Gold as investment?

Recondite49

This topic came up in another thread (http://touch.boards.ie/thread/post/90984134) where I pasted a beautiful graph incidentally but I do feel this topic deserves merit.

In brief, I believe that the best way to grow your wealth is to have a portfolio of stocks representing the S&P 500, government bonds and international stocks (Vanguard God love them do index funds for all three).

In the long term there is no doubt you're better off financially so doing but the hike in the spot price of gold since 2000 and the metal's allure as a store of value means some investors see it as a guard against inflation.

I'd welcome all thoughts on this - however if you're pro gold I'd like to understand the method you'd use to invest - indirectly through and index fund like GLD? Or through buying sovereigns and keeping them in your basement?

nagirrac

Let's test the bonds versus gold as a hedge for the 2008 through 2009 period (2008 peak through 2009 trough).

Let's say you have a 10K portfolio, with 2 different models: 1) 33% US equities (VTI), 33% ex-US equities (VEU) and 33% a broad bond fund (BND), and 2) 25% US equities (VTI), 25% ex-US equities (VEU), 25% bonds (BND), 25% gold (GLD).

Portfolio 1 would have been down roughly 37% or 10K -> 6.3K
Portfolio 2 would have been down roughly 23% or 10K -> 7.7K

Gold was the only asset class to appreciate during the financial meltdown in 08/09, it is not generally remembered that bonds collapsed in value first followed by stocks. You can argue that the difference between being down 23% is not that different to being down 37%, but it might be the difference that keeps you in the market versus bailing, and once you bail getting back in is not trivial.

I am not using this example to argue against a balanced stock/bond portfolio, I am using it to demonstrate you cannot predict the future. Do you think individual investors in 2007 expected that bonds and stocks would collapse, and that stocks would decline more than 50%? Do you think individual investors in 1929 expected the roaring 20s would come to such an abrupt end, or for that matter once the stock market had recovered in the early 30s, that the whole economy would collapse in a much more destructive manner than 29?

We are in another asset bubble, driven by the same easy money central bank policies that led to the internet bubble and the housing bubble. It will crash, it is only a matter of when. Look at the charts, equities are as overvalued now, based on fundamentals, as they were in 2007 and close to where they were in 2000. The evidence over the past 40 years since gold was decoupled from the US$, is that it is a very good hedge when the SHTF.

FURET

I have no firm opinions on this matter as I simply don't have the knowledge. But I would ask the following questions of gold advocates:

1. Is someone buying gold speculating rather than investing?
2. How does gold grow? If I own 1 kg of gold in 2014, it will still be 1 kg of gold in 2064. So wherein lies the growth potential?
3. Warren Buffett does not think it's a good investment (according to plenty of articles around the web). Why is he wrong?

Recondite49

nagirrac wrote: »

Let's test the bonds versus gold as a hedge for the 2008 through 2009 period (2008 peak through 2009 trough).

Let's say you have a 10K portfolio, with 2 different models: 1) 33% US equities (VTI), 33% ex-US equities (VEU) and 33% a broad bond fund (BND), and 2) 25% US equities (VTI), 25% ex-US equities (VEU), 25% bonds (BND), 25% gold (GLD).

Portfolio 1 would have been down roughly 37% or 10K -> 6.3K
Portfolio 2 would have been down roughly 23% or 10K -> 7.7K

Gold was the only asset class to appreciate during the financial meltdown in 08/09, it is not generally remembered that bonds collapsed in value first followed by stocks. You can argue that the difference between being down 23% is not that different to being down 37%, but it might be the difference that keeps you in the market versus bailing, and once you bail getting back in is not trivial.

I am not using this example to argue against a balanced stock/bond portfolio, I am using it to demonstrate you cannot predict the future. Do you think individual investors in 2007 expected that bonds and stocks would collapse, and that stocks would decline more than 50%? Do you think individual investors in 1929 expected the roaring 20s would come to such an abrupt end, or for that matter once the stock market had recovered in the early 30s, that the whole economy would collapse in a much more destructive manner than 29?

We are in another asset bubble, driven by the same easy money central bank policies that led to the internet bubble and the housing bubble. It will crash, it is only a matter of when. Look at the charts, equities are as overvalued now, based on fundamentals, as they were in 2007 and close to where they were in 2000. The evidence over the past 40 years since gold was decoupled from the US$, is that it is a very good hedge when the SHTF.

Hi nagirrac,

I am still having a hard time getting my head around this due to what we discussed in the other thread - if you bought $1,000 dollars of gold bars in 1972 they'd be worth less than half a similar amount of paper money invested in the S&P 500 by now - so as I understand it inflation would have to have been over twice as bad as it has been thus far to make gold a safe harbour?

Forgive my ignorance, I'm genuinely trying to understand nagirrac - as far as I can see the stock market itself will give you a greater return that outstrips inflation more than gold?

odd1

Congratulations you have just won a 1000 Euro free trade. You must buy either the s&p or gold today and hold for exactly 1 year.

Which do you buy

FURET

odd1 wrote: »

Congratulations you have just won a 1000 Euro free trade. You must buy either the s&p or gold today and hold for exactly 1 year.

