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Here's my explanation as an ex fund manager: Gold is the Schelling point flight-to-safety, anti-inflation good. Silver has similar qualities, and might as well

Here's my explanation as an ex fund manager: Gold is the Schelling point flight-to-safety, anti-inflation good. Silver has similar qualities, and might as well be the same thing economically, but it isn't. You're more likely to have heard of gold bugs than silver bugs. When it comes to a massive market panic like this, people think about what other people think about. Well, they always do that, but when there's a panic people have certain safe haven assets that everyone "agrees" are more likely to be safe than others. Bonds are another one, though of course there you have historically had massive government intervention, making it a little less unintuitive why people should buy them.

appleflaxen 7y ago
> little less unintuitive a little more intuitive? or you made a typo? (context suggests a typo, but the double negative makes it difficult to understand)
- lordnacho 7y ago
  Yeah good point. What I'm saying is authorities have bought bonds in the past, so there's kinda a reason to think there's someone who will support the price in the future.
  - thedudeabides5 7y ago
    Bond's are a great hedge, until they are not. With the policy stimulation starting with printed money to buy domestic assets, and moving rapidly towards printed money to finance fiscal support, it's not clear that bonds everywhere are a good hedge. https://www.tradingview.com/symbols/TVC-IT10Y/ https://www.tradingview.com/symbols/TVC-IT10Y/ Gold on the other hand, has been a decent hedge universally for a couple thousand years.
    - short_sells_poo 7y ago
      Gold is a crap hedge for equity selloffs. It's correlation is highly dubious and as in 2008, in this current case as well it actually sold off sharply with the equities. Bonds are very much like gold in this respect, doubly so if you explicitly pick the bonds of a highly indebted country with a shaky economy, in the middle of a potentially massive pandemic - like Italy. Italian bonds as a hedge have been avoided like the plague by anyone with an ounce of insight.
      - thedudeabides5 7y ago
        Depends on your currency! IF you are an American, it's an okay hedge. If you are European or Asian, it's pretty good. Problem is, you are thinking about your gold against dollars. Against yen, euro, rmb, it a natural hedge for your implicit short dollars.
throwaway_pdp09 7y ago
Does that explain why now? I mean, stonehenge didn't even exist in its big-stones form 5000 years ago - building that started a few hundred years later. Chew that over.
- Spooky23 7y ago
  Silver is used in industrial processes. Its plunge in price is a signal that industrial output is dropping.
short_sells_poo 7y ago
As I wrote below, gold has been a very dubious hedge for equity market crashes. As a matter of fact, in the last 2 decades, gold sold off with the initial market panic and it only started appreciating with the equity recovery. Truth is that very if (if any) people understand gold, and it's use as a safe haven for market panic is highly questionable. It has certain correlation regimes with bonds and inflation, but given the sparsity of data on market stresses (they are by definition rare events), it is very difficult to draw any sound conclusions. I explicitly exclude any events pre-2008, as the world now is completely different. The only thing that perhaps translates from the pre-2008 environment to our current situation is the magnitude of the selloffs, but everything else is different.
- duxup 7y ago
  Is it fair to say that gold is just as speculative and prone to panic as ... most things?
  - short_sells_poo 7y ago
    Yes. Gold has become (or always was?) as much a speculative asset as pretty much anything else. It's difficult to find a safe haven asset in any crash, because there are so many feedback loops and non-obvious relationships. Ex post we see of course many asset managers come out of the woodwork beating their drum on how their expertise allowed them to buy the safe haven asset that happened to work in a crash. This is survivorship bias at it's clearest. After 2008, central banks managed to stop every single market stress with a firehose of money. Eventually this became an actual trade. Every single selloff was bought heavily by traders because of the near-certainty that CBs will provide a hard backstop to the panic. Until last week, where a new regime is starting emerge perhaps where CB tools have suddenly stopped working, at least short term. Perhaps once the selloff stops, the massive money supply support will re-accelerate the buying, but right now we are in uncharted territory. The current market behavior is unprecedented. We saw the 3rd biggest one day loss in the entire history of S&P 500. Intraday volatility is through the roof.
  - cercatrova 7y ago
    Yes. Only cash is king.
jerkstate 7y ago
This doesn't scan for me. If both are "flight to safety" assets to different extents, how come (a) the list price has gone down significantly for both assets during a "flight to safety" and (b) every online coin shop is selling for delivery in 4 weeks at 20% above spot (not too abnormal) or delivery this week for 50% above spot (quite abnormal). Physical silver is very hard to buy for the supposed "price." As an ex fund manager, what would you say to the theory that large financial institutions have sold a great deal of precious metal-backed securities ("paper" PMs) over the past couple of weeks to cover stock market margin calls, flooding the paper market, while the physical market is seeing shortages, indicating a price disconnect between the security and the good itself? What happens next?
- lordnacho 7y ago
  > As an ex fund manager, what would you say to the theory that large financial institutions have sold a great deal of precious metal-backed securities ("paper" PMs) over the past couple of weeks to cover stock market margin calls, flooding the paper market, while the physical market is seeing shortages, indicating a price disconnect between the security and the good itself? Plausible. I had no idea where gold even was stored back when I was speculating on it. By and large, people who speculate on the price have separated the actual assets from the claims representing ownership in them. It's normally the effective thing to do. > What happens next? I get the feeling the news out of the US, with its health system being what it is, is going to get worse. There's no way we avoid the news being flooded with more and more issues related to the virus.
