What happened

Shares of Coeur Mining (NYSE:CDE) were up an incredible 39% at the open of trading on Monday. Not far behind was Endeavour Silver (NYSE:EXK) with a 36% advance. And First Majestic Silver (NYSE:AG) and Silvercorp Metals (NYSEMKT:SVM) both had roughly 32% jumps. Over the weekend, the message-board-driven short squeeze in silver got a big boost, and it rolled into the early market today.

A spinning roulette wheel.

Image source: Getty Images.

That said, by 10:30 a.m. EST, these four silver miner stocks had pulled back a touch from their highs. Coeur was up a still impressive 25%, Endeavour was higher by 20%, First Majestic sat at a gain of 22%, and Silvercorp lagged in the rear with a 17% advance. These are not normal times, and these stock moves should be troubling to any investor looking at precious metals as a long-term diversifying asset.

So what

Toward the end of the previous week, the Reddit message board behind the short squeeze in troubled companies like retailer GameStop and movie theater operator AMC Entertainment Holdings started talking about targeting silver. Silver has a history of being fairly volatile, particularly relative to gold, but it is not the same as a troubled company. Nor are the miners suffering today. 

While there are very real risks to the future of GameStop and AMC, silver rose a hefty 50% or so last year, using the iShares Silver Trust as a proxy. Some silver miners rose even more. Precious-metals miners tend to be leveraged to the prices of the commodities they produce. While Coeur and First Majestic lagged silver's advance, Endeavour Silver doubled in price in 2020. In fact, industry watchers suggest that there aren't any material large-scale short positions in silver.  

That suggests that the current rallies are based on little more than investor hype and a get-rich-quick mentality. It's gotten so bad that people appear to be rushing out and buying silver bullion. A short squeeze is generally a short-term trade; buying bullion is anything but short term. There are material transaction costs involved, as well as storage concerns and time lags if you can't take delivery right away.

Physical bullion can help people sleep well at night if they fear a potential breakdown of the world financial order (a zombie apocalypse, if you will), but it isn't something that you buy and sell like a stock. Mania is the word that comes to mind.

SLV Chart

iShares Silver Trust data by YCharts.

Historically, precious metals have been viewed as a safe-haven asset. They are not providing that today, and buying into this rally could end up being a very costly mistake. Timing the emotional whims of investors is not an easy task.

Now what

If you are looking for a safe-haven asset, you might want to consider cash right now. Precious metals are being moved around by investors with different motives who don't particularly care about fundamentals or industry conditions. That's not the type of crowd that a long-term investor should be running with because, to many, people joining in on the short squeeze trade today look a lot more like gamblers than investors. Extreme caution is in order.

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.