Author Topic: Precious Metal?  (Read 2249 times)

krisvolley27

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Precious Metal?
« on: September 06, 2017, 12:49:03 PM »
I'm curious what people think about gold and silver specifically.  Wise investment?  Good for diversification?  What percent of portfolio would you put into metal if any?

ooeei

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Re: Precious Metal?
« Reply #1 on: September 06, 2017, 01:08:36 PM »
Poor investment.

It doesn't make money for you like stocks do, and generally has high margins and/or transaction costs. You also have to store it, and worry about someone stealing it.

If you already have far more than you need and you want some just as an absolute last resort, go for it, but be aware it's suboptimal compared to most conventional investments.

Mr. Rich Moose

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Re: Precious Metal?
« Reply #2 on: September 06, 2017, 01:55:57 PM »
I think a small allocation (up to 10%) to precious metals can be worthwhile. Returns are not highly correlated to U.S. stocks historically speaking. This means it can be used effectively for re-balancing in a lazy portfolio.

Gold did well in the 70s crash, the October '87 crash , the tech bubble crash, in 2008-09, and probably will continue to do well in future market corrections.

The SPDR Gold Trust might do the best job of matching underlying gold prices over long time horizons at a low cost. The iShares Bullion ETF is also pretty good.

I like gold strictly for hedging purposes as a investment advantage in market crashes, so you won't find me stacking coins and bars for my crawlspace gun safe. It would also be very silly to have a huge gold allocation in your portfolio because one gold bar does not grow another one over time. For this reason it can be argued that gold is not a "true investment".

Many here will probably disagree with me because gold has not done well in recent years and stocks are at all time highs. Recency bias can be powerful.
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L.A.S.

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Re: Precious Metal?
« Reply #3 on: September 06, 2017, 02:18:16 PM »
 Here's the Warren Buffett "Gold Cube" essay:

http://fortune.com/2012/02/09/warren-buffett-why-stocks-beat-gold-and-bonds/

Favorite quote: "You can fondle the cube, but it will not respond."

JAYSLOL

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Re: Precious Metal?
« Reply #4 on: September 06, 2017, 07:18:32 PM »
I keep gold at 1% and silver at 3%.  Just enough to be useful as a rebalancing tool and as an emergency fund, but not so much that I significantly reduce market returns by keeping too much capital out of income producing investments, or so much that it becomes cumbersome to store, keep safe or move. 

TomTX

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Re: Precious Metal?
« Reply #5 on: September 06, 2017, 07:47:07 PM »
I'm curious what people think about gold and silver specifically.  Wise investment?  Good for diversification?  What percent of portfolio would you put into metal if any?

The last gold discussion thread was a couple of weeks ago. Nothing has changed.
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krisvolley27

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Re: Precious Metal?
« Reply #6 on: September 07, 2017, 07:46:07 AM »
Thank you all for your insight.  I will take a look at that last gold thread.

My allocation to gold and silver is low and we haven't bought any recently.  My husband has a strong opinion in favor of it vs. stocks that's why I wanted to see what some folks on here would say. 

Thanks again.

Car Jack

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Re: Precious Metal?
« Reply #7 on: September 08, 2017, 07:49:11 AM »
About 5 years ago, I decided to hesitantly try it with silver US junk coins.  In my state, if I buy $1000 worth, there's no sales tax.  So I first bought $1000 worth at about 21 times face (right about spot at the time).  Prices went down and I thought "what a great opportunity!" and bought another $1k worth at 17 times face.  What are all these coins worth today?  Just under $1800. 

Seems like throwing the money into an Ally account would have been a way smarter thing to do.

Indexer

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Re: Precious Metal?
« Reply #8 on: September 08, 2017, 04:28:59 PM »
Poor investment.

That is too nice of a thing to say about gold.

It doesn't pay you dividends, income, and there are no profits to share in. It is not an investment.

It's a pretty rock. If you want a pretty rock Nordstrom will sell you a pet rock for $80.


Gold did well in the 70s crash, the October '87 crash , the tech bubble crash, in 2008-09, and probably will continue to do well in future market corrections.

These are very common beliefs... which sadly are not backed up by facts. Gold did well in the late 70s, crashed in 1980, and didn't recover for about 26 years. Adjusted for inflation it never recovered. Let me repeat that for importance, someone who bought gold at it's peak back in 1980 has experienced negative real returns over the past 37 years.

That 26 years of negative nominal returns includes the 87 crash and the tech bubble. It did go up in 87, but only by about 5% between Black Monday(Oct 19th 1987) and the end of the year. The following year it started going down again. When the tech bubble burst gold went down, not up. Gold also didn't do well in 08. It went down, like stocks did. It is NOT a hedge against the stock market. If you want a hedge against stocks you don't need anything more fancy than bonds.

Gold did really well from 2010 to 2012. That wasn't stock market fears. It did well because of fear the Fed was going to create hyperinflation. That hyperinflation never happened and gold has since fallen. I personally wouldn't be surprised at all if took gold another 26 years(2038) before gold gets back to the levels it saw in 2012. It is a commodity. With commodities you get volatility similar to stocks but long term returns similar to inflation. I don't get the fascination.

Source: https://goldprice.org/gold-price-history.html

smallstache

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Re: Precious Metal?
« Reply #9 on: September 08, 2017, 08:00:17 PM »
Gold did really well from 2010 to 2012. That wasn't stock market fears. It did well because of fear the Fed was going to create hyperinflation. That hyperinflation never happened and gold has since fallen. I personally wouldn't be surprised at all if took gold another 26 years(2038) before gold gets back to the levels it saw in 2012. It is a commodity. With commodities you get volatility similar to stocks but long term returns similar to inflation. I don't get the fascination.

This is all wrong.  From 2001 to 2011, gold went from less than $300 an ounce to over $1900.  That was a 533% increase over a decade.

Over that decade, we had many events that traditionally help gold--terrorist attacks, war, asset (stock, fixed income, and housing) meltdowns, and unprecedented economic measures put in place.  Was there a fear of hyperinflation?  Yes.  But that was just the tail end of the gold rally.

