An epic battle between institutional and retail investors is unfolding in the shares of GameStop (GME). Prices finish the week 400% higher and are up over 1600% in January. Robinhood and Reddit advocates are exploiting a massive short position in the stock. The pressure is building and will likely continue into next week.
It’s unclear how this story will end. Currently, the outstanding short position in GME is approximately 61-million shares. Here’s the problem…there are only 50-million shares available for trading. The SEC is negligent for allowing short positions to exceed 138% of available shares. Robinhooders banded together and took advantage of this vulnerability.
On Thursday, Robinhood announced trading restrictions and limited buying on GME. On Friday, they expanded the list of “restricted stocks” to over 50, all with sizable short positions. If they continue to push these constraints, they will lose customers, which could bankrupt the company. Before the weekend, they tapped into a $1 billion line of credit.
The Reddit crowd is exploiting notorious market manipulators and short-sellers, beating them at their own game. Some speculate they will turn to silver next and perhaps mining stocks.
Losses are mounting, and this could spiral into contagion if margin calls lead to more selling. A sharp selloff is possible if the route in GameStop continues.
Whatever happens, the sea of liquidity will continue to look for the next “big opportunity.” In my opinion, it’s just a matter of time before they turn to precious metals.
The gold cycle indicator finished at 45, and this remains a good long-term buying opportunity.
-GOLD- Gold rallied Thursday and Friday in early trading only to be beaten lower by institutional investors after the New York open. Prices need to close above $1875 to support a breakout. The longer-term picture remains incredibly bullish, but the near-term trend is vulnerable to more downside on a close below $1820. If prices do decline, it would be temporary.
-SILVER- Silver may be gaining the attention of the Robinhood gang. Prices were up sharply Thursday and Friday but retreated after the New York open. A battle is building between retail and institutional investors; progressive closes above $28.00 could lead to a sharp advance.
-PLATINUM- Platinum reached $1121 on Friday before institutional investors mounted a counterattack. The potential for an explosive rally remains on a breakout above $1200. When it comes to investing in platinum, I prefer 1-ounce coins from the US Mint. These coins are relatively scarce, and I think they could be worth a lot of money somewhere down the road.
US Mint 1-ounce Platinum coins are scarce. I try to buy specific years with low mintage (post-1990s regular issue) when they are available. Platinum 1-ounce coins have a $100 face value.
Over the last 20 years, just 520,505 1-ounce platinum (non-proof) coins were minted. By comparison, 747,500 1-ounce gold eagle coins were minted just in 2020.
In the US, APMEX is one of the largest bullion dealers; they usually have a decent supply. See link below.
-GDX- Miners started strong both Thursday and Friday but were beaten back after the open by institutional investors. A rally above the intermediate trendline is needed to establish a breakout. Until that occurs, prices remain vulnerable to a decline back towards the $31.00 level.
-GDXJ- In juniors, we need progressive closes above $52.34 to register a breakout. Until that occurs, prices remain vulnerable to another downside attack.
-MUX- The outstanding shorts against McEwan mining is roughly 16% of total shares. The Robinhood gang started to bid prices up on Thursday, but the rally met resistance on Friday when Robinhood executives limited buying just 5-shares.
-AG- The outstanding shorts against First Majestic Silver Corp. are roughly 23% of outstanding shares. Prices were rallying sharply on Friday until Robinhood placed them on the restricted trading list. If they remove those restrictions, prices could rally sharply next week.
-SPY- Stocks closed lower on Friday over the potential for a growing contagion because of GameStop. Progressive closes below the 50-day EMA could trigger a sharp decline to the 200-day MA or lower if we get an outright panic.
-XLE- The energy ETF is correcting with initial support arriving at $37.00. Depending on the severity of the correction in the overall stock market, prices could reach $34.00 and perhaps as low as $30.00 – $32.00 on a severe pullback.
Expect more volatility next week. A breakout in precious metals is possible if the trading restrictions set by Robinhood are removed.
The potential for a broader contagion regarding the fallout surrounding the GameStop could lead to a broader market selloff.
Have a great weekend.