- johnyzee 7y ago
  The history of 'paper gold', in all its forms, including many national currencies until they floated in the 70s, is one of 'detachment' from the actual gold by the issue of more paper than what was backed by actual goods (fraud in other words). There are some interesting arguments by people in the industry that the gold certificates in use today, supposedly backed by gold in mostly London, have only a small fraction of the physical gold behind them from what their denomination proclaims. Indeed, the more you look into the terms and details of the big gold funds, the fishier they look (as an example, their terms explicitly exclude the fund from any custodian risk, meaning they have no responsibility for the gold actually existing). A thesis is that the paper gold is now being used as an instrument to regulate the demand for actual gold - whenever demand gets too high, more paper gold can be issued to counter the trend. This is managed by creative bookkeeping, where gold bars are leased to other entities (a practice that central banks openly use), who then lease them somewhere else, etc., until the ownership of any one given bar is no longer particularly clear, and may well be 'owned' by a number of entities at the same time. Thinking back to the previous financial crisis, it is not hard to believe a scenario where the financial industry invents creative tricks to make value out of thin air.
benibela 7y ago
In Germany there is another explanation. Gold is tax-free, silver is taxed.
- sbmthakur 7y ago
  Won't this increase imports? I am assuming that Germany has to import most of its Gold.
Klinky 7y ago
Gold and silver are probably the best places to invest if you're planning for total societal collapse, but not really great vehicles to weather a recession.
- Dirlewanger 7y ago
  Very poor choice to invest in gold if you're waiting for society to collapse. Looters won't give a shit that you have gold, they'll kill you, rape/kill your wife and children, steal whatever food/portable munitions you have, and leave the gold because it's too heavy.
  - perl4ever 7y ago
    It's been said before, many times, many ways, that preparing for "societal collapse" is highly dependent on what sort of collapse you expect. Right now, it kinda sorta seems a little collapsy to many people, and yet I don't think most people are anticipating that they will lose electricity, running water, heating fuel, etc. An earthquake is different from a nuclear war is different from a pandemic...
- mrnobody_67 7y ago
  Gold was the best performing asset class the last decade.... better than the SP500
  - murrayn 7y ago
    But not better than bitcoin.
    - OJFord 7y ago
      That's like saying 'not better than being an angel investor in <a now huge company founded around 2010>' though.
  - brazzy 7y ago
    Um... no, it wasn't?
kragen 7y ago
Schelling points exist in cooperation games: where you and other players win if you choose the same move and lose if you choose different moves. You have a cooperation game when you establish a market: if some traders go to Broadway and others go to Wall street, they won't be able to trade with each other, and although indium and gallium trade around the same price as silver, good fucking luck finding a liquid market in indium futures. But establishing a position is not a cooperative game; it's a competitive game: you lose if you take the same position as everyone else, because they drive up the price you have to pay if it's a long position, or they drive down the price you get if it's a short position. Schelling points don't make any sense in competitive games. Except, of course, if you pretend it's a cooperative game, and persuade everyone else to take the same position as you do, later. That's a pump-and-dump scam. As an ex-fund-manager you know this. So why are you bringing up Schelling points? Maybe there's something I don't understand.
bitxbit 7y ago
Traded gold for awhile now and I can say the gold market broke in 2011. It’s not a hedge for anything because it’s correlated to equities (and other risk assets such as crude). It’s really a speculation asset (think bitcoin). In fact, a lot of energy behind gold came out of the 2011 peak and the bust that followed and into crypto currencies. Having said that, with crypto now all but finished, and with roughly $2-3T in stimulus about to hit US and EU economies, I believe gold will see a rise in the next year or so. Especially if you buy it against the euro.
- poontang1 7y ago
  > Having said that, with crypto now all but finished Bitcoin will come out of this stronger than gold. It got the wrecked for the same reasons gold and silver did. People needed funds for margin calls and safe reserves, and bitcoin markets were already far less liquid than gold and silver. An emerging currency can't help but be volatile. Coming out of this, it will explode for the same reasons. It's less liquid, and there will be less supply to feed demand when people go for 'safe' assets. Young people have no trust in gold or silver. It's another metal with no intrinsic value other than being heavy, inconvenient to spend, and really inconvenient to transfer across borders. Bitcoin is at least half a step better than that, and a half step ahead of any other cryptocurrency competitor when it comes to institutional and retail availability.
  - vkou 7y ago
    > Bitcoin will come out of this stronger than gold. Not when the Tether scam fully unravels.
    - xorcist 7y ago
      If stablecoins would turn out to be fraudulent, surely what little they can be traded against would become more expensive?
      - vkou 7y ago
        The reason BTC has value for a lot of people is because stablecoins exist.
jackcosgrove 7y ago
My understanding of silver is that it sometimes has more value as a commodity in processes that tarnish or change the silver in ways that make it expensive to restore. The supply of silver is slowly diminishing because of this, whereas gold is used less industrially and is chemically more stable.
perl4ever 7y ago
If I wanted to know the difference between gold and silver, I would research the difference between the businesses of gold miners and silver miners.