Moose has a good point about recency bias.  Stocks are up, gold in down...so stocks must be the best investment, right???

I'm not saying precious metals are better than anything else.  There is manipulation and high transaction costs.  There is an unfavorable long-term capital gains tax rate on collectables, which applies to physical gold and ETFs like GLD.  Gold obviously does not reproduce so a gold bar won't become more gold a year from now.

But don't write off the stuff as if it is dog shit and stocks are the only path to prosperity.  Markets are all about supply and demand.  The tide can turn at any time.

L.A.S.

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Re: Precious Metal?
« Reply #10 on: September 09, 2017, 07:26:48 AM »
Gold did really well from 2010 to 2012. That wasn't stock market fears. It did well because of fear the Fed was going to create hyperinflation. That hyperinflation never happened and gold has since fallen. I personally wouldn't be surprised at all if took gold another 26 years(2038) before gold gets back to the levels it saw in 2012. It is a commodity. With commodities you get volatility similar to stocks but long term returns similar to inflation. I don't get the fascination.

This is all wrong.  From 2001 to 2011, gold went from less than $300 an ounce to over $1900.  That was a 533% increase over a decade.

Over that decade, we had many events that traditionally help gold--terrorist attacks, war, asset (stock, fixed income, and housing) meltdowns, and unprecedented economic measures put in place.  Was there a fear of hyperinflation?  Yes.  But that was just the tail end of the gold rally.

Moose has a good point about recency bias.  Stocks are up, gold in down...so stocks must be the best investment, right???

I'm not saying precious metals are better than anything else.  There is manipulation and high transaction costs.  There is an unfavorable long-term capital gains tax rate on collectables, which applies to physical gold and ETFs like GLD.  Gold obviously does not reproduce so a gold bar won't become more gold a year from now.

But don't write off the stuff as if it is dog shit and stocks are the only path to prosperity. Markets are all about supply and demand.  The tide can turn at any time.

But long-term, stocks are pretty much the only path to prosperity.  People never suggest adding gold, or bonds, or any other asset class in order to achieve higher absolute returns.  Only higher risk adjusted returns.  I've not yet seen anyone suggest (or if it has been suggested, then proven) that adding them increases prospective returns long term.  Ask any investor who has been in the market for a good long while, and they will invariably tell you that their stocks are what produced the lions share of their gains.

TomTX

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Re: Precious Metal?
« Reply #11 on: September 09, 2017, 03:12:45 PM »
Gold did really well from 2010 to 2012. That wasn't stock market fears. It did well because of fear the Fed was going to create hyperinflation. That hyperinflation never happened and gold has since fallen. I personally wouldn't be surprised at all if took gold another 26 years(2038) before gold gets back to the levels it saw in 2012. It is a commodity. With commodities you get volatility similar to stocks but long term returns similar to inflation. I don't get the fascination.

This is all wrong.  From 2001 to 2011, gold went from less than $300 an ounce to over $1900.  That was a 533% increase over a decade.

Over that decade, we had many events that traditionally help gold--terrorist attacks, war, asset (stock, fixed income, and housing) meltdowns, and unprecedented economic measures put in place.  Was there a fear of hyperinflation?  Yes.  But that was just the tail end of the gold rally.

Moose has a good point about recency bias.  Stocks are up, gold in down...so stocks must be the best investment, right???

I'm not saying precious metals are better than anything else.  There is manipulation and high transaction costs.  There is an unfavorable long-term capital gains tax rate on collectables, which applies to physical gold and ETFs like GLD.  Gold obviously does not reproduce so a gold bar won't become more gold a year from now.

But don't write off the stuff as if it is dog shit and stocks are the only path to prosperity. Markets are all about supply and demand.  The tide can turn at any time.

But long-term, stocks are pretty much the only path to prosperity.  People never suggest adding gold, or bonds, or any other asset class in order to achieve higher absolute returns.  Only higher risk adjusted returns.  I've not yet seen anyone suggest (or if it has been suggested, then proven) that adding them increases prospective returns long term.  Ask any investor who has been in the market for a good long while, and they will invariably tell you that their stocks are what produced the lions share of their gains.

Rental real estate is another potentially excellent path to prosperity.
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nereo

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Re: Precious Metal?
« Reply #12 on: September 09, 2017, 03:57:04 PM »

[snip]

Moose has a good point about recency bias.  Stocks are up, gold in down...so stocks must be the best investment, right???

I'm not saying precious metals are better than anything else.  There is manipulation and high transaction costs.  There is an unfavorable long-term capital gains tax rate on collectables, which applies to physical gold and ETFs like GLD.  Gold obviously does not reproduce so a gold bar won't become more gold a year from now.

But don't write off the stuff as if it is dog shit and stocks are the only path to prosperity.  Markets are all about supply and demand.  The tide can turn at any time.

Fair enough, Gold has had decades where it increased in value.  However, a better measure for investors (who are different from speculators) is how it has preformed over multi-decade time periods, as well as multiple decade periods.
In such an analysis gold does very poorly as an investment.  Essentially it keeps on par with inflation, which should not be surprising as, unlike companies, gold does not actually produce anything.
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Mr. Rich Moose

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Re: Precious Metal?
« Reply #13 on: September 09, 2017, 07:59:01 PM »
Fair enough, Gold has had decades where it increased in value.  However, a better measure for investors (who are different from speculators) is how it has preformed over multi-decade time periods, as well as multiple decade periods.
In such an analysis gold does very poorly as an investment.  Essentially it keeps on par with inflation, which should not be surprising as, unlike companies, gold does not actually produce anything.

Not necessarily true. A U.S. based portfolio with 90/10 stocks to gold re-balanced annually has performed very similar to a portfolio with 90/10 stocks to bonds. There are decades where bonds were better offsets and decades where gold was better. In the long run they're likely to be close to the same.

I don't think anyone is saying gold in itself is a good investment; it doesn't meet the standard metrics most people use to determine what is an investment and what is not. It doesn't generate cash, doesn't grow over time, etc. There is nothing wrong using gold to balance stock swings. There is something wrong with people who hold gold thinking it will save them in pending apocalyptic era.

