Why ASX silver shares like Silver Mines (ASX:SVL) are falling today

Why are ASX silver shares like Silver Mines Limited (ASX: SVL) falling today? It appears the WallStreetBets glasses have fallen off…

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The S&P/ASX 200 Index (ASX: XJO) is having a top day today. At the time of writing, the index is up a respectable 1.05% to 6,733 points. But one sector is not joining in on the party today. That sector is ASX silver shares.

Yesterday, we looked at why ASX silver shares were rocketing for a seemingly strange reason. That turned out to be an alleged attempted short squeeze on the silver market that was initiated by the now-famous Reddit group WallStreetBets.

The idea behind this 'short squeeze' attempt was that the silver market is a relatively shallow and illiquid one, meaning that a sudden surge of buying pressure would force a supply-demand imbalance, and cause the price of silver to skyrocket accordingly.

As we also discussed yesterday, there was an underlying assumption in this WallStreetBets 'short thesis' that silver could shoot as high as US$1,000 an ounce if the market was squeezed hard enough. For investors brimming with FOMO after seeing what happened with GameStop Corp (NYSE: GME) stock last week, it must have been a red flag to the bull.

That's perhaps why we saw a feeding frenzy of activity yesterday surrounding silver, silver miners and silver exchange-traded funds (ETFs). We saw ASX silver miners like Thomson Resources Ltd (ASX: TMZ) and Silver Mines Limited (ASX: SVL) rally between 50% and 80% during yesterday's trading day at various points.

Not such an ASX silver bullet

Well, yesterday's feeding frenzy is today's rotting carcass. ASX silver shares are plunging this morning, giving up some (or most) of yesterday's gains. That's coming off the price of silver falling 2.6% overnight to US$28.66 an ounce, according to Bloomberg. However, that was after silver reached an 8-year high of $29.42 an ounce yesterday. To put things in perspective, silver was asking just US$25.40 an ounce on 27 January, just less than a week ago.

At the time of writing, Thomson Resources shares are down more than 22% today, while Silver Mines is down 19%. Another big performer yesterday in Adriatic Metals plc (ASX: ADT) is down 7.6%. A notable exception is Soth32 Ltd (ASX: S32), whose shares are up almost 4% today. However, South32 did not see the same kind of rally yesterday ('only' 4.7%) as these other miners. This is probably due to silver making up a relatively small part of South32's earnings base.

So why are these silver miners falling today, even though the price of silver remains substantially higher than it was last week? Well, it's probably due to the fact that investors have realised that silver isn't going to US$1,000 an ounce like some evidently were thinking yesterday.

After last week's saga, perhaps investors have realised that silver isn't going to be the next GameStop after all.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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