appleflaxen 7y ago

> little less unintuitive a little more intuitive? or you made a typo? (context suggests a typo, but the double negative makes it difficult to understand)

lordnacho 7y ago
Yeah good point. What I'm saying is authorities have bought bonds in the past, so there's kinda a reason to think there's someone who will support the price in the future.
- thedudeabides5 7y ago
  Bond's are a great hedge, until they are not. With the policy stimulation starting with printed money to buy domestic assets, and moving rapidly towards printed money to finance fiscal support, it's not clear that bonds everywhere are a good hedge. https://www.tradingview.com/symbols/TVC-IT10Y/ https://www.tradingview.com/symbols/TVC-IT10Y/ Gold on the other hand, has been a decent hedge universally for a couple thousand years.
  - short_sells_poo 7y ago
    Gold is a crap hedge for equity selloffs. It's correlation is highly dubious and as in 2008, in this current case as well it actually sold off sharply with the equities. Bonds are very much like gold in this respect, doubly so if you explicitly pick the bonds of a highly indebted country with a shaky economy, in the middle of a potentially massive pandemic - like Italy. Italian bonds as a hedge have been avoided like the plague by anyone with an ounce of insight.
    - thedudeabides5 7y ago
      Depends on your currency! IF you are an American, it's an okay hedge. If you are European or Asian, it's pretty good. Problem is, you are thinking about your gold against dollars. Against yen, euro, rmb, it a natural hedge for your implicit short dollars.

throwaway_pdp09 7y ago

Does that explain why now? I mean, stonehenge didn't even exist in its big-stones form 5000 years ago - building that started a few hundred years later. Chew that over.

