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and what happens next following Reddit ‘short squeeze’ saga
GameStop share price: Latest news on GME stock – and what happens next following Reddit ‘short squeeze’ saga The battle between r/WallStreetBets and hedge fund managers over GameStop is showing no signs of slowing down this week
There is a big week ahead for GameStop stock owners and Wall Street hedge fund managers, with the saga showing no sign of stopping.
The story of how a Reddit community sent the video game retailer’s share price soaring captured the imagination of more than just the finance world last week.
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It has turned into a battle between the r/WallStreetBets subreddit and some of the world’s wealthiest investors, and right now it is the Redditors who are winning.
What is GameStop’s share price?
GameStop’s share price closed at $325 at the end of trading on Friday. The stock market does not trade over the weekend.
The retailer looks set to open Monday with a share price around $350.
GameStop shares were trading at around $4 for much of 2020. They opened 2021 at around $18.
GameStop’s share price has rocketed over the last week (Photo: Getty)
They slowly gained in value throughout January, but really started picking up the pace last week.
Their value spiked from $76 on Monday to around $350 on Wednesday, and reached highs of over $400 before dropping back down again.
They crashed below $200 briefly on Thursday as multiple trading platforms restricted purchases of GameStop and other shares that Reddit has caused to spike in popularity.
For anyone considering investing, it is important to remember that GameStop’s value is particularly volatile at the moment. Its price could keep rising, but it could also crash. If you do plan to invest, you should only put in what you can afford to lose.
What is going to happen this week?
This is an unprecedented situation, so it is almost impossible to predict how the next chapter will unfold.
What we do know is that Wall Street will be desperate to fight back against the Reddit community, which has now grown to almost eight million.
Investment firms will try to force GameStop’s share price down. Why is this so important to them? Because of a tactic called “short selling”, which you can read about in detail here.
Essentially, before /WallStreetBets caused its value to rocket, a number of investment firms had been expecting GameStop’s price to fall. They had billions of dollars backing this prediction, and if it had come true it would have made them and their investors a lot of money.
Wall Street will look to fight back against the Redditors (Photo: Reuters)
Instead, Reddit caused the very opposite to happen, and it has cost the hedge fund managers billions.
The r/WallStreetBets crew, meanwhile, will be hoping to send GameStop’s value further into the stratosphere.
Vocal members of the community are refusing to sell, despite the fact it would make them huge profits, as they see that as giving in to the Wall Street establishment.
The subreddit is full of people pledging to hold onto their shares, double down by buying more, and take GameStop’s value “to the moon”.
What started out as a “short squeeze” could end up being a far more long term operation.
Trading app backlash
The trading app Robinhood, along with other popular platforms like Tradind212, caused widespread anger by blocking people from purchasing GameStop shares on Thursday.
Many are continuing to restrict purchases, leading to accusations of market manipulation.
Market manipulation is a type of stock market abuse where there is a deliberate attempt to interfere with the free and fair operation of the market.
Robinhood claims it stopped people buying the shares because of “significant market volatility”. It said it wanted to “protect investors” from a potential crash, adding: “To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to.”
A class action lawsuit has already ben filed against the company.
“Robinhood’s actions were done purposefully and knowingly to manipulate the market for the benefit of people and financial institutions who were not Robinhood’s customers,” it states.
Politicians from across the spectrum have criticised the company, from Democratic Representative Alexandria Ocasio-Cortez to Republican Senator Ted Cruz.
Silver price reaches eight-year high as small investors snap it up
Silver prices hit an eight-year high on Monday as the precious metal became the latest asset to be subject to a flurry of interest from small investors.
Spot silver reached $30 an ounce for the first time since 2013 on Monday and the 10% gain put silver on track for its biggest one-day rise since 2008.
Since the middle of last week, thousands of Reddit posts and hundreds of YouTube videos have encouraged amateur traders to buy silver, partly in the belief that lifting its physical price could hurt large investors who had made paper bets that it would fall. The same logic was behind an explosion in the share price of US retailer GameStop, when Redditors drove up a share price that hedge funds had bet against.
However, one analyst said multiple factors could be behind the price jump. Silver mining stocks and exchange traded funds, which track the metal’s price, also rose on Monday, amid interest from private traders – also known as retail investors – on Reddit and other platforms.
Neil Wilson, the chief market analyst at Markets.com, a trading platform, said: “What we don’t know is exactly how this is happening – clearing out of shorts by worried hedge funds, retail-driven bids, ETF flows driving the physical market, smart money front-running the trade, or a combination of all these.”
Others pointed to Reddit, a social media site featuring a community of amateur investors. “The Reddit crowd has turned its sights on a bigger whale in terms of trying to catalyse something of a short squeeze in the silver market,” said Kyle Rodda, an analyst at brokerage IG Markets in Melbourne. “This is their big, bold Moby Dick moment,” he said.
One popular post on Reddit’s WallStreetBets group on Monday cautioned against speculating on silver. It argued that the “silver squeeze” was actually a “coordinated attack” by the hedge funds who had shorted GameStop’s shares, and now faced huge losses, saying:
“By buying silver/going long on silver, you would be directly putting money into the pockets of the EXACT HEDGE FUNDS ON THE OTHER SIDE OF $GME 🚀 🚀 🚀 💎 🙌 The hedge funds are LONG silver NOT short silver.”
Silver-mining stocks were the strongest performers on the FTSE 100 amid a worldwide rally, with London-listed gold and silver miner Fresnillo gaining 17% and Polymetal up 8% in early afternoon trading. The demand for physical silver has more than doubled since Thursday.
Shares in some Australian silver explorers gained as much as 40% on Monday.
Data from iShares Silver Trust ETF, an exchange-traded fund tracking the metal’s price, on Friday showed more than 37m shares were created in one day, each one representing an ounce of silver.
Aaron Cope in Florida was one of the investors buying in with an order of 500 silver coins. Cope has been trading in silver for eight years but said he has more than 10 friends who have just started trading in silver because of the recent news.
“The big problem is that we’re living in period where large banks are essentially shorting silver. Central banks and hedge funds are controlling the price of major assets and it allows them to control everything else, which undermines everybody’s ability to live freely and have a future,” Cope said. “Nobody cares about the common person, they’re just a pawn and everybody feels like pawns. That’s why this is starting, so we don’t feel like pawns.”
Craig Hemke, a precious metals analyst and editor/founder of the TF Metals Report, said “after GameStop there began to be discussions – what are other stocks with a massive short position that they could move to next?”
Hemke said the silver mining sector in US and Canada had been a victim of predatory short selling but that “for this silver squeeze to be effective it’s going to take a lot of patience as the pricing system is entrenched and has been entrenched for 40 years.”
“What they were able to do with GameStop is only one individual stock and on the other side are the hedge funds which can get squeezed with margin calls. That’s going to be challenging to do with silver because it’s a big market and the entities holding the short positions are held by the banks and they have deep pockets.”
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Dr Elvis Jarnecic, a senior lecturer at the University of Sydney Business School, said silver was a “much much more liquid market with a lot more buyers and sellers” so the newly empowered investors will represent a much less significant percentage of traders.
Jarnecic was critical of what he described as market manipulation.
“If institutions did this to inflate prices in this way away from fundamental values they’d receive enormous fines in regards to manipulating the market,” he said.