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<p>[QUOTE=&quot;NorthKorea, post: 1311687, member: 29643&quot;]I&#039;m wondering what this has to do with economics.</p><p><br /></p><p>For the investment value of it, risk aversion is a useless static. I&#039;m assuming that you&#039;re under 25, since you&#039;re in school. Unless you&#039;re pursuing post-doc certificates, you&#039;re going to be young enough that you&#039;ll ALWAYS end up at the extremely high tolerance end of the spectrum.</p><p><br /></p><p>Now, that said, the bigger problem is how financial advisors and financial analysts define risk. On the analyst end, risk is defined by downside beta tracking. On the advisor end, risk is defined by long-term buy and hold assumptions that history defines an average growth anticipation.</p><p><br /></p><p>I end up on the analyst end of the spectrum. If you&#039;re looking at shorting gold and going long silver for the next two years, you&#039;re looking at a probable <b>σ </b>value of 38% risk on silver per year, and about 27% risk on gold per year. The question then becomes: How much leverage are you planning on using?</p><p><br /></p><p>You said your plan is to use a ultra-short gold ETF. Assuming you don&#039;t have direct access to futures, I&#039;ll assume you&#039;re going to use one of the variations of GLL (ProShares UltraShort Gold). Tracking error is the largest risk with &quot;ultra&quot; anything, but this is especially so with the short end of the ledger. Because of the design of ultra-ETFs, <b>σ </b>variance of tracking can swing as large as 10%. This results in a potential 70% underperformance relative to the tracked index. Basically, you would capture all of the downside risk, but only around 30% of the upside risk. This is one reason why it makes more sense to &quot;go long&quot; on the contrary indexes rather than short on something.</p><p><br /></p><p>If you expect gold to fall, that means you expect alternative investments to strengthen. Silver tracks gold. This is true in the long-run regardless of what silver bugs tell you. If you&#039;re long-silver/short-gold for the next two years, you&#039;re basically flipping a coin. If your reason for being short-gold is strengthening of the dollar (assuming gold is over-bought), then you should short gold. If your reason for being long-silver is weakening of the dollar (assuming silver is over-sold), then you should take a position in silver.</p><p><br /></p><p>Personally, I&#039;m short gold / hold silver (because I think gold is over-bought, but I think this is a very short-term occurrence, and not worth trying to time) and long platinum group metals. If someone offers to trade me platinum for all my gold/silver at spot, I&#039;ll accept immediately. That&#039;s basically what it means.</p><p><br /></p><p>I would be short-gold at ratios above 75 and short-silver at ratios below 35. Between the two, I&#039;m basically &quot;hold&quot; but will swap out of one into the other. Right now, I think the markets have over-valued PMs altogether, but PGMs are trending down, and over the winter will become HEAVILY over-sold.</p><p><br /></p><p>The economics are based upon macro encompassing of regional micro demand trends of Asian and Indian sub-continent purchases. The recent drop in silver was precipitated by increases in petroleum prices. Given silver&#039;s tie to the solar industry and drop in solar demand, it&#039;s unlikely that silver can sustain a true rally. The current ratio is a fairly accurate tracker of silver/gold. If there is a significant change in the ratio, then I can see a long-A/short-B strategy, but in the current environment, it is unnecessary. Pick long or pick short. Picking both will get you, likely, slaughtered.[/QUOTE]</p><p><br /></p>

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