Properly used in a balanced portfolio it can have a place on the protection side of things along with bonds, or maybe even instead of bonds. I believe it was Ray Dalio who has said people who don't hold at least a bit of gold know neither history nor economics. Most people on this forum are probably not Dalio fans and prefer the Bogle or Buffett approach, but it's simply a difference of opinion.
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Jeferson

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Re: Precious Metal?
« Reply #14 on: September 10, 2017, 02:23:02 AM »
I think that the metals are especially good in times of crisis. So if one will be ahead, you can buy them. Otherwise, I don't think they are the best options out there now. Did you consider investing into cryptocurrencies?
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smallstache

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Re: Precious Metal?
« Reply #15 on: September 10, 2017, 02:59:43 AM »
But long-term, stocks are pretty much the only path to prosperity.

This may be the most dangerous sentence I have ever read on the blog.

L.A.S.

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Re: Precious Metal?
« Reply #16 on: September 10, 2017, 09:14:34 AM »
But long-term, stocks are pretty much the only path to prosperity.

This may be the most dangerous sentence I have ever read on the blog.

Ok...

Indexer

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Re: Precious Metal?
« Reply #17 on: September 10, 2017, 03:59:49 PM »
Gold did really well from 2010 to 2012. That wasn't stock market fears. It did well because of fear the Fed was going to create hyperinflation. That hyperinflation never happened and gold has since fallen. I personally wouldn't be surprised at all if took gold another 26 years(2038) before gold gets back to the levels it saw in 2012. It is a commodity. With commodities you get volatility similar to stocks but long term returns similar to inflation. I don't get the fascination.

This is all wrong.  From 2001 to 2011, gold went from less than $300 an ounce to over $1900.  That was a 533% increase over a decade.

Over that decade, we had many events that traditionally help gold--terrorist attacks, war, asset (stock, fixed income, and housing) meltdowns, and unprecedented economic measures put in place. Was there a fear of hyperinflation?  Yes.  But that was just the tail end of the gold rally.

Moose has a good point about recency bias.  Stocks are up, gold in down...so stocks must be the best investment, right???

What in particular was wrong? Everything I said is factually correct. Yes gold did well from 2001-2011. However, the returns from 2001-2006 were just recouping losses from decades prior. You pointed out it went from less than $300 an ounce in 2001 to over $1900 in 2011. In 1980 it was over $800 an ounce so the fact that it was less than $300 in 2001 proves my point.

My hyperinflation comment was clearly referring to 2010-2012, not the whole decade. On that note, let me repeat, gold didn't do well in 2000(tech bubble burst) or 2008(stock market crashed). It was flat in 2001(terrorist attack), but the attacks were late in the year and gold did well from 2002-2007 so fear related to terrorist attacks likely did influence the price.

Recency bias:  No, gold fans don't have a good point with recency bias. They claim recency bias when stocks outperform gold for a few years. People aren't automatically fans of stocks and trashing gold because stocks did better the past few years. Gold was junk for decades, and prior to the few years it did well in the 70s it was junk for decades prior to that. It has one decade of good returns and suddenly it is this great investment. Looking at 2001-2011, while ignoring all of history, that is recency bias.
« Last Edit: September 10, 2017, 04:15:18 PM by Indexer »

TomTX

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Re: Precious Metal?
« Reply #18 on: September 10, 2017, 07:40:38 PM »
If you look at historical values, gold is still in the same ballpark as it was in the Roman Empire.  Sure, it fluctuates a lot, but the long-term gain is nil.

Current base pay for a new US Army Captain is $48,560.40.

Base pay for a Roman Centurion* during the reign of Augustus was 38.58 ounces of gold per year. At the current spot, that's $52,032.85

http://www.hurriyetdailynews.com/roman-centurions-and-the-price-of-gold-today.aspx?pageID=238&nID=46042&NewsCatID=396

*Very similar position to a modern Army Captain, though the Captain might have command of more men.
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Indexer

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Re: Precious Metal?
« Reply #19 on: September 10, 2017, 09:41:46 PM »
If you look at historical values, gold is still in the same ballpark as it was in the Roman Empire.  Sure, it fluctuates a lot, but the long-term gain is nil.

Current base pay for a new US Army Captain is $48,560.40.

Base pay for a Roman Centurion* during the reign of Augustus was 38.58 ounces of gold per year. At the current spot, that's $52,032.85

http://www.hurriyetdailynews.com/roman-centurions-and-the-price-of-gold-today.aspx?pageID=238&nID=46042&NewsCatID=396

*Very similar position to a modern Army Captain, though the Captain might have command of more men.

Very interesting. I hadn't seen this. I have seen data going back to the 1600s, which is when the British started keeping records for inflation and how much gold backed the currency. Using that data the long term trend of gold is that it tracks pretty close to inflation over time, which is the same thing you are showing.

TomTX

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Re: Precious Metal?
« Reply #20 on: September 11, 2017, 04:46:10 PM »
If you look at historical values, gold is still in the same ballpark as it was in the Roman Empire.  Sure, it fluctuates a lot, but the long-term gain is nil.

Current base pay for a new US Army Captain is $48,560.40.

Base pay for a Roman Centurion* during the reign of Augustus was 38.58 ounces of gold per year. At the current spot, that's $52,032.85

http://www.hurriyetdailynews.com/roman-centurions-and-the-price-of-gold-today.aspx?pageID=238&nID=46042&NewsCatID=396

*Very similar position to a modern Army Captain, though the Captain might have command of more men.

Very interesting. I hadn't seen this. I have seen data going back to the 1600s, which is when the British started keeping records for inflation and how much gold backed the currency. Using that data the long term trend of gold is that it tracks pretty close to inflation over time, which is the same thing you are showing.

The further back you go, the more scattered the data...

If you go with a Biblical reference, an ounce of gold would buy 350 loaves of (two pound loaf, whole grain, rustic) bread in 600BC.