Spooky23 7y ago
Silver is used in industrial processes. Its plunge in price is a signal that industrial output is dropping.

short_sells_poo 7y ago

As I wrote below, gold has been a very dubious hedge for equity market crashes. As a matter of fact, in the last 2 decades, gold sold off with the initial market panic and it only started appreciating with the equity recovery. Truth is that very if (if any) people understand gold, and it's use as a safe haven for market panic is highly questionable. It has certain correlation regimes with bonds and inflation, but given the sparsity of data on market stresses (they are by definition rare events), it is very difficult to draw any sound conclusions. I explicitly exclude any events pre-2008, as the world now is completely different. The only thing that perhaps translates from the pre-2008 environment to our current situation is the magnitude of the selloffs, but everything else is different.

duxup 7y ago
Is it fair to say that gold is just as speculative and prone to panic as ... most things?
- short_sells_poo 7y ago
  Yes. Gold has become (or always was?) as much a speculative asset as pretty much anything else. It's difficult to find a safe haven asset in any crash, because there are so many feedback loops and non-obvious relationships. Ex post we see of course many asset managers come out of the woodwork beating their drum on how their expertise allowed them to buy the safe haven asset that happened to work in a crash. This is survivorship bias at it's clearest. After 2008, central banks managed to stop every single market stress with a firehose of money. Eventually this became an actual trade. Every single selloff was bought heavily by traders because of the near-certainty that CBs will provide a hard backstop to the panic. Until last week, where a new regime is starting emerge perhaps where CB tools have suddenly stopped working, at least short term. Perhaps once the selloff stops, the massive money supply support will re-accelerate the buying, but right now we are in uncharted territory. The current market behavior is unprecedented. We saw the 3rd biggest one day loss in the entire history of S&P 500. Intraday volatility is through the roof.
- cercatrova 7y ago
  Yes. Only cash is king.

jerkstate 7y ago

This doesn't scan for me. If both are "flight to safety" assets to different extents, how come (a) the list price has gone down significantly for both assets during a "flight to safety" and (b) every online coin shop is selling for delivery in 4 weeks at 20% above spot (not too abnormal) or delivery this week for 50% above spot (quite abnormal). Physical silver is very hard to buy for the supposed "price." As an ex fund manager, what would you say to the theory that large financial institutions have sold a great deal of precious metal-backed securities ("paper" PMs) over the past couple of weeks to cover stock market margin calls, flooding the paper market, while the physical market is seeing shortages, indicating a price disconnect between the security and the good itself? What happens next?

lordnacho 7y ago
> As an ex fund manager, what would you say to the theory that large financial institutions have sold a great deal of precious metal-backed securities ("paper" PMs) over the past couple of weeks to cover stock market margin calls, flooding the paper market, while the physical market is seeing shortages, indicating a price disconnect between the security and the good itself? Plausible. I had no idea where gold even was stored back when I was speculating on it. By and large, people who speculate on the price have separated the actual assets from the claims representing ownership in them. It's normally the effective thing to do. > What happens next? I get the feeling the news out of the US, with its health system being what it is, is going to get worse. There's no way we avoid the news being flooded with more and more issues related to the virus.
johnyzee 7y ago
The history of 'paper gold', in all its forms, including many national currencies until they floated in the 70s, is one of 'detachment' from the actual gold by the issue of more paper than what was backed by actual goods (fraud in other words). There are some interesting arguments by people in the industry that the gold certificates in use today, supposedly backed by gold in mostly London, have only a small fraction of the physical gold behind them from what their denomination proclaims. Indeed, the more you look into the terms and details of the big gold funds, the fishier they look (as an example, their terms explicitly exclude the fund from any custodian risk, meaning they have no responsibility for the gold actually existing). A thesis is that the paper gold is now being used as an instrument to regulate the demand for actual gold - whenever demand gets too high, more paper gold can be issued to counter the trend. This is managed by creative bookkeeping, where gold bars are leased to other entities (a practice that central banks openly use), who then lease them somewhere else, etc., until the ownership of any one given bar is no longer particularly clear, and may well be 'owned' by a number of entities at the same time. Thinking back to the previous financial crisis, it is not hard to believe a scenario where the financial industry invents creative tricks to make value out of thin air.

benibela 7y ago

In Germany there is another explanation. Gold is tax-free, silver is taxed.

sbmthakur 7y ago
Won't this increase imports? I am assuming that Germany has to import most of its Gold.

