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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 du

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.
- ericd 7y ago
  Are you referring to the gold trust ETFs when you talk about this? eg IAU/GLD?
  - johnyzee 7y ago
    Yes.

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.

ericd 7y ago
Are you referring to the gold trust ETFs when you talk about this? eg IAU/GLD?
- johnyzee 7y ago
  Yes.