Which do you buy

For me a more interesting question is which one would you buy if holding for a 30-year period.

willietherock

FURET wrote: »

For me a more interesting question is which one would you buy if holding for a 30-year period.

Not remotely interesting. Gold barely beats inflation since time began. Over the longterm its a horrible investment. All those goldbugs who infested sites like this during its recent bull run have evaporated.

Recondite49

odd1 wrote: »

Congratulations you have just won a 1000 Euro free trade. You must buy either the s&p or gold today and hold for exactly 1 year.

Which do you buy

An interesting question odd! I imagine people are attracted to the short term gains of gold but an index fund beats it hands down over the long term.

I'd prefer to grow my wealth steadily rather than risk it on a one year investment - if I had to choose a 12 month investment and there was no risk since I'd won it for free, I might well buy into something more volatile like gold, sure.

Recondite49

FURET wrote: »

For me a more interesting question is which one would you buy if holding for a 30-year period.

Hi Furet,

Did you see the stats I managed to google on the other thread re: Warren Buffett? A broad index funds of bonds, common stocks and foreign holdings beats gold hands down in the long run.

Recondite49

willietherock wrote: »

Not remotely interesting. Gold barely beats inflation since time began. Over the longterm its a horrible investment. All those goldbugs who infested sites like this during its recent bull run have evaporated.

A reproduction of the graph I found in the other thread:



Please however bear in mind fellow user nagirrac's comments:

'The chart by the way is misleading on 10 year treasuries, as it represents the yield on bonds which are inversely related to price. Bonds have been on a bull run since 1980 and have returned much higher real returns than historically, roughly double the historic 3% and pretty close to stocks over that period."

Recondite49

FURET wrote: »

I have no firm opinions on this matter as I simply don't have the knowledge. But I would ask the following questions of gold advocates:

1. Is someone buying gold speculating rather than investing?
2. How does gold grow? If I own 1 kg of gold in 2014, it will still be 1 kg of gold in 2064. So wherein lies the growth potential?
3. Warren Buffett does not think it's a good investment (according to plenty of articles around the web). Why is he wrong?

Hi Furet,

I think you raise some excellent points. As a matter of fact these came up in the Motley Fool's Guide to investment clubs when it was talking about what not to invest in - paintings, gold, wine etc.

I think you're right about someone speculating on the price of gold, although to some extent we speculate when we invest in the market. We know that when it comes to the S&P 500 the general trend is upwards and that it's been unbeatable as a way to get an excellent return on investment over time.

I think gold is seen as a store of value. As you rightly say if you had hidden a 1kg bar of gold in your basement in 1972 (post Nixon shock) it would still have the same mass, the only difference would be that you could swap it for 929% more than its original worth in paper dollars or thereabouts.

When you consider though that if you'd put the cash equivalent of a gold bar into the stock market it would be worth over twice as much, there seems to me to be no contest even taking inflation into account, it leaves gold nowhere.

If you're planning on buying gold as a store of value for the Apocalypse of course that's another thing. I've discussed this before with my Survivalist buddies who sometimes wonder if it isn't best to buy some coins or bars when the civil war breaks out or Zombies rise.

The consensus seems to be that in those situations gold may have some bartering value relative to paper money but the best thing you can do is use the cash to lay in stores of food, tools and trade goods which are infinitely more useful in those situations - you can't eat gold, it can't keep you warm etc.

Perhaps the allure of gold is due to the fact it's often used in jewellery and items of value - the psychological pull of something tangible in your hands as opposed to owning shares which are an abstract concept these days?

nagirrac

Recondite49 wrote: »

I am still having a hard time getting my head around this due to what we discussed in the other thread - if you bought $1,000 dollars of gold bars in 1927 they'd be worth less than half a similar amount of paper money invested in the S&P 500 by now - so as I understand it inflation would have to have been over twice as bad as it has been thus far to make gold a safe harbour?

Once again, you cannot compare the price of gold to other assets pre 1971 and post 1971, as before 1971 it was pegged to the US dollar and post 1971 it is not. Prior to 1971 the price of gold was set by the US government, it was $19.75 from 1792 to 1834, $20.67 from 1834 to 1934, and $35 from 1934 to 1971. Regardless of what inflation was doing within those periods, the price of gold versus the US dollar was stable. The easiest way to understand this is that prior to 1971 gold moved in sync with the US dollar, and since 1971 it tends to move in the opposite direction to the value of the US$.

Since 1971 gold has established its own market price versus the US$. It absolutely has been a safe harbor during times of crisis and high inflation. Gold us up by 3200% versus the US dollar since 1971, while stocks are up 2800%. Be careful when you refer to volatility of any asset, as your chart is comparing asset prices to the US dollar. The dollar itself is what is volatile during much of this period. When the value of the US$ plummets due to economic crises, geopolitical concerns, etc. the price of gold skyrockets.

Recondite49 wrote: »

Forgive my ignorance, I'm genuinely trying to understand nagirrac - as far as I can see the stock market itself will give you a greater return that outstrips inflation more than gold?

