What happened

Shares of First Majestic Silver (NYSE:AG) rose roughly 13% in early trading on Jan. 29. Right there with First Majestic was silver-heavy peer Hecla Mining (NYSE:HL), which was also higher by 13% or so at its peak. Another name that went along for the ride was Endeavour Silver (NYSE:EXK), which was higher by roughly 13% at the open as well. 

A miner holding up a silver nugget.

Image source: Getty Images.

Although none of these companies held on to those gains for long, there is one thing in common here and it's in the name of two of these three precious metals miners -- silver. In fact, they weren't the only silver names to pop. For example, MAG Silver (NYSEMKT:MAG), which is developing two silver mining projects, jumped nearly 18% at one point. And Silvercorp Metals (NYSE:SVM), the biggest silver miner in China, saw a price gain of around 14% at one point in early trading. The more extreme moves for these two stocks isn't shocking, given that their businesses are a bit riskier in nature.   

That said, by roughly noon EST, all of these stocks were below those peaks. First Majestic's gain had been pared to 7%, Endeavour Silver had fallen to an 8% gain, Helca was up just 4%, and Silvercorp's shares stood at an 8% gain. Only MAG Silver was still above the 10% level, with a price increase of around 12%, or about two-thirds of its earlier high. 

So what

Precious metals miners are leveraged to the price of silver and gold. Basically, their costs are relatively fixed, so an increase (or decrease) in the price of these commodities can lead to material changes in profitability. Meanwhile, silver tends to be a lot more volatile than gold, so price swings in the shares of silver-focused miners like First Majestic, Hecla, Endeavour Silver, MAG Silver, and Silvercorp can be pretty extreme. This gold/silver relationship was on display today, with silver up roughly 5% at 11 a.m. EST while gold was up just 1% or so.   

In other words, it makes complete sense that silver miners would be rallying today. But the interesting thing is that this is the second day of strong gains. And that brings up another factor in the precious metals market: Investors often buy silver and gold as a hedge against risk. Basically, the belief is that precious metals are hard assets and thus offer a safe haven when uncertainty is on the rise on Wall Street and in the economy.

VIX Chart

VIX data by YCharts

Uncertainty is definitely high right now, with all the hype surrounding GameStop, AMC Entertainment, and other names caught up in short squeezes. The CBOE Volatility Index (or VIX for short), which specifically measures investors' expectations of market volatility, is clearly spiking, as the chart above shows. In fact, it isn't at all shocking that investors would view the short squeeze feeding frenzy as a sign that the market has become frothy. After all, stocks are near all-time highs, and the short squeeze issue has caught the attention of the mainstream media and even some prominent politicians. With that background, buying some silver and gold to protect against downside risk makes logical sense.

But now there's some concern that the investors attempting to squeeze short sellers are expanding their focus. Silver and silver stocks have been mentioned in posts on a popular investing message board. That may be behind some of the price moves over the last couple of days, but cornering the silver market is a vastly different animal from a short squeeze on the stock of a thinly traded and poorly performing company. Still, this adds more complexity to space, though silver, and the companies that mine for it, might actually be fairly attractive for other reasons. Silver, notably, has been trading at a relative discount to the price of gold compared to historical differences between the two precious metals. As that difference narrows, however, the value of an attempt to manipulate silver prices would likely become less and less worthwhile.   

Now what

Trying to time the ups and downs in silver and gold probably isn't the best course of action for most investors. The metals are commodities driven by supply and demand with a huge amount of investor sentiment mixed in to keep things exciting. Right now the mood on Wall Street is a major driving force in the precious metals space and thus for the price swings in the shares of miners like First Majestic, Hecla, Endeavour Silver, MAG Silver, and Silvercorp. And with a focus on silver, the more volatile of the two metals, these stocks can be extra volatile even in more "normal" times. 

The best bet for most investors is to view precious metals and miners as diversifying assets, with the goal of always holding a certain amount of exposure just in case the market goes haywire. Simply put, the large price moves seen in the silver mining space in the last couple of days aren't, in isolation, a good reason to jump aboard. In fact, even if the idea of adding precious metals to the mix for diversification purposes makes sense, it might be better to use cash as your safe-haven asset right now. Silver, specifically, is up more than 50% over the past 12 months. That suggests that a lot of investors have already bought into the safe-haven idea, potentially reducing the benefit for those getting into the space today. Meanwhile, if there is an attempt to manipulate the shares of silver and silver miners taking shape, you'll probably be better off watching from the sidelines than joining the crowd until this mania passes.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.