So, about $4 a loaf. Which is about what I would pay for that in the supermarket. Basically the same value after 2,600 years. But of course, that could swing 50% in either direction pretty easily, as gold is volatile.

https://www.coins-auctioned.com/learn/news/history-of-gold-ounce-price-comparison-to-a-loaf-of-bread
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thenextguy

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Re: Precious Metal?
« Reply #21 on: September 11, 2017, 05:13:48 PM »
This is all wrong.  From 2001 to 2011, gold went from less than $300 an ounce to over $1900.  That was a 533% increase over a decade.

Over that decade, we had many events that traditionally help gold--terrorist attacks, war, asset (stock, fixed income, and housing) meltdowns, and unprecedented economic measures put in place.  Was there a fear of hyperinflation?  Yes.

What!? No there wasn't. There was a fear of deflation.

My hyperinflation comment was clearly referring to 2010-2012, not the whole decade.


There was no fear of hyperinflation during that period. Deflation is what people were afraid of.
« Last Edit: September 11, 2017, 05:18:41 PM by thenextguy »

JAYSLOL

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Re: Precious Metal?
« Reply #22 on: September 11, 2017, 05:35:48 PM »
This is all wrong.  From 2001 to 2011, gold went from less than $300 an ounce to over $1900.  That was a 533% increase over a decade.

Over that decade, we had many events that traditionally help gold--terrorist attacks, war, asset (stock, fixed income, and housing) meltdowns, and unprecedented economic measures put in place.  Was there a fear of hyperinflation?  Yes.

What!? No there wasn't. There was a fear of deflation.

My hyperinflation comment was clearly referring to 2010-2012, not the whole decade.


There was no fear of hyperinflation during that period. Deflation is what people were afraid of.

Pretty much every YouTube doomsday-type channel video from that period was more worried (and still is, haha) about hyper inflation than deflation.  People who knew more about the economy were worried about deflation during the Great Recession, but to most people hearing that your dollar is going to be worth less and less is more scary than a long boring explanation about deflation.

thenextguy

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Re: Precious Metal?
« Reply #23 on: September 11, 2017, 05:41:30 PM »
This is all wrong.  From 2001 to 2011, gold went from less than $300 an ounce to over $1900.  That was a 533% increase over a decade.

Over that decade, we had many events that traditionally help gold--terrorist attacks, war, asset (stock, fixed income, and housing) meltdowns, and unprecedented economic measures put in place.  Was there a fear of hyperinflation?  Yes.

What!? No there wasn't. There was a fear of deflation.

My hyperinflation comment was clearly referring to 2010-2012, not the whole decade.


There was no fear of hyperinflation during that period. Deflation is what people were afraid of.

Pretty much every YouTube doomsday-type channel video from that period was more worried (and still is, haha) about hyper inflation than deflation.  People who knew more about the economy were worried about deflation during the Great Recession, but to most people hearing that your dollar is going to be worth less and less is more scary than a long boring explanation about deflation.

Yeah, true, there are those that are convinced that hyperinflation is right around the corner. Any day now. This time, I mean it!

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Re: Precious Metal?
« Reply #24 on: September 11, 2017, 06:50:09 PM »
This is all wrong.  From 2001 to 2011, gold went from less than $300 an ounce to over $1900.  That was a 533% increase over a decade.

Over that decade, we had many events that traditionally help gold--terrorist attacks, war, asset (stock, fixed income, and housing) meltdowns, and unprecedented economic measures put in place.  Was there a fear of hyperinflation?  Yes.

What!? No there wasn't. There was a fear of deflation.

My hyperinflation comment was clearly referring to 2010-2012, not the whole decade.


There was no fear of hyperinflation during that period. Deflation is what people were afraid of.

There was fear of both.  The Fed and bankers were concerned with a deep recession touching off a deflationary spiral.  So the Fed lowered interest rates and engaged in quantitative easing to pump cash into the system which acted as a support for prices.  These actions caused a different cohort of people to fear inflation due the Fed "going crazy printing money."

https://data.bls.gov/timeseries/CUUR0000SA0L1E?output_view=pct_12mths

Actual data suggest that the Fed was probably right.  The annual inflation CPI-U based inflation rate bottomed out at at little over half a percent in late 2010 picking back up a bit.  In fact, during the crisis, we did even have a short period of actual deflation where the CPI-U contracted over a few months during 2008 from 219.964 in July '08 to 210.228 by December of that year.  Although it is not entirely abnormal for the CPI-U to sometimes drop slightly from the previous month, this is indicative of a 5% drop in prices and taken with other economic data at the time was a real cause for concern about further deflation.

http://www.usinflationcalculator.com/inflation/consumer-price-index-and-annual-percent-changes-from-1913-to-2008/

Indexer

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Re: Precious Metal?
« Reply #25 on: September 12, 2017, 08:56:02 AM »
This is all wrong.  From 2001 to 2011, gold went from less than $300 an ounce to over $1900.  That was a 533% increase over a decade.

Over that decade, we had many events that traditionally help gold--terrorist attacks, war, asset (stock, fixed income, and housing) meltdowns, and unprecedented economic measures put in place.  Was there a fear of hyperinflation?  Yes.

What!? No there wasn't. There was a fear of deflation.

My hyperinflation comment was clearly referring to 2010-2012, not the whole decade.


There was no fear of hyperinflation during that period. Deflation is what people were afraid of.

There was a fear of hyperinflation. It was a very common fear during that time. I heard fears about hyperinflation on a regular basis. I don't remember an average American(not someone who works in finance) once telling me they were afraid of deflation.

The FED, rightfully so, was afraid of deflation so they kept rates low and instituted quantitative easing. In essence they were accomplishing the electronic equivalent of printing a ton of money. This did cause inflation, but since we would have had deflation an increase in inflation just got us back to even. Success, the Fed did it's job.

However, all that printing of money convinced average Americans that we would have hyperinflation. This was a very common fear of the time. Fox News in particular was constantly trying to scare people and convince them that the money printing would cause hyperinflation. I worked at a bank around this time and on a fairly regular basis people would want to take out large sums of money so they could buy gold. Why I would ask, and the response 100% of the time was a rant about the Government printing all this money and how we would have hyperinflation. I was regularly told that gold wasn't appreciating in value, it was constant, and that its price was going up because the value of the dollar was going down. Obviously this doesn't make sense, but those were the talking points of the day.