Well, since 1971 it has not, and during periods of very high inflation gold has greatly outperformed stocks. I cannot predict the future and nor can anyone else. If you believe the economy is in good shape and inflation will remain in the low single digits, then a stock/bond portfolio is the way to go. If however you believe (as I do) that we are in another Fed induced asset bubble, and that the SWHTF when it bursts, a modest portfolio allocation to gold could prove to be very beneficial.

Recondite49

nagirrac wrote: »

Once again, you cannot compare the price of gold to other assets pre 1971 and post 1971, as before 1971 it was pegged to the US dollar and post 1971 it is not. Prior to 1971 the price of gold was set by the US government, it was $19.75 from 1792 to 1834, $20.67 from 1834 to 1934, and $35 from 1934 to 1971. Regardless of what inflation was doing within those periods, the price of gold versus the US dollar was stable. The easiest way to understand this is that prior to 1971 gold moved in sync with the US dollar, and since 1971 it tends to move in the opposite direction to the value of the US$.

Since 1971 gold has established its own market price versus the US$. It absolutely has been a safe harbor during times of crisis and high inflation. Gold us up by 3200% versus the US dollar since 1971, while stocks are up 2800%. Be careful when you refer to volatility of any asset, as your chart is comparing asset prices to the US dollar. The dollar itself is what is volatile during much of this period. When the value of the US$ plummets due to economic crises, geopolitical concerns, etc. the price of gold skyrockets.




Well, since 1971 it has not, and during periods of very high inflation gold has greatly outperformed stocks. I cannot predict the future and nor can anyone else. If you believe the economy is in good shape and inflation will remain in the low single digits, then a stock/bond portfolio is the way to go. If however you believe (as I do) that we are in another Fed induced asset bubble, and that the SWHTF when it bursts, a modest portfolio allocation to gold could prove to be very beneficial.

Please forgive me nagirrac, I meant to write 1972, not 1927!

Based on the figures we saw on the other thread though, stocks have outperformed gold although if we look at shorter periods of time like the past decade gold has done better.

How much of your portfolio would allocate to gold? Would you do this through an ETF, Gold Certificates, treasure chest full of sovereigns?

nagirrac

Recondite49 wrote: »

I think gold is seen as a store of value. As you rightly say if you had hidden a 1kg bar of gold in your basement in 1972 (post Nixon shock) it would still have the same mass, the only difference would be that you could swap it for 929% more than its original worth in paper dollars or thereabouts.

When you consider though that if you'd put the cash equivalent of a gold bar into the stock market it would be worth over twice as much, there seems to me to be no contest even taking inflation into account, it leaves gold nowhere.

The price of gold prior to the unpegging to the US$ was $35 per ounce. Today it is $1319, so your 929% is off by a factor of 4.

Gold has gone up by a factor of ~ x40 since being unpegged from the US$, the stock market ~ X 30. Both relative to the US$.

Recondite49

nagirrac wrote: »

The price of gold prior to the unpegging to the US$ was $35 per ounce. Today it is $1319, so your 929% is off by a factor of 4.

Gold has gone up by a factor of ~ x40 since being unpegged from the US$, the stock market ~ X 30. Both relative to the US$.

That doesn't seem to tally with the chart which as you can see covers a period both before and after 1972 where the S&P 500 seems to do much better, is there a way to explain the discrepancy?

Edit : It seems the chart only goes up to 31st December 2012. Across the period in question gold jumped from $35 an ounce to $512 - a gain of around 1500% in the past couple of years gold must have gained much more in value than the S&P 500 - there are of course other 3 year periods where gold has done better than the S&P 500 - I am still not convinced though that this is a way to grow your wealth steadily.

The discussion continues...

nagirrac

Recondite49 wrote: »

Based on the figures we saw on the other thread though, stocks have outperformed gold although if we look at shorter periods of time like the past decade gold has done better.

Stocks have not outperformed gold since gold was last pegged to the US$ at $35.

Recondite49 wrote: »

How much of your portfolio would allocate to gold? Would you do this through an ETF, Gold Certificates, treasure chest full of sovereigns?

If I felt we were in stable economic times, high inflation was unlikely, and a recession unlikely, then 0%. If I felt the opposite, 25%. Currently I am at 10%. I use GLD.

Recondite49

nagirrac wrote: »

Stocks have not outperformed gold since gold was last pegged to the US$ at $35.

But surely the chart says that the S&P 500 has outperformed gold over time? I think that gold has certainly made some excellent gains recently but I take the attitude towards it of people who invest in mutual funds - do you think it can consistently and reliably grow your wealth?

If I felt we were in stable economic times, high inflation was unlikely, and a recession unlikely, then 0%. If I felt the opposite, 25%. Currently I am at 10%. I use GLD.

I suppose time will tell, I think GLD looks very tempting. I have to confess I did use it in my imaginary Portfolio in Investopedia and it gained a staggering 3% in one day, though that seems to be petering out...

nagirrac

Recondite49 wrote: »

But surely the chart says that the S&P 500 has outperformed gold over time? I think that gold has certainly made some excellent gains recently but I take the attitude towards it of people who invest in mutual funds - do you think it can consistently and reliably grow your wealth

Forget the chart, just do the math. Gold was at $35 prior to being unpegged from the US$. It is at $1324 as of today. The Dow was at about $800 at that time, and is $16,849 today.

