bullion Academy"