Many of these people were conservatives who watched Glenn Beck. Whether you like Fox news or hate it, Beck was basically a front man for scaring people into buying gold.

thenextguy

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Re: Precious Metal?
« Reply #26 on: September 12, 2017, 09:44:48 AM »
This is all wrong.  From 2001 to 2011, gold went from less than $300 an ounce to over $1900.  That was a 533% increase over a decade.

Over that decade, we had many events that traditionally help gold--terrorist attacks, war, asset (stock, fixed income, and housing) meltdowns, and unprecedented economic measures put in place.  Was there a fear of hyperinflation?  Yes.

What!? No there wasn't. There was a fear of deflation.

My hyperinflation comment was clearly referring to 2010-2012, not the whole decade.


There was no fear of hyperinflation during that period. Deflation is what people were afraid of.

There was a fear of hyperinflation. It was a very common fear during that time. I heard fears about hyperinflation on a regular basis. I don't remember an average American(not someone who works in finance) once telling me they were afraid of deflation.

The FED, rightfully so, was afraid of deflation so they kept rates low and instituted quantitative easing. In essence they were accomplishing the electronic equivalent of printing a ton of money. This did cause inflation, but since we would have had deflation an increase in inflation just got us back to even. Success, the Fed did it's job.

However, all that printing of money convinced average Americans that we would have hyperinflation. This was a very common fear of the time. Fox News in particular was constantly trying to scare people and convince them that the money printing would cause hyperinflation. I worked at a bank around this time and on a fairly regular basis people would want to take out large sums of money so they could buy gold. Why I would ask, and the response 100% of the time was a rant about the Government printing all this money and how we would have hyperinflation. I was regularly told that gold wasn't appreciating in value, it was constant, and that its price was going up because the value of the dollar was going down. Obviously this doesn't make sense, but those were the talking points of the day.

Many of these people were conservatives who watched Glenn Beck. Whether you like Fox news or hate it, Beck was basically a front man for scaring people into buying gold.

Sorry, I should have said no serious person was worried about hyperinflation. If there was anything driving the price of gold up during that time period, it was the smart money worried about deflation. Not the small time investor watching Glenn Beck.
« Last Edit: September 12, 2017, 09:51:14 AM by thenextguy »

nereo

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Re: Precious Metal?
« Reply #27 on: September 12, 2017, 09:54:12 AM »
This is all wrong.  From 2001 to 2011, gold went from less than $300 an ounce to over $1900.  That was a 533% increase over a decade.

Over that decade, we had many events that traditionally help gold--terrorist attacks, war, asset (stock, fixed income, and housing) meltdowns, and unprecedented economic measures put in place.  Was there a fear of hyperinflation?  Yes.

What!? No there wasn't. There was a fear of deflation.

My hyperinflation comment was clearly referring to 2010-2012, not the whole decade.


There was no fear of hyperinflation during that period. Deflation is what people were afraid of.

There was a fear of hyperinflation. It was a very common fear during that time. I heard fears about hyperinflation on a regular basis. I don't remember an average American(not someone who works in finance) once telling me they were afraid of deflation.


The problem with making such a bold statement is that its so very easily cross-checked.
I used google's news archive feature.  You can too!
Turns out there was quite a bit of talk about whether the US would experience hyperinflation during that period.
Even 'serious people' with 'serious jobs' were writing about it in 'serious magazines' and talking about it on 'serious news programs'.

Articles during that time period (2010-2012) discussing the possibility of hyperinflation in the US
http://www.prnewswire.com/news-releases/12-warning-signs-of-us-hyperinflation-118718254.html
http://www.businessinsider.com/hyperinflation-can-it-happen-here-2011-10
http://www.businessinsider.com/art-cashin-hyperinflation-2012-10
http://www.businessinsider.com/how-hyperinflation-will-happen-in-america-2010-9
https://www.cnbc.com/id/47960752
Forbes.com article
http://www.deseretnews.com/article/705389291/Hyperinflation-is-inevitable-How-you-can-prepare.html
the Street article
http://www.businessinsider.com/egon-von-greyerz-2010-8

Some quotes from those articles:
Quote
NIA [National Inflation Association] believes that there is a serious risk of hyperinflation breaking out as soon as the second half of this calendar year and that hyperinflation is almost guaranteed to occur by the end of this decade. In our estimation, the most likely time frame for a full-fledged outbreak of hyperinflation is between the years 2013 and 2015.

Quote
With a nod to Bernanke's helicopter speech, where he detailed how the Fed could prevent deflation, I ask the opposite question, "Can 'it' (hyperinflation) really happen here?" - J. Mauldin, 2011

Quote
UBS's Art Cashin  is sounding alarms on hyperinflation again.
Quote
I would argue that the next step down in this world-historical Global Depression which we are experiencing will be hyperinflation. - G. Lira, Business Insider

Quote
People with sound economic principles and good minds have been pushing the imminent inflation line more aggressively. ... They've told you over and over again to brace for an imminent wave of high, even hyper, inflation.

Quote
Many economists predict hyperinflation by 2015, and some say as early as 2012. Itís unpredictable, but everyone agrees itís inevitable. - A. Humphreys in 2011

Quote
I think the wave of the future is inflation. It's just beginning - to the point that the dollar will be rejected as the reserve currency of the world. If there's a panic out of the dollar you will see the destruction of the dollar rather quickly. The end stages of a currency comes quickly. We've seen [hyperinflation] in Zimbabwe, Mexico and Central America. Today there's an illusion and false trust in our money. - Sen Rand Paul, 3/2011

Quote
Hyperinflation Is Coming And Western Civilization Is About To Collapse - Egon von Greyerz on CNBC, 8/2010
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thenextguy

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Re: Precious Metal?
« Reply #28 on: September 12, 2017, 10:37:01 AM »
I guess we'll have to disagree on what we consider serious people.

You've got a bunch of gold bugs and things like the National Inflation Association, whatever the hell that is.