Gold is hated by most of the investment community, and by all investment professionals. There are two reasons for this. In the case of Buffett, who is an outstanding value investor, gold offers no opportunity to grow wealth. He is correct, gold is a wealth protector in difficult economic times. For example during the past decade when there were two capital destruction declines in the stock market, gold was the only asset class to offset this destruction.

The second reason is the one to be wary of. Almost all investment professionals are employed by a financial institution, and by definition their focus is on encouraging investors to buy and sell their products. In terms of predicting the future, they know no more than you or I.

Recondite49

nagirrac wrote: »

Forget the chart, just do the math. Gold was at $35 prior to being unpegged from the US$. It is at $1324 as of today. The Dow was at about $800 at that time, and is $16,849 today.

Gold is hated by most of the investment community, and by all investment professionals. There are two reasons for this. In the case of Buffett, who is an outstanding value investor, gold offers no opportunity to grow wealth. He is correct, gold is a wealth protector in difficult economic times. For example during the past decade when there were two capital destruction declines in the stock market, gold was the only asset class to offset this destruction.

The second reason is the one to be wary of. Almost all investment professionals are employed by a financial institution, and by definition their focus is on encouraging investors to buy and sell their products. In terms of predicting the future, they know no more than you or I.

Thanks Nagirrac,

Let's say it makes sense to hedge your bets with GLD - do you buy this on NYSE? I can't see it listed on the Irish Stock exchange - I think my own broker would allow it if I paid a 1.75% currency conversion fee to buy US stocks...

By way of an alternative I see PHAU which trades on the London stock exchange. Management fee is 0.39% - best check how this compares to GLD.

nagirrac

Recondite49 wrote: »

Let's say it makes sense to hedge your bets with GLD - do you buy this on NYSE? I can't see it listed on the Irish Stock exchange - I think my own broker would allow it if I paid a 1.75% currency conversion fee to buy US stocks...

By way of an alternative I see PHAU which trades on the London stock exchange. Management fee is 0.39% - best check how this compares to GLD.

I live in the US, so sorry don't know the answer. I don't know anything about PHAU but its price action seems to mirror GLD. Management fee for GLD is 0.4% so essentially equivalent.

argolis

As several people here have pointed out, whether to invest in gold depends on your outlook on the economy really. Part of its attraction is that if the SHTF and you own some physical gold, you still have something tangible. If that's a concern for you, then look out specifically for allocated vs. unallocated holdings.

In an unallocated holding you're not specifically named as the owner of the gold, it's owned by the business which has the potential to turn problematic. An allocated holding, on the other hand, names you explicitly as the asset owner of the gold and gives you stronger rights to its delivery. There's probably more to it than that so don't take my word for it and do some research. I was going to post a link for you but I'm not allowed

I'd recommend checking out goldmoney or bullionvault for something in between an ETF and keeping coins "in the basement". IMO they're reputable, allocated & liquid holdings which will still be there in the event of the aforementioned meltdown. HTH.

Recondite49

argolis wrote: »

As several people here have pointed out, whether to invest in gold depends on your outlook on the economy really. Part of its attraction is that if the SHTF and you own some physical gold, you still have something tangible. If that's a concern for you, then look out specifically for allocated vs. unallocated holdings.

In an unallocated holding you're not specifically named as the owner of the gold, it's owned by the business which has the potential to turn problematic. An allocated holding, on the other hand, names you explicitly as the asset owner of the gold and gives you stronger rights to its delivery. There's probably more to it than that so don't take my word for it and do some research. I was going to post a link for you but I'm not allowed

I'd recommend checking out goldmoney or bullionvault for something in between an ETF and keeping coins "in the basement". IMO they're reputable, allocated & liquid holdings which will still be there in the event of the aforementioned meltdown. HTH.

Hi Argolis,

Thanks for your post - also a big shout out for GoldMoney as they're based in the Channel Islands where I'm from!

I found their fees a little too high for my tastes when living there compared to an ETF but of course you will actually own the requisite grams of gold, silver or similar.

If you want to post a link Argolis, feel free to send me a message I'm happy to put it here for you.

Just received my daily e-mail from Investopedia. Quite a coincidence as there was a long piece on various commodities, see their view on gold as an investment here:

http://www.investopedia.com/university/commodities/commodities8.asp

Recondite49

nagirrac wrote: »

I live in the US, so sorry don't know the answer. I don't know anything about PHAU but its price action seems to mirror GLD. Management fee for GLD is 0.4% so essentially equivalent.

Thanks nagirrac, I think I'll suck it up and wire the money to a US Broker, my employer is opening an account anyway for those of us using their share program - what do you think about Argolis' comments below?

Is it important to you that you're the actual owner of the underlying asset? I'm assuming since you've bought into GLD that we don't need to be overly concerned that your holdings can't be redeemed for a certain amount of physical metal?

nagirrac

Recondite49 wrote: »

Thanks nagirrac ..what do you think about Argolis' comments below?

