The Next GameStop: Silver Bullion?

Markets remained rocky on Friday, and the Dow Jones Industrial Average (^DJI 0.56%), S&P 500 (^GSPC -0.88%), and Nasdaq Composite (^IXIC -2.05%) all finished the day sharply lower. The move erased gains for the month for the Dow and S&P, with only the Nasdaq managing to hold onto a roughly 1.4% rise in January.

Data source: Yahoo! Finance.

The entire investing community has been fixated on what's been happening with shares of stocks that have high short interest. GameStop (GME 1.07%) and others have seen their share prices gyrate wildly, and at least in some people's eyes, it's turned into a battle between Wall Street and average investors. With some brokers having temporarily suspended trading in GameStop on Thursday, some investors are looking for other areas where short squeezes might occur. Even as many of those brokers allowed investors to buy GameStop stock again on Friday, some looked instead to silver stocks -- and the precious metal itself -- as possibilities for a similar short squeeze.

A wild ride for the white metal

Silver prices started seeing volatility on Thursday afternoon. Having traded around $25 per ounce earlier in the week, the price quickly jumped to nearly $27. The white metal pulled back in after-hours trading on Thursday and moved sharply in both directions overnight. But spot prices for silver once again jumped on Friday morning, and they closed at just under the $27-per-ounce mark Friday afternoon.

Image source: Getty Images.

Silver investments saw some of the same volatility. iShares Silver Trust (SLV 1.31%) has risen more than 6% in the past two days. Companies with exposure to silver saw their stocks rise even further, with streaming giant Wheaton Precious Metals (WPM -0.08%) climbing 10% since Wednesday. First Majestic Silver (AG -0.59%) was up 7% just on Friday, bringing its two-day gain to more than 30%.

Some of the same groups of investors responsible for action in GameStop have apparently turned their attention to the silver market. Hyperbolic claims of squeezing silver to $1,000 an ounce led to some provocative headlines, and at least some people on Wall Street took the discussion seriously.

Squeezing silver? Won't happen

There are a couple reasons why investors shouldn't expect any sort of functional squeeze on the silver market. First, commodities markets are much larger than the market capitalization of GameStop. There's plenty of actual physical metal available for both bullish and bearish traders to use.

Second, silver has been the subject of a squeeze before, so regulators are attuned to the signs of any sort of manipulation. In 1980, three brothers in the Hunt family sought to corner the silver market, capturing roughly one-third of the tradable supply of silver. That prompted a huge silver price increase, from around $6 per ounce in early 1979 to nearly $50 per ounce just 13 months later.

However, when the commodities exchanges changed the rules governing use of margin, the heavily leveraged Hunt brothers found themselves unable to pay back their debts when the price of silver started to drop. The resulting plunge sent bullion prices back down to the $5 to $10 range (per ounce) from the mid-1980s all the way until the late 2000s.

Also, unlike GameStop stock, millions of people have items made of silver. During past price spikes, massive numbers of people have taken silver items to coin dealers, pawn shops, and others to turn them into cash. No one on Reddit can control that big a market.

Still shiny

Some view silver less as an investment and more as a hard asset for portfolio protection. Regardless of how you see the precious metal, though, you don't have to worry much about a true short squeeze transforming the silver market anytime soon.