The markets were decidedly NOT expecting hyperinflation and were worried about deflation. We know this because we can see things like the TIPS Spread.
« Last Edit: September 12, 2017, 10:41:28 AM by thenextguy »

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Re: Precious Metal?
« Reply #29 on: September 12, 2017, 11:08:42 AM »
I guess we'll have to disagree on what we consider serious people.

...just admit you were wrong dude. Just two pages into google's news archives turned up articles from half a dozen publications, including Forbes, Business Insider and the Wall Street Journal. It was being discussed by CEOs of fortune 500 companies and by at least one US senator. News networks all aired stories about the potential for hyperinflation.  You can dig deeper and find a lot more.

Did those opinions turn out to be correct?  Clearly not (at least not thus far).  But it's simply wrong to say that there was no fear of hyperinflation during 2010-2012, even among 'serious' people.

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thenextguy

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Re: Precious Metal?
« Reply #30 on: September 12, 2017, 11:24:43 AM »
I guess we'll have to disagree on what we consider serious people.

...just admit you were wrong dude. Just two pages into google's news archives turned up articles from half a dozen publications, including Forbes, Business Insider and the Wall Street Journal. It was being discussed by CEOs of fortune 500 companies and by at least one US senator. News networks all aired stories about the potential for hyperinflation.  You can dig deeper and find a lot more.

Did those opinions turn out to be correct?  Clearly not (at least not thus far).  But it's simply wrong to say that there was no fear of hyperinflation during 2010-2012, even among 'serious' people.

You can always find someone to support virtually any position.  But hey, if you think people like Rand Paul and this guy are credible about inflation, knock yourself out. The was never a serious concern for hyperinflation and the markets reflected that:


Show me on the chart where the hyperinflation scare occurred?
« Last Edit: September 12, 2017, 11:34:14 AM by thenextguy »

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Re: Precious Metal?
« Reply #31 on: September 12, 2017, 11:50:27 AM »
just stop.
i) You made a rather curious claim that there was no fear about hyperinflation during a specific time period. 

ii)That comment resonated with me because I remembered lots of talk about hyperinflation - specifically that QE would ultimately result in hyperinflation.

iii) I provided evidence that there was broad discussion on the subject

just because it didn't happen doesn't mean there wasn't fear that it might.
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thenextguy

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Re: Precious Metal?
« Reply #32 on: September 12, 2017, 12:04:28 PM »
just stop.
i) You made a rather curious claim that there was no fear about hyperinflation during a specific time period. 

You're either deliberately mischaracterizing the discussion, or you forgot what was being discussed. Someone made a point that hyperinflation fears were driving the price of gold up in 2010-2012. I disagreed and said that deflation was the relevant fear, if anything, that was driving up the price of gold. The activity of financial markets at the time support that.

Do you agree that the original point being discussed was whether or not hyperinflation fears were driving up the price of gold in 2010-12? Do you agree or disagree that the records of financial activity at the time do not support that claim?

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Re: Precious Metal?
« Reply #33 on: September 12, 2017, 12:08:19 PM »
This is all wrong.  From 2001 to 2011, gold went from less than $300 an ounce to over $1900.  That was a 533% increase over a decade.

And from 2011 until now the price has gone....uh....down to $1300.

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Re: Precious Metal?
« Reply #34 on: September 12, 2017, 12:39:00 PM »
This is all wrong.  From 2001 to 2011, gold went from less than $300 an ounce to over $1900.  That was a 533% increase over a decade.

And from 2011 until now the price has gone....uh....down to $1300.

Yep.  And, the more important question is: Is it a good price at $1300/oz?

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Re: Precious Metal?
« Reply #35 on: September 12, 2017, 12:53:35 PM »
This is all wrong.  From 2001 to 2011, gold went from less than $300 an ounce to over $1900.  That was a 533% increase over a decade.

And from 2011 until now the price has gone....uh....down to $1300.

Yep.  And, the more important question is: Is it a good price at $1300/oz?

The even more important question:  who has time to futz around with Au and Ag when there is still .22LR ammunition to be stockpiled?

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Re: Precious Metal?
« Reply #36 on: September 12, 2017, 01:22:13 PM »
just stop.
i) You made a rather curious claim that there was no fear about hyperinflation during a specific time period. 

You're either deliberately mischaracterizing the discussion, or you forgot what was being discussed. Someone made a point that hyperinflation fears were driving the price of gold up in 2010-2012. I disagreed and said that deflation was the relevant fear, if anything, that was driving up the price of gold. The activity of financial markets at the time support that.

Do you agree that the original point being discussed was whether or not hyperinflation fears were driving up the price of gold in 2010-12? Do you agree or disagree that the records of financial activity at the time do not support that claim?

I'm going to second Nereo, please stop.

What is being discussed is that a few of us noted hyperinflation fears is why many Americans were buying gold. You brought up "serious" people. If non-serious average people are buying gold because of inflation fears then what they think matters for this conversation. It was driving the price of gold. Ample evidence has been shown that investors were worried about inflation during that time period. I've seen no evidence to the contrary.

On the note of records of financial activity, I think your chart of TNX means nothing for this conversation. What is that graph suppose to prove? It's the 10 year treasury yield. The Fed was lowering rates! Of course rates went down when the Fed was lowering rates!!! If an average retail investor is worried about inflation caused by the Fed's easing policies then they wouldn't be investing in 10 year treasuries so they wouldn't impact the TNX. On the other hand, if an investor wanted to hedge against an unexpected rise in inflation they would buy TIPs and Gold.

Edit: I feel like this part needs to be repeated. The FED was worried about deflation. I was also worried about deflation. Many investment firms were worried about deflation. Average investors/savers who disagreed with the Fed were worried about inflation and buying gold as a hedge. They thought the Fed was going to far.
« Last Edit: September 12, 2017, 01:50:52 PM by Indexer »

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Re: Precious Metal?
« Reply #37 on: September 12, 2017, 01:24:40 PM »
just stop.
i) You made a rather curious claim that there was no fear about hyperinflation during a specific time period. 