Is it important to you that you're the actual owner of the underlying asset? I'm assuming since you've bought into GLD that we don't need to be overly concerned that your holdings can't be redeemed for a certain amount of physical metal?

Obviously the ideal is to own the physical asset, one of the reasons why real estate is the best wealth protector. However, if the requirement were to own the underlying assets, we wouldn't buy any paper products such as stocks and bonds, which are essentially just IOUs. Good luck getting your money back from common stock if a company folds. In the same sense there is similar risk with products like GLD.

Unless there is total meltdown I wouldn't worry about the ability to convert any broadly traded ETF or mutual find for cash.

speed_gun

ive owned gold in the past , i remember buying five krugerand 1 oz coins in 2010 for 950 euro each , i sold them at the begining of 2013 for 1220 each , was i glad to have done that , funny thing is , i remember when i sold them, all the talk was how gold was heading for $2000 per ounce

gold is impossible to value in an objective manner , thats why i no longer have any interest in owning it , it was through sheer luck that i made money on it , i would not have any confidence in saying that it is cheap right now , it might be but i couldnt say , i also dont trust the hoardes of true believers who see it as the ultimate store of wealth

DarkDusk

I'd like to add something regarding why I have invested in precious metals.

Since 2007/2008, basically nothing has been solved by the world's governments and central banks. The cause of the crash of 2000 and 2008 was too much debt in the system pushing up asset prices to unsustainable levels with no fundamentals supporting their prices. Since 2008, central banks have printed astronomical amounts of money (increasing the debt) and now everyone thinks the "recovery" is here and there's nothing to worry about. The recovery however has been based off increasing the debt faster and more aggressively than in all of history.

Einstein's definition of insanity: "Doing the same thing over and over again and expecting different results". This is exactly what central banks are doing. Increasing the debt every time the shtf, adding inflation into markets which increase the prices of housing and stocks. People question whether gold is an inflation hedge or not. The definition of inflation is the increase of money supply, not the increase of prices. Increase of prices is a symptom of inflation. Currently, there is a lot of inflation in stock markets and bond markets. Inflation never affects all markets at the same time, which is why you usually don't see commodities and stocks rising at the same time. If you look at when stocks and housing crashed in 2008, all the inflation eventually ended up in commodities like oil, gold and silver.

When people understand what inflation really means and not what the media tells you everyday then you can better understand why asset prices rise and fall. (Q. Do you really think inflation is less than 2%? More like 10%!)

speed_gun

DarkDusk wrote: »

I'd like to add something regarding why I have invested in precious metals.

Since 2007/2008, basically nothing has been solved by the world's governments and central banks. The cause of the crash of 2000 and 2008 was too much debt in the system pushing up asset prices to unsustainable levels with no fundamentals supporting their prices. Since 2008, central banks have printed astronomical amounts of money (increasing the debt) and now everyone thinks the "recovery" is here and there's nothing to worry about. The recovery however has been based off increasing the debt faster and more aggressively than in all of history.

Einstein's definition of insanity: "Doing the same thing over and over again and expecting different results". This is exactly what central banks are doing. Increasing the debt every time the shtf, adding inflation into markets which increase the prices of housing and stocks. People question whether gold is an inflation hedge or not. The definition of inflation is the increase of money supply, not the increase of prices. Increase of prices is a symptom of inflation. Currently, there is a lot of inflation in stock markets and bond markets. Inflation never affects all markets at the same time, which is why you usually don't see commodities and stocks rising at the same time. If you look at when stocks and housing crashed in 2008, all the inflation eventually ended up in commodities like oil, gold and silver.

When people understand what inflation really means and not what the media tells you everyday then you can better understand why asset prices rise and fall. (Q. Do you really think inflation is less than 2%? More like 10%!)

"markets can remain irrational for far longer than you can remain solvent "

DarkDusk

An interesting chart showing gold/stocks correlation.

Recondite49

speed_gun wrote: »

"markets can remain irrational for far longer than you can remain solvent "

Very true speed gun, but then wouldn't you agree that the best defence against this is buy and hold strategy of a basket of index funds? Also are all markets irrational consistently? I keep 20% of my portfolio in Vanguard's rest of world minus US ETF - of course other countries fortunes are often tied to Americas, time will tell.

speed_gun

Recondite49 wrote: »

Very true speed gun, but then wouldn't you agree that the best defence against this is buy and hold strategy of a basket of index funds? Also are all markets irrational consistently? I keep 20% of my portfolio in Vanguard's rest of world minus US ETF - of course other countries fortunes are often tied to Americas, time will tell.

i completely agree , at the end of the day , even their is a correction , those funds pay a dividend which is usually superior to savings rates

gold pays nothing

Recondite49

speed_gun wrote: »

i completely agree , at the end of the day , even their is a correction , those funds pay a dividend which is usually superior to savings rates

gold pays nothing

I'm happy to sink 10% of my portfolio into gold on the basis I had intended to speculate with this amount anyway - if the other posters are right it can see us through the lean times - of course if money ever goes back to just being paper then our investments will be the least of our worries...

