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Reddit rally starts to fizzle as GameStop and silver slip

Some investors are betting that the stock split will boost the value of GameStop by attracting more meme-stock enthusiasts. The firm's shares jumped 19% in after-hours trading on Thursday after the company announced the move. Photo: Reuters.

(ATF) A rally driven by retail investors coordinating on Reddit forums is fading, with GameStop and AMC stock plunging and silver retracing earlier gains. Asian stocks that benefited from the squeeze on hedge fund shorts, such as Top Glove, could also pull back.

GameStop was down by 60% after the US close of trading on Tuesday February 2, and fell below $100 to erase more than $25 billion of nominal value on the day. Other stocks that had been driven up by Reddit investors such as AMC also fell sharply.

GameStop has now reversed more than 80% of the gains seen at the peak of the retail investor buying last week, but is also still up by more than 350% year-to-date, in a testament to the lasting impact of the dealing frenzy.

An apparent end to forced closure of long positions by hedge funds to cover short exposure, and strong earnings from technology giants helped the main US stock indices to rise.

Amazon and Google-owner Alphabet both posted strong quarterly earnings after the official US market close and Amazon projected revenue of over $100 billion for the current quarter.

News that Amazon founder Jeff Bezos will shift from chief executive to chairman overshadowed its earnings report but did not harm sentiment.

Silver prices started the week by reaching a fresh eight-year high above $30 an ounce, helped by Reddit-inspired buying, and a global shortage of physical coins exacerbated a rally that was also seen in silver derivatives and related ETFs and mining stocks.

But by late US trading on Tuesday the price had retreated by 10% to give up the gains seen on Monday, and settled at $26.40.

Top Glove to fall?

Top Glove, the Malaysian latex glove maker, had been a beneficiary of the squeeze on hedge-fund shorts and rose another 4.6% on Tuesday when Bursa Malaysia was open, after a rally of around 50% in January.

It may now retrace in value and see a return to a focus on the reasons why hedge funds had originally placed their short positions, such as concern about the impact of numerous investigations into Top Glove’s labour practices, as well as the effect on demand of future Covid vaccinations.

Other glove makers such as Hartalega, Supermax and Kossan had also seen their stocks boosted when Reddit-driven buying spread to Asia last week.

Silver miners could be similarly affected by the retracement in prices for the precious metal.

Among the drags on silver prices was a Chicago Mercantile Exchange margin hike on contracts for the metal, which makes speculative trade more expensive.

North American mining stocks including First Majestic Silver and Pan American Silver fell, and Australian miners could follow.


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Jon Macaskill

Jon Macaskill has over 25 years experience covering financial markets from New York and London. He won the State Street press award for 'Best Editorial Comment' in 2016


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