You're either deliberately mischaracterizing the discussion, or you forgot what was being discussed. Someone made a point that hyperinflation fears were driving the price of gold up in 2010-2012. I disagreed and said that deflation was the relevant fear, if anything, that was driving up the price of gold. The activity of financial markets at the time support that.

Do you agree that the original point being discussed was whether or not hyperinflation fears were driving up the price of gold in 2010-12? Do you agree or disagree that the records of financial activity at the time do not support that claim?
I'm clear on the conversation and that you unequivocally stated that there was no fear of hyperinflation during this time period. 
Yes, there was also a fear of deflation, and Bernanke & co were hard at work to avoid that from happening. This does not mean that others weren't warning of hyperinflation.  Ironically the basis of these arguments were that the Fed's measures were going to punt us from the threat of deflation into the world of hyperinflation.

Do I believe that the records of financial activity support the claim that hyperinflation was a fear and had some role in the price of gold?  Yes I do. Why?
Consider what an investor might do if he/she was worried that hyperinflation was around the corner.  Buying treasury notes wouldn't be a good strategy, especially at 1.5 - 2%. Gold might seem (to some) a better investment than bonds as the supply (unlike USD) is essentially finite, and one could argue that gold's run-up was fueled in large part by people who were afraid that investments made in bonds would rapidly lose their value.

Regardless of our respective interpretations about the records of financial activity and what they say about the financial environment, there is real evidence that hyperinflation was one fear frequently discussed both within financial spheres and among the broader public.
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thenextguy

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Re: Precious Metal?
« Reply #38 on: September 12, 2017, 01:46:12 PM »
just stop.
i) You made a rather curious claim that there was no fear about hyperinflation during a specific time period. 

You're either deliberately mischaracterizing the discussion, or you forgot what was being discussed. Someone made a point that hyperinflation fears were driving the price of gold up in 2010-2012. I disagreed and said that deflation was the relevant fear, if anything, that was driving up the price of gold. The activity of financial markets at the time support that.

Do you agree that the original point being discussed was whether or not hyperinflation fears were driving up the price of gold in 2010-12? Do you agree or disagree that the records of financial activity at the time do not support that claim?

I'm going to second Nereo, please stop.

What is being discussed is that a few of us noted hyperinflation fears is why many Americans were buying gold. You brought up "serious" people. If non-serious average people are buying gold because of inflation fears then what they think matters for this conversation. It was driving the price of gold. Ample evidence has been shown that investors were worried about inflation during that time period. I've seen no evidence to the contrary.

On the note of records of financial activity, I think your chart of TNX means nothing for this conversation. What is that graph suppose to prove? It's the 10 year treasury yield. The Fed was lowering rates! Of course rates went down when the Fed was lowering rates!!! What does that have to do with gold or hyperinflation fears? If an investor is worried about inflation caused by the Fed's easing policies then they wouldn't be investing in 10 year treasuries so they wouldn't impact the TNX. On the other hand, if an investor wanted to hedge against an unexpected rise in inflation they would buy TIPs and Gold.

Edit: I feel like this part needs to be repeated. The FED was worried about deflation. I was also worried about deflation. Many investment firms were worried about deflation. Average investors/savers who disagreed with the Fed were worried about inflation and buying gold as a hedge. They thought the Fed was going to far.


Okay, so now you're arguing that fears of hyperinflation wouldn't show up in 10-year yields? I give up.

To clarify, that chart shows the opposite of what you think happened. People WERE buying treasuries, by the buttload, to use a technical term. People don't do that when they're worried about hyperinflation.
« Last Edit: September 12, 2017, 01:50:41 PM by thenextguy »

nereo

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Re: Precious Metal?
« Reply #39 on: September 12, 2017, 02:16:09 PM »


Okay, so now you're arguing that fears of hyperinflation wouldn't show up in 10-year yields? I give up.

To clarify, that chart shows the opposite of what you think happened. People WERE buying treasuries, by the buttload, to use a technical term. People don't do that when they're worried about hyperinflation.
nope.  I'm arguing that there was a lot of fear about hyperinflation from 2010 to 2012.  Full stop.

I've provided ample evidence supporting this: see above.

I'm suggesting that the run-up of gold during this time period was at least in part due to this fear. Whether or not you believe this interpretation is irrelevant to the point I am making, which is refuting your claim that there was no fear of hyperinflation.

As indexer mentioned, the 10y yield correlates to the fed rate.  This is economics 101.
Here's a chart comparing the two over the last 65 years. 
You'll notice that the correlation becomes tighter as we move past 1987, reflecting the increased power of and confidence in the Fed.

source: St. Louis Fed
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thenextguy

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Re: Precious Metal?
« Reply #40 on: September 12, 2017, 02:22:49 PM »


Okay, so now you're arguing that fears of hyperinflation wouldn't show up in 10-year yields? I give up.

To clarify, that chart shows the opposite of what you think happened. People WERE buying treasuries, by the buttload, to use a technical term. People don't do that when they're worried about hyperinflation.
nope.  I'm arguing that there was a lot of fear about hyperinflation from 2010 to 2012.  Full stop.

Uh, I wasn't talking to you.

Indexer

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Re: Precious Metal?
« Reply #41 on: September 12, 2017, 02:28:41 PM »
just stop.
i) You made a rather curious claim that there was no fear about hyperinflation during a specific time period. 

You're either deliberately mischaracterizing the discussion, or you forgot what was being discussed. Someone made a point that hyperinflation fears were driving the price of gold up in 2010-2012. I disagreed and said that deflation was the relevant fear, if anything, that was driving up the price of gold. The activity of financial markets at the time support that.

Do you agree that the original point being discussed was whether or not hyperinflation fears were driving up the price of gold in 2010-12? Do you agree or disagree that the records of financial activity at the time do not support that claim?

I'm going to second Nereo, please stop.

What is being discussed is that a few of us noted hyperinflation fears is why many Americans were buying gold. You brought up "serious" people. If non-serious average people are buying gold because of inflation fears then what they think matters for this conversation. It was driving the price of gold. Ample evidence has been shown that investors were worried about inflation during that time period. I've seen no evidence to the contrary.