speed_gun

Recondite49 wrote: »

I'm happy to sink 10% of my portfolio into gold on the basis I had intended to speculate with this amount anyway - if the other posters are right it can see us through the lean times - of course if money ever goes back to just being paper then our investments will be the least of our worries...

id prefer speculate with something like a greek bank which wibur ross has invested big into , that might double or even trebble , gold wont do either

nagirrac

speed_gun wrote: »

id prefer speculate with something like a greek bank which wibur ross has invested big into , that might double or even trebble , gold wont do either

You have no idea what gold will do in the future any more than anybody else. What we do know is that relative to the $US it has gone up by a factor of X37 since it was unpegged, so no idea why you can state assertively that it cannot double or triple. Remember that all it takes for gold to appreciate in value is a depreciation of whatever currency you measure it against.

The price of gold depends entirely on what the outlook for inflation is, or the outlook for major geopolitical events that could significantly increase volatility. In that respect we are dealing with opinions of the future, and while history does not necessarily repeat, it does rhyme. In the future there will most likely be high inflation for the reasons DarkDusk outlines, and if there is anything we can be fairly certain of, there will be wars over diminishing resources.

Value Hunter

nagirrac wrote: »

Let's test the bonds versus gold as a hedge for the 2008 through 2009 period (2008 peak through 2009 trough).

Let's say you have a 10K portfolio, with 2 different models: 1) 33% US equities (VTI), 33% ex-US equities (VEU) and 33% a broad bond fund (BND), and 2) 25% US equities (VTI), 25% ex-US equities (VEU), 25% bonds (BND), 25% gold (GLD).

Portfolio 1 would have been down roughly 37% or 10K -> 6.3K
Portfolio 2 would have been down roughly 23% or 10K -> 7.7K

Gold was the only asset class to appreciate during the financial meltdown in 08/09, it is not generally remembered that bonds collapsed in value first followed by stocks. You can argue that the difference between being down 23% is not that different to being down 37%, but it might be the difference that keeps you in the market versus bailing, and once you bail getting back in is not trivial.

I am not using this example to argue against a balanced stock/bond portfolio, I am using it to demonstrate you cannot predict the future. Do you think individual investors in 2007 expected that bonds and stocks would collapse, and that stocks would decline more than 50%? Do you think individual investors in 1929 expected the roaring 20s would come to such an abrupt end, or for that matter once the stock market had recovered in the early 30s, that the whole economy would collapse in a much more destructive manner than 29?

We are in another asset bubble, driven by the same easy money central bank policies that led to the internet bubble and the housing bubble. It will crash, it is only a matter of when. Look at the charts, equities are as overvalued now, based on fundamentals, as they were in 2007 and close to where they were in 2000. The evidence over the past 40 years since gold was decoupled from the US$, is that it is a very good hedge when the SHTF.

What absolute dribble.

Lets find and compare the 6 month worst performance of stocks in the last 70 years (sep 2008 - march 2009) and use it as an accurate gauge vs the gold price.

Are you for real?

Value Hunter

DarkDusk wrote: »

An interesting chart showing gold/stocks correlation.

Why would stocks have any correlation with gold? They have no relationship!

And inflation at 10% per year?! Do you actually believe that??? How long has it being at 10%?

The humble chicken fillet roll with a coke has been €3 in town since 2009, by your calculations it should be €4.80 now with 10% annual inflation.

So why is it still €3?

FURET

I'm still not sold on the merit of gold despite the points that have been made. Gold is only worth what people are willing to pay for it at a given time; it seems not to have any other intrinsic value; it's not really an industrial metal; it doesn't pay dividends; and it doesn't grow.

Real estate, however, is seen as another counter-measure to inflation. Why not invest a small (say 10%) portion of one's portfolio in a Vanguard property ETF like REIT (ticker VNQ) as a hedge against inflation?

nagirrac

Value Hunter wrote: »

What absolute dribble.

Lets find and compare the 6 month worst performance of stocks in the last 70 years (sep 2008 - march 2009) and use it as an accurate gauge vs the gold price.

It may be dribble to you, but its dribble that generated a handsome return for many in the period in question that was ploughed back into the stock market.

The post you referenced was in response to the question as to why invest in gold at all when bonds are a better hedge. This argument has merit as bonds frequently have an inverse relationship to stocks, while no such correlation exists with gold and stocks as you point out elsewhere. If you read my posts on this topic, nowhere have I suggested a buy and hold strategy for gold, but I do advocate considering allocating a portion of one's portfolio to gold depending on one's view of the economy.

The financial markets as you know are driven by fear and greed. Gold is a hedge against fear. Fear as measured by volatility (VIX) is at historical lows and yet the price of gold is still elevated. Far beyond its intrinsic value I would say, and I agree at some point it will revert to the mean. So while the level of fear regarding equities may be low at present, the evidence is there is significant fear of economic or geopolitical events.

What are the fear factors that drive the price of gold? Fear of paper assets returning to their intrinsic value of zero, fear that debt levels are unsustainable and that governments will default on their debt, fear that we are in another central bank inspired bubble which will collapse like all previous bubbles. How seriously you regard these fears should determine whether you hold gold in your portfolio. Obviously lots of people take them seriously, otherwise gold would not be at the price it is at.

