Author Topic: Is Gold Anti-Mustachian?  (Read 126385 times)

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1085
Is Gold Anti-Mustachian?
« on: March 06, 2013, 12:18:28 PM »
I understand that Gold is a key component of the Permanent Portfolio, but I am having a hard time understanding why it is or why it should be. The value of gold is derived primarily due to people clamoring for a shiny object.  The price has been derived due to a belief that it is a great hedge against inflation, that it is a secure currency, that it will continue to be in demand, that it is special, etc.  These types of beliefs seem like they would be in the category of being Anti-Mustachian, unless they are based on factual economic fundamentals.  To clamor to a shiny object, without it being valuable in generating dividends or products that are more profitable are challenging and not sustainable.  Yet, Gold has been a sustainable metal for thousands of years.  Does the past, predict the future and if so will it be important for the next 60 years.  Gold has had a turbulent two years, but where will gold be in the future and why? 

http://goldratefortoday.org/supply-demand-gold/
From looking at the chart of production and demand, it is evident that demand for Electronics, Other Industry and Dentistry is flat at 419 tons used in 1997 and 420 tons used in 2010.  Jewelry even dropped from 3,294 down to 2,060. Which is a sizable drop.  The big demand has been in Coins & Bars, ETFs & Sim.  which are speculative in my book.  That went from 452 tons in 1997 to 1,333 tons in 2010.  With the high price over the past few years you have all the old mines coming back online, new mines coming online, individuals actually panning for gold, TV shows Bering Sea Gold, Goldrush, etc. encouraging the supply to jack up.  With the true demand for gold that is actually used staying flat at 420 tons vs. 419 tons in 1997, it seems like there could be a problem in the future. 

From talking with my father (75 years old), there is a lot of sentiment about the virtues of gold.  How it has been around for thousands of years, etc.  From talking with my kids who are 10-15 in age, the glamor of gold is very small.  Jewelry on kids is less than it was when I was a kid, and the desire to invest in Gold may be different than when I was a kid. Is there a change occurring or are these normal fluctuations?  I know India and other countries value gold jewelry and their ability to acquire gold is growing, but will it continue to occur over a long period of time.  Will gold become like the Tulip or Stone Wheel in terms of currency?  Another, funny story about how people valued something that has limited value or will it continue its reign as a valuable commodity.   

With the bizarre political scene going around over the past number of years, you had people clamoring for Gold and Guns.  As people, realize that the economy is improving, the stock market continues to perform well, companies continue to report record profits, etc. it seems like people are going to start questioning why they are holding on to a piece of metal that they have to insure, protect or worry about.  That lustrous gold looks a bit dull when it is not the answer to their financial dreams. Don't get me started on what is occuring to the earth to acquire gold....

Should rare-earth magnets, titanium, Indium, Rhenium, Palladium, Platinum, Rhodium, or others be part of the Permanent Portfolio of the future?  Many are much more useful than Gold in today’s technology and look to be very valuable in the future technologies?

I figured that Mustachians would point me in the right direction regarding gold and it’s place in the Permanent Portfolio.

Thanks for your help,

Tom

Spork

  • Walrus Stache
  • *******
  • Posts: 5753
    • Spork In The Eye
Re: Is Gold Anti-Mustachian?
« Reply #1 on: March 06, 2013, 12:27:02 PM »
Let's get this out of the way first:  I am no financial wizard.

I sort of like gold.  Not because it is shiny, but because (relatively speaking) it is a hard/real asset and is somewhat rare.  It has value to a wide audience. 

BUT!  While I think it's a decent, stable investment, I am not convinced that it is right now.  The doomsdayers that are stocking up on gold for "when the big one crashes" have run the price too high.  If I had a significant cache of it, I'd probably be selling some chunk of that cache.

I'm relatively sure that if the big pile of poo hits the really big fan and we're all driving around like Mad Max in a post apocalyptic world -- the amount of gold that would increase my survival from days to years would be astronomical.  The amount of ammo and coiled barb wire to protect it would be astronomical as well.  I'm going to just bet that "it'll work itself out" or "if things slide a bit, the entire world isn't going to go straight to hell". 

But again: I'm no wiz.

the fixer

  • Handlebar Stache
  • *****
  • Posts: 1037
  • Location: Seattle, WA
Re: Is Gold Anti-Mustachian?
« Reply #2 on: March 06, 2013, 03:36:49 PM »
My two cents: it's a good currency. You can either view it as a more-or-less stable asset that keeps pace with inflation in the long-term, like real estate (NB I haven't seen data that confirms gold behaves this way, but I think it's somewhat reasonable to believe it), or you can view it as a hedge against total Mad Max economic collapse.