Klinky 7y ago

Gold and silver are probably the best places to invest if you're planning for total societal collapse, but not really great vehicles to weather a recession.

Dirlewanger 7y ago
Very poor choice to invest in gold if you're waiting for society to collapse. Looters won't give a shit that you have gold, they'll kill you, rape/kill your wife and children, steal whatever food/portable munitions you have, and leave the gold because it's too heavy.
- perl4ever 7y ago
  It's been said before, many times, many ways, that preparing for "societal collapse" is highly dependent on what sort of collapse you expect. Right now, it kinda sorta seems a little collapsy to many people, and yet I don't think most people are anticipating that they will lose electricity, running water, heating fuel, etc. An earthquake is different from a nuclear war is different from a pandemic...
mrnobody_67 7y ago
Gold was the best performing asset class the last decade.... better than the SP500
- murrayn 7y ago
  But not better than bitcoin.
  - OJFord 7y ago
    That's like saying 'not better than being an angel investor in <a now huge company founded around 2010>' though.
- brazzy 7y ago
  Um... no, it wasn't?

kragen 7y ago

Schelling points exist in cooperation games: where you and other players win if you choose the same move and lose if you choose different moves. You have a cooperation game when you establish a market: if some traders go to Broadway and others go to Wall street, they won't be able to trade with each other, and although indium and gallium trade around the same price as silver, good fucking luck finding a liquid market in indium futures. But establishing a position is not a cooperative game; it's a competitive game: you lose if you take the same position as everyone else, because they drive up the price you have to pay if it's a long position, or they drive down the price you get if it's a short position. Schelling points don't make any sense in competitive games. Except, of course, if you pretend it's a cooperative game, and persuade everyone else to take the same position as you do, later. That's a pump-and-dump scam. As an ex-fund-manager you know this. So why are you bringing up Schelling points? Maybe there's something I don't understand.

bitxbit 7y ago

Traded gold for awhile now and I can say the gold market broke in 2011. It’s not a hedge for anything because it’s correlated to equities (and other risk assets such as crude). It’s really a speculation asset (think bitcoin). In fact, a lot of energy behind gold came out of the 2011 peak and the bust that followed and into crypto currencies. Having said that, with crypto now all but finished, and with roughly $2-3T in stimulus about to hit US and EU economies, I believe gold will see a rise in the next year or so. Especially if you buy it against the euro.

poontang1 7y ago
> Having said that, with crypto now all but finished Bitcoin will come out of this stronger than gold. It got the wrecked for the same reasons gold and silver did. People needed funds for margin calls and safe reserves, and bitcoin markets were already far less liquid than gold and silver. An emerging currency can't help but be volatile. Coming out of this, it will explode for the same reasons. It's less liquid, and there will be less supply to feed demand when people go for 'safe' assets. Young people have no trust in gold or silver. It's another metal with no intrinsic value other than being heavy, inconvenient to spend, and really inconvenient to transfer across borders. Bitcoin is at least half a step better than that, and a half step ahead of any other cryptocurrency competitor when it comes to institutional and retail availability.
- vkou 7y ago
  > Bitcoin will come out of this stronger than gold. Not when the Tether scam fully unravels.
  - xorcist 7y ago
    If stablecoins would turn out to be fraudulent, surely what little they can be traded against would become more expensive?
    - vkou 7y ago
      The reason BTC has value for a lot of people is because stablecoins exist.

jackcosgrove 7y ago

My understanding of silver is that it sometimes has more value as a commodity in processes that tarnish or change the silver in ways that make it expensive to restore. The supply of silver is slowly diminishing because of this, whereas gold is used less industrially and is chemically more stable.

perl4ever 7y ago

If I wanted to know the difference between gold and silver, I would research the difference between the businesses of gold miners and silver miners.