Recondite49

FURET wrote: »

I'm still not sold on the merit of gold despite the points that have been made. Gold is only worth what people are willing to pay for it at a given time; it seems not to have any other intrinsic value; it's not really an industrial metal; it doesn't pay dividends; and it doesn't grow.

Real estate, however, is seen as another counter-measure to inflation. Why not invest a small (say 10%) portion of one's portfolio in a Vanguard property ETF like REIT (ticker VNQ) as a hedge against inflation?

Hi Furet,

I have been wondering about this myself - if we decide that commodities are the way forward against offsetting inflation could we achieve the same or better result with bricks and mortar as opposed to metal?

Still given the latest recession revolved around hugely inflated real estate prices do you think it's a safe bet compared to say a basket of precious metals?

Recondite49

Value Hunter wrote: »

What absolute dribble.

Lets find and compare the 6 month worst performance of stocks in the last 70 years (sep 2008 - march 2009) and use it as an accurate gauge vs the gold price.

Are you for real?

Hi Value Hunter,

I suppose if your point is though that gold is a good hedge against inflation it pays to make comparisons during the worst of times - do you think then it's better just to have a weighted portfolio of index funds of stocks, bonds and foreign stocks and stick it out, or is there any way to guard against this?

I for one wouldn't mind putting 10% into gold if there was some assurance it would help you weather a financial crisis better than a bundle of common stocks but perhaps it might be better simply to wait it out?

FURET

Recondite49 wrote: »

I have been wondering about this myself - if we decide that commodities are the way forward against offsetting inflation could we achieve the same or better result with bricks and mortar as opposed to metal?

Well, the bricks and mortar comprise apartment houses and office blocks and malls. Rents tend to track inflation, so I would say yes. Gold is speculation based on fear. It goes against Buffets advice and the advice of "The Intelligent Investor". It also smacks of people claiming they can predict the future to some extent and it's also something to watch out for whenever the herd are doing it in their droves. Not saying they're wrong, but I'm not inclined to follow.

It's been said that you could put all the gold that's ever been mined into a cube measuring 67 feet across. For what that's worth at today's prices, you could buy ALL the farmland in the US, ten companies the size of Exxon Mobil, and still have a trillion dollars to spare. Or you could have a cube of metal. I know where I think the ultimate value and productivity lies.

Recondite49

FURET wrote: »

Well, the bricks and mortar comprise apartment houses and office blocks and malls. Rents tend to track inflation, so I would say yes. Gold is speculation based on fear. It goes against Buffets advice and the advice of "The Intelligent Investor". It also smacks of people claiming they can predict the future to some extent and it's also something to watch out for whenever the herd are doing it in their droves. Not saying they're wrong, but I'm not inclined to follow.

It's been said that you could put all the gold that's ever been mined into a cube measuring 67 feet across. For what that's worth at today's prices, you could buy ALL the farmland in the US, ten companies the size of Exxon Mobil, and still have a trillion dollars to spare. Or you could have a cube of metal. I know where I think the ultimate value and productivity lies.

I suppose my only concern with that would what if rents didn't track inflation? Having said that I took a look at Vanguard's REIT Real Estate ETF and was very impressed by the returns... interestingly though those funds investing in real estate outside the US didn't do nearly as well.

I suppose the advantage of gold is that you can profit from inflation no matter what currency it's in - an American condominium is only any use to people living there paying dollars.

Recondite49

Excellent article on Investopedia 'What is wrong with gold'?


http://www.investopedia.com/articles/05/033105.asp

The points it raises in brief are:

- World banks collectively own over ten times the yearly demand for gold. If they were to flood the market with gold, supply would far outstrip demand. Only 10% of demand for gold is industrial.

- As gold doesn't earn investment interest, some banks have stopped stockpiling it altogether.

- Gold is a commodity like soybeans or oil. Any investor should bear in mind its price will be determined by supply and demand in the same way.

- Can be useful as insurance against catastrophic financial meltdowns but probably only if you owned the actual metal.

- Retains its purchasing power better than paper money during periods of hyperinflation. Although this hasn't happened in US, it has in Germany and Argentina.


Any thoughts on this?

It would seem that if you want gold as a form of insurance, mightn't it be better to buy yourself a half sovereign from the Royal Mint once a month?

odd1

Value Hunter wrote: »

Why would stocks have any correlation with gold? They have no relationship!

And inflation at 10% per year?! Do you actually believe that??? How long has it being at 10%?

The humble chicken fillet roll with a coke has been €3 in town since 2009, by your calculations it should be €4.80 now with 10% annual inflation.

So why is it still €3?

Wow, measure inflation on a lunch-time special? Do you have health insurance? Do you have a car (insurance, tax, and petrol)? do you rent accommodation? do you smoke? do you drink a pint?

For every item you find from 2009 that's the same or less, I,ll find 10 that's gone up.

DarkDusk

odd1 wrote: »

Wow, measure inflation on a lunch-time special? Do you have health insurance? Do you have a car (insurance, tax, and petrol)? do you rent accommodation? do you smoke? do you drink a pint?

