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The spectacular rise in the price of GameStop shares and the run on silver coins is the beginning of a new trend. That's according to analyst Eugen Weinberg of the German Commerzbank in an interview with CNBC. "With the excess liquidity in the system, more bubbles are likely to form. Not only in silver, but also in other investment categories." The support measures provided by central banks and governments have led to a lot more money being put into circulation, which will further push up the prices of certain assets.
Weinberg expects investors to be able to push up the prices of other precious metals as well. "There is a large amount of precious metal that is now on investors' radar. Think, for example, of platinum and palladium, but also of rare metals. But the money can also go into larger commodity markets. I don't even rule out oil as something that retail investors will get into, although the effects in smaller markets such as silver will be more pronounced."
Silver price hit an eight-year high this week as investors poured into silver en masse. Many retail investors bought Silver Coins, as well as silver mines and shares of ETFs. In the meantime, the silver price has fallen a bit, but the price is still higher than a week ago.
The Commerzbank analyst has seen a trend of increasing speculation in the financial markets in recent years. "Tesla went up ten times, Bitcoin went up ten times, an index of unprofitable companies went up five times in ten months... GameStop is the most extreme example, because it's a smaller stock and because there was a short squeeze. If this says anything about the overall health of the financial markets, then that's cause for concern."
GameStop, according to Weinberg, was just a splurge of a broad market phenomenon, namely that shares of certain companies are extremely highly valued. This could jeopardise the stability of the financial markets.
"We have a market that we would traditionally call a bubble, where stocks are priced as if the future is perfect. Everyone is talking about what Robinhood has done and the crazy conspiracies that surround it. The reason why Robinhood has done What she's done is that she needed cash. It is, in fact, a business that works with borrowed money. It has lines of credit and they have to meet certain conditions. She came close to the limits of those lines of credit and risked going over them.
There is a risk in this market on the side of brokers, but potentially also on the side of hedge funds. If a hedge fund goes under, it can also have major consequences for the big brokers. Then we can go back to a crisis like with Long Term Capital Management in 1998. If this passes quietly, then there is no problem. Except that we will have systematically massively overvalued stock markets."
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This contribution was made from Geotrendlines
