I’ll say it again: Excessive volatility can negate store of value considerations when it comes to assessing the viability of an asset’s claim on being money.
Gold (and silver) rebounded on Tuesday after the worst two-day selloff on record, and while bulls will be heartened by the attempted recovery, it’s worth reemphasizing that this sort of to and fro isn’t consistent with the idea of either as money.
The astute among you will note that I’m posing a strawman. Put as a question: Who said gold and silver are money? Answer: None of you, maybe, but certainly a lot of other people. And what I’m saying here is that no serious person could possibly argue that precious metals, behaving as they have in recent months, are money.
It’s only Tuesday and gold’s already traded in a ~$500 range this week. The figure below uses a somewhat crude metric, but it gets the point across.
As the legend indicates, you’re looking there at the spread between the weekly range for gold and the dollar calculated as a percentage of the prior week’s close. A 5ppt difference is huge when we’re talking about ostensible money. 15ppt (last week’s spread) means the two things being compared (here gold and the dollar) are apples to oranges: If one’s money, the other isn’t.
Certainly, there have been periods in history when precious metals served as money. Little known to many (I’d wager most) committed precious metals fans (who in my experience tend to be ignorant of their own obsession’s history), the most famous such historical episode was the era surrounding the heyday of the colonial silver boom in Potosí.
The town, in modern day Bolivia, was once the source of more than half the world’s silver. That was a liquidity injection of epic proportions, and it served to facilitate commerce from Europe to China.
Then, certainly, silver was money. These days (where that means in the modern era), it’s not. Money. Neither is gold. These days (where that means these last few weeks and months), gold and silver are just “meme stocks,” as Bloomberg indelicately put it on Tuesday, in one of the countless newsletters they send out.
The figure above shows you 10-day historical vol for gold versus the dollar. It (the chart) speaks for itself.
Do note: Dollar vol’s up markedly in the new year. Indeed, the 10-day measure’s near a six-month peak and ranks very high in percentile terms on a six-year lookback, which is to say it’s elevated even when you include “Liberation Day” and the onset of the pandemic in your window.
I mention that because you can’t even see it on the chart, dwarfed as it is by the staggering spike in realized gold vol.
Consider this a 500-word addendum to “What The Gold Bubble Says About The Nature Of Money,” which you should go back and read if you missed it.
These days I can’t tell which is the actually volatile concept, fiat or metals. Saying the USD has not been volatile may only be in ratio to other fiat currencies. I have to say, the world of finance is reassessing assumptions and stressing many an investing thesis. A plane in extreme turbulance fatigues the structure until the structure breaks.
If I recall my history, the massive influx of silver from South America triggered a huge inflationary spiral in Europe. Ironic since people today see it as an inflation hedge.
While I’m no bullion “stacker,” I have always thought it would be cool to own an original authentic Spanish Piece of Eight.
They can be had for around $225, but at that price they will be fairly worn specimens (Argh, Matey!)
“Moneyness” (not the options trading term) is a useful concept that Lyn Alden uses in her book “Broken Money”. It is not a black and white thing. Low volitility is but one aspect of what makes a useful form of money, and gold fails in other ways besides that, such as transportablity and, at least until recently, scale. It is also subject to a continuing headwind in that a nontrivial amount comes onto to the market every year from mining. And even if gold beats out USD as a store of value over time, many would say that this makes it less useful as a medium of exchange (see demurrage currency).
But “meme stock”? H, have you been keeping 5-10% of your portfolio in meme stocks without telling us?
I dunno. Does anyone really think it is a form of money? But Florida recently joined some other states in allowing it to be used for retail transactions. Perhaps used at survivalist stores?
But before “meming” it, ponder the chart shown in the on Bloomberg titled “Gold has overtaken Treasuries in global central banks’ FX reserves”. As far as I know, they are not the Roaring Kitty crowd.
(https://www.bloomberg.com/opinion/articles/2026-01-27/the-debasement-trade-is-a-real-worry-for-scott-bessent?utm_source=website&utm_medium=share&utm_campaign=copy
Doesn’t silver have growing value (no pun intended) as an industrial metal – solar panels as well as some types of AI chips?