For every item you find from 2009 that's the same or less, I,ll find 10 that's gone up.

Not to mention groceries in general, and energy.

goz83

I am new to the precious metals market and from the research Inhave carried out, it wouldnseem to be better to invest in Silver, rather than Gold. GLD and SLV is not adviseable, because the claims may not even be backed by real gold and silver. If the prices of gold and silver soar, GLD and SLV can be frozen and may not match the rates of physical gold snd silver. I prefer silver and i invest in physical pure silver bullion coins and bars, mostly government minted ones.

Recondite49

goz83 wrote: »

I am new to the precious metals market and from the research Inhave carried out, it wouldnseem to be better to invest in Silver, rather than Gold. GLD and SLV is not adviseable, because the claims may not even be backed by real gold and silver. If the prices of gold and silver soar, GLD and SLV can be frozen and may not match the rates of physical gold snd silver. I prefer silver and i invest in physical pure silver bullion coins and bars, mostly government minted ones.

Hi goz,

As the Investopedia article says, owning the physical metal would seem to be the best guard against total financial collapse - although I think under those circumstances I'd rather stick to tools and growing my own food! :-)

I have read that silver is more volatile in price than gold. Still the general trend seems to be upward plus there's industrial demand for it!

My only concern about buying bars and coins as you're doing is that it might be quite costly - you've the physical delivery of the metal to pay for as well as storage costs. I'd also be worried about selling - can you just take it down your local jewellers?

N.

Low Energy Eng

Recondite49 wrote: »

Hi goz,

As the Investopedia article says, owning the physical metal would seem to be the best guard against total financial collapse - although I think under those circumstances I'd rather stick to tools and growing my own food! :-)

I have read that silver is more volatile in price than gold. Still the general trend seems to be upward plus there's industrial demand for it!

My only concern about buying bars and coins as you're doing is that it might be quite costly - you've the physical delivery of the metal to pay for as well as storage costs. I'd also be worried about selling - can you just take it down your local jewellers?

N.

Gold is the most liquid asset in the world. Every country will accept it.

I've used Goldcore, the pm's are stored in the Perth mint. I have some physical in my possession aswel.

goldprice.org will ggive you a silver/gold ratio which may help you decide which is better value at your time of purchase

DarkDusk

Recondite49 wrote: »

My only concern about buying bars and coins as you're doing is that it might be quite costly - you've the physical delivery of the metal to pay for as well as storage costs. I'd also be worried about selling - can you just take it down your local jewellers?

Physical prices of gold and silver (coins) above spot price (what's quoted on the internet) have been rising steadily over the last few years. That's why I own physical silver and not SLV. And you can guarantee that if there is a spike in PM's the physical price will rise even more above spot, usually ends of with a shortage of physical in the market.

DarkDusk

Recondite49 wrote: »

- Gold is a commodity like soybeans or oil. Any investor should bear in mind its price will be determined by supply and demand in the same way.

Everything is based on this concept! If there's a lot of sellers (volume) of Apple stock today and much more than buyers then the price will drop. The price will go up vice versa. The value of currency goes down when central banks print a lot of it (supply) etc etc.

Freiheit

I heard Gold Sovereigns mentioned. Are they a good bet?.

goz83

Recondite49 wrote: »

Hi goz,

As the Investopedia article says, owning the physical metal would seem to be the best guard against total financial collapse - although I think under those circumstances I'd rather stick to tools and growing my own food! :-)

I have read that silver is more volatile in price than gold. Still the general trend seems to be upward plus there's industrial demand for it!

My only concern about buying bars and coins as you're doing is that it might be quite costly - you've the physical delivery of the metal to pay for as well as storage costs. I'd also be worried about selling - can you just take it down your local jewellers?

N.

Delivery of course must be factored in, but I think it's worth it, because I go with the "if you don't hold it, you don't own it" belief system. Delivery is a small price when you're spending €1k+ per order. Plus, the company I order from gives you free storage for a year per order, so delivery costs can be pooled and kept lower if I want to do that. Selling, at least in Ireland is not as easy as in the USA, Canada, Germany etc etc, but yes, you can just walk into an irish bullion dealer and sell your stock. You would generally get a little less than spot price, plus whatever premium for the type of round getting sold. An ounce eagle will usually get more than an ounce philharmonic for example. Branded bars get more than generic ones.

Storage is a personal preference. You can store in a bank vault, or at home. I would only keep small amounts at home and well hidden and secured at that.

Freiheit wrote: »

I heard Gold Sovereigns mentioned. Are they a good bet?.

As with any investment, they are risky. I personally see silver as the better of the two, because it has more uses and as mentioned above, many are industrial. Silver is used in everything and the Gold to Silver ratio has gone from about 60 to 1 all the way down to 9 to 1 and yet, they are still valued at the old ratio level. I reckon this will change in the near future and Silver is almost certainly going to out perform Gold for returns, as it usually does. It just takes more space. You can balance €1000 worth of gold on your little finger, but €1000 worth of silver is a handful weighing about 2 kilos at todays prices.