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Wall Street Rumors Boost Silver

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Special Collections Department, University of Nevada, Reno Library

Comstock miners in the 1880s.

Silver has shone brightly lately.

The price of the metal that gave Nevada its “Silver State” nickname reached an eight-year high last week. The move was credited to rumors that the Wall Street Bets group, which pushed up GameStop stock, was moving into the silver market.

“When you’re talking about doing it with silver that is a physical commodity and trying to cause that by shorting the shares of a fund that owns silver, it’s a whole different game,” said Mike PeQueen director of wealth management firm Hightower Las Vegas. 

PeQueen noted that shorting a stock is very different than shorting a commodity. The rules are different, which makes it much more difficult.

When you short a stock, you are essentially betting that the stock will go down, not up.

“It means if you don’t own a stock you can go to your brokerage firm and ask to have them lend you the shares and sell them in the market. That money goes into a sort of an escrow account, and if the shares go down in value, you can buy them back at that lower price, payback those shares to the brokerage firm and you can keep the difference,” he said.

If the stock goes up, then you owe money on the stock.

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The commodities markets are very different, he said.

“When you close the transaction, instead of selling a stock, you’re buying a stock and that’s what they didn’t understand with silver is that you’re not simply buying back shares of the silver fund, but you could also be delivering actual silver,” he said.

PeQueen explained that the commodity markets were started more than a hundred years ago by farmers in the Midwest who wanted to lock in the price of the crops they were growing. 

Now, those markets are extremely complex and difficult to manipulate.

“I don’t think that most regular investors quite understand all the nuances and the dangers that go with it,” PeQueen said.

Overall, PeQueen believes silver is a good investment, and he believes the prices will be going up. 

People tend to buy precious metals during times of economic stress, said Tyre Gray, president of the Nevada Mining Association.

He told State of Nevada that silver’s gains came from investors seeking a historic store of value in uncertain times

“A lot of portfolios will hold silver and commodities, frankly, in order to help offset some of the economic distress that we have seen in 2020,” he said.

Gray noted that during the Great Recession both silver and gold saw a rise in prices as people looked for a stable place to put their money. The prices sank again when the economy recovered.

“Really what accounts for the rapid rise in price are people wanting to shelter money,” he said.

Nevada's history is strongly tied to silver. The Comstock Lode brought Nevada fame and fortune. It brought thousands of people to the state, which eventually lead to the state joining the union.

Now, Gray said the industry is "vibrant," but he is reluctant to talk about 'worth' when it comes to silver because that worth depends on who is buying and selling it. With that state, he did note approximately how much is mined a year.

“On an annual basis, we see somewhere in the area of $100 to $150 million worth of silver being mined here in Nevada,” he said.

Besides people buying it to protect against the economic downturn, the precious metal is in demand because of its industrial uses. 

“Silver is such an important part in bringing forth green technology, and frankly, it’s a huge part in our everyday modern life,” Gray said.

Silver is used to make solars panel, electric vehicles, home electronics and smartphones. As the number of those items increase, so does the demand for silver, and therefore, the price.

As for what individual investors did to some big hedge funds during the GameStop incident, PeQueen believes it might be an indication of a power shift in Wall Street.

“It may not be the end of this. It may just be the first chapter in how individual investors harness the power of technology and social media to perhaps begin to rewrite some of the rules of how the financial game is played,” he said. 

Guests

Mike PeQueen, director, Hightower Las Vegas; Tyre Gray, president, Nevada Mining Association

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