Neither of these seem very Mustachian to me. Your stash should be providing passive income, and in the first justification gold does not do this. You would be better off owning TIPS, which at least throw off a tiny amount of return. The second justification is not Mustachian because Mustachianism, in my view, is inherently bullish and optimistic regarding the future, and trying to mitigate long-term risk/uncertainty usually costs too much ("safety is an expensive illusion"). There is maybe a 0.1% chance of sudden, global economic collapse in a given year (if you wanted to be pessimistic, you'd say 1%, but that has no historical basis). Hedging for this possibility wastes a significant amount of returns, and it's not clear that it actually benefits you in the scenario you're hedging for anyway.

Tyler

  • Handlebar Stache
  • *****
  • Posts: 1158
Re: Is Gold Anti-Mustachian?
« Reply #3 on: March 06, 2013, 09:46:30 PM »
Cribbing some helpful quotes from the excellent book "The Permanent Portfolio" by Craig Rowland and J.M. Lawson:
Quote
"Gold is probably the oldest form of money in the world that has been in constant use.  Since gold is viewed as a form of money [My note: if you think it's just a shiny metal, look at how much the central banks store in their vaults] it competes with other paper money.  When inflation threatens a currency, the value of gold will rise.  Gold doesn't change over time and a government can't print more gold when it starts to run low on funds. ... In terms of purchasing power protection, gold has a long track record of preserving wealth that is unmatched."

"Even though gold doesn't generate interest or dividends, it can produce capital appreciation (price goes up), and those profits can be harvested and used in a balanced and diversified portfolio to produce real returns.  Nobody cares how your portfolio grew in value.  It can be interest, dividends, or capital appreciation of gold.  The growth is still counted the same no matter what."

Basically, the difficult thing to understand with gold is that no, it certainly doesn't act like other investments but that's why it's a good diversifier.  If it generated dividends and multiplied into more gold coins, that would totally defeat the purpose of how it hedges against inflation.  A portfolio holds gold because in times of high inflation, stocks, bonds, and cash lose value while gold gains value. When your gold rises in value, you then sell some to buy more stocks and bonds that do generate income on their own.

So no, I don't believe gold is anti-mustachian at all.  It's simply a diversification tool, and used properly it can help protect your hard-earned stash in times when stocks and bonds alone can struggle. 

As an aside, if you'd like to learn more about the PP, the best web reference by far is crawlingroad.com and the associated forums.  They can offer much more detailed answers to any questions you have.

« Last Edit: March 06, 2013, 10:07:20 PM by Tyler »

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28031
  • Age: -999
  • Location: Seattle, WA
Re: Is Gold Anti-Mustachian?
« Reply #4 on: March 07, 2013, 07:13:58 AM »
I'm not a fan of the PP for early retirees (too much capital preservation, not enough growth to sustain a long retirement, IMO), but no, gold is not anti-Mustachian.  I'm not even quite clear on what you mean by that.

How do you define anti-Mustachian such that gold is anti-Mustachian (in the same way mindless consumerism, polluting, etc. is)?
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

KingCoin

  • Pencil Stache
  • ****
  • Posts: 783
  • Location: Manhattan
  • Achieved FI @ 30
Re: Is Gold Anti-Mustachian?
« Reply #5 on: March 07, 2013, 08:51:13 AM »
How do you define anti-Mustachian such that gold is anti-Mustachian (in the same way mindless consumerism, polluting, etc. is)?

You could argue that mining gold is massively resource intensive and environmentally destructive. These assets would be better deployed building wind turbines or developing more efficient battery technology.

"Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” - Warren Buffet

As an asset, it will track inflation over time, with substantial short term variability (if it's real returns were anything but 0, it would eventually be of infinite or no value). It's moderately interesting as a hedge if you're going to monetize short term fluctuations through a fixed proportion asset allocation, but the long term investor is almost certainly best served by owning assets that both track inflation and supply an incremental real yield (real estate, stocks).


Kazimieras

  • Stubble
  • **
  • Posts: 167
  • Location: Ontario, Canada
Re: Is Gold Anti-Mustachian?
« Reply #6 on: March 07, 2013, 08:56:19 AM »
As an asset, it will track inflation over time, with substantial short term variability (if it's real returns were anything but 0, it would eventually be of infinite or no value). It's moderately interesting as a hedge if you're going to monetize short term fluctuations through a fixed proportion asset allocation, but the long term investor is almost certainly best served by owning assets that both track inflation and supply an incremental real yield (real estate, stocks).

+1
The only other time I would encourage the buying of gold is as a currency during times of war.