On the note of records of financial activity, I think your chart of TNX means nothing for this conversation. What is that graph suppose to prove? It's the 10 year treasury yield. The Fed was lowering rates! Of course rates went down when the Fed was lowering rates!!! What does that have to do with gold or hyperinflation fears? If an investor is worried about inflation caused by the Fed's easing policies then they wouldn't be investing in 10 year treasuries so they wouldn't impact the TNX. On the other hand, if an investor wanted to hedge against an unexpected rise in inflation they would buy TIPs and Gold.

Edit: I feel like this part needs to be repeated. The FED was worried about deflation. I was also worried about deflation. Many investment firms were worried about deflation. Average investors/savers who disagreed with the Fed were worried about inflation and buying gold as a hedge. They thought the Fed was going to far.


Okay, so now you're arguing that fears of hyperinflation wouldn't show up in 10-year yields? I give up.

To clarify, that chart shows the opposite of what you think happened. People WERE buying treasuries, by the buttload, to use a technical term. People don't do that when they're worried about hyperinflation.

No I'm not saying inflation fears won't show up in 10 year yields. There is a correlation. However, those 10 year yields are heavily influenced by the largest player.*

The chart shows exactly what I think happened. When people buy bonds rates go down. I think you are missing WHO was buying treasuries.*

*The FED. The Fed was buying 85 billion dollars worth of treasuries each MONTH. Of course the 10 year yield went down. The treasury market is so much larger than the gold market that some retail investors buying gold instead of treasuries isn't going to show up as a blip on the TNX. The Fed was throwing over a trillion a year into treasuries. For context, the value of all the gold ever mined, EVER, is less than the value of the Fed's QE programs.

"Edit: I feel like this part needs to be repeated. The FED was worried about deflation. I was also worried about deflation. Many investment firms were worried about deflation. Average investors/savers who disagreed with the Fed were worried about inflation and buying gold as a hedge. They thought the Fed was going to far."

This again ^^^. The Fed was going one way. Some retail investors disagreed with the Fed. Those people bought gold. You have ample sources showing that. Please show me any source or data point that says the opposite.

Quote
Uh, I wasn't talking to you.

And... Me and Nereo have been saying the same thing. We are in complete agreement.
« Last Edit: September 12, 2017, 02:43:36 PM by Indexer »

effigy98

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Re: Precious Metal?
« Reply #42 on: September 12, 2017, 04:06:18 PM »
Gold is awesome as an uncorrelated asset to most other asset classes and can smooth the ride during accumulation and drawdowns.

Example:
https://portfoliocharts.com/portfolio/golden-butterfly/

nereo

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Re: Precious Metal?
« Reply #43 on: September 12, 2017, 04:27:20 PM »
Does anyone know why portfolio charts chooses to run all their simulations going back only to 1970?
...just curious...
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Re: Precious Metal?
« Reply #44 on: September 12, 2017, 07:35:26 PM »
Does anyone know why portfolio charts chooses to run all their simulations going back only to 1970?
...just curious...

Not 100% sure on this, I noticed other backtest sites also use 1970 or 1971 as their start year.

Maybe because the MSCI World and EAFE indices had their first full year in 1970?
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Re: Precious Metal?
« Reply #45 on: September 12, 2017, 07:41:49 PM »
Does anyone know why portfolio charts chooses to run all their simulations going back only to 1970?
...just curious...

It's simply an issue of data availability.

For a multitude of reasons, detailed histories for most assets are unavailable prior to 1970 (at least without paying big $$$, and even then many assets are limited prior to that point).  To get even that much, I've had to do things like model my own index funds using source data from academic research and foreign central banks. 

I also work closely with the guy who maintains the Simba spreadsheet on the Bogleheads forum, and we're always on the lookout for quality free data sources. So if you ever find a good one, please let me know!
« Last Edit: September 12, 2017, 08:12:38 PM by Tyler »
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Re: Precious Metal?
« Reply #46 on: September 12, 2017, 08:00:07 PM »
Does anyone know why portfolio charts chooses to run all their simulations going back only to 1970?
...just curious...

It's shortly before the USA went off the official gold standard (ie, gold price in dollars was fixed by the government.) Gold prices were artificially held down by the Feds. When gold went free market, it had a huge runup.

Without that runup, gold looks a hell of a lot less attractive.
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Re: Precious Metal?
« Reply #47 on: September 13, 2017, 10:12:02 PM »
Yep.  And, the more important question is: Is it a good price at $1300/oz?

If you're buying it with Bitcoin, it sure is. ;)

The gold/silver ratio is still very high, so I'd suggest silver is probably a better value at the moment.  Plus, long term, silver is recycled less and has useful "kills germs" properties.  And a 100oz silver bar makes a solid doorstop!

I hold some metals, generally as a long term value store.  I don't consider them an investment so much as as something that's likely to hold value, ish, long term.  Which they do, as noted above.  They may not increase in value over time, but they'll hold it through an awful lot of events and currencies, which is of some value, at least to the pessimistic among us.
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dcamnc

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Re: Precious Metal?
« Reply #48 on: September 14, 2017, 04:33:43 AM »
I have some. It's just another asset class, not sure why people get so argumentative over it.

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Re: Precious Metal?
« Reply #49 on: September 14, 2017, 06:21:22 AM »
My metals speculative investment right now is... Lithium.  Its value is related to industrial use which is rising - and hopefully rising a lot faster than productive capacity can increase over the next 10 years or so (a big problem with any commodity when it gets pricey - people can simply extract/grow more of it). And I allocate less than 0.5% of my stash to some guys who mine it.

Gold/Silver I don't hold. It doesn't grow. It's not an inflation hedge. It's illiquid. Large transaction costs. And if Glenn Beck and the paranoid hyperinflationists are trying to sell me something I'm thinking... nah.

For the zombie apocalypse/EOTWAWKI  I think I'd find a lot more stored value in a large stash of whiskey, salt, olive oil, seeds, cheap antibiotics, & off grid electric power...  and the means to defend it all from said zombies, naturally. ;-) Did I hear someone here has some .22LR to trade?
Mr. Mark