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1085
Re: Is Gold Anti-Mustachian?
« Reply #7 on: March 07, 2013, 10:17:56 AM »
I got thinking about Anti-Mustachian and Gold based on a number of areas.

Environmental: 
As mentioned by KingCoin, we are strip mining our planet to obtain a piece of metal that has limited utility and the value is based off of a shiny metal, vs practical use of that metal. There are numerous towns in China and elsewhere that are toxic, because they are trying to recycle the computers, phones, and other electronic devices to get the 50 cents of gold that is used in these items.  Again, it appears from the article listed, the useful uses of Gold (Electronics, Dentistry, and other Industries) derives 11% of the use of gold, the other 89% is Jewelry, bars of gold and ETFs.  So we are causing significant environmental damage with the primary purpose of having a shiny metal to hold, wear, touch, and since 2003 to look on a computer or statement that we own gold in an ETF or other investment form.

Supply vs. Demand:
As noted in the article the true useful demand has stayed flat over the 14 year period, supply has been increasing, and the price started to increase at the time that ETF’s started to take off.  This is when the advertising for investing in ETF’s, gold bars, protect yourself from the administration started kicking in to high gear.  Again, the amount of gold that is used in an income producing  fashion was flat during that time, while production of gold was increasing.  Yet, prices exploded due to people buying gold for investment purposes.  This does not seem sustainable long term. Un-Mustachian to listent to the marketing hype vs. the facts on the amount of true gold consumption going up.

Utility of the Asset:
If gold is held in a physical form, one probably has some concern about protecting the asset from theft and loss.  Insurance can be purchased at a price per year, guns and security systems can be beefed up, but again a mustachian way of life would indicate less worry over the assets vs. more.  So again, seems a bit anti-mustachian. The asset is purchased typically at a premium over listed prices, it is sold typically at a discount over listed prices, and if you want to skip the middle man to eliminate those discounts then you are typically increasing your risk of loss of life or assets. Again, not a great liquid asset. Not what I would think would be the definition of a good mustachian asset.

If it is in electronic form, then I guess it is similar to a stock or bond in that you have to trust the system that it will be there when everything hits the fan. Except stocks and bonds are valued based on the expected net present value of future cashflows.  Gold does not generate income, therefore it is an interesting asset to value  Even the 11% that is used in useful production, it sounds like a portion of that is recovered through recyling fillings, computers, etc.

If the world hits the proverbial pile of poo, then I question the value of gold to feed, shelter and clothe your family.  I would think the other mustachian skills would be much more valuable, like gardening, ability to hunt, build, sew, scavenge, etc.   

Owning gold, reminds me of another post on the forum about spending $2,000 on a speaker.  In that case many posters stated, “do not take 2,000 of your little employees and buy a tube Amp”, arebelspy, eloquently stated, “In the future, when someone complains that this community face punches too hard and too often, I'm going to use this thread as proof to the contrary.” The parallels to a speaker that someone enjoys using and listening to, that he believes will retain it’s value over time, and it sounded like was valued at used and discounted costs is in line with someone going out and buying an ounce of gold. Except the speaker can be enjoyed, I guess if someone likes looking at gold there is value there as well.   

Owning an asset that does not produce an income stream, that’s usefulness is decreasing not appreciating, and that the value is based on it being shiny sounds like the stories of the stone wheels of Yap or the Tulips that were used as currency.  Not a logical, investment for long term gains. As Warren Buffet, states, “What would the Martian’s Think?” 

Just an interesting concept as I see Gold being discussed as an asset or a component of the PP. It always struck me as odd to have a piece of metal act as a hedge. As I mentioned in my earlier post, I could see people acquiring rights to metals that are going to be strategic in future technologies like rare-earth metals and as listed in original post.  The duller the metail the more mustachian if it is useful:) 

Thanks for all of your posts.  I will research it further.

Tom

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8774
  • Registered member
Re: Is Gold Anti-Mustachian?
« Reply #8 on: March 07, 2013, 10:35:36 AM »

You could argue that mining gold is massively resource intensive and environmentally destructive.

Well damn, I hope nobody here owns the s&p500 then (oil companies, mining companies, companies that create products out of destructively obtained resources, etc)

I also hope nobody has cash, which only value is people clamorous for pretty pieces of paper, and trust that the government won't print too much more.

(not advocating gold ownership, but I don't see it as antimustachian)

KingCoin

  • Pencil Stache
  • ****
  • Posts: 783
  • Location: Manhattan
  • Achieved FI @ 30
Re: Is Gold Anti-Mustachian?
« Reply #9 on: March 07, 2013, 11:05:36 AM »
Well damn, I hope nobody here owns the s&p500 then (oil companies, mining companies, companies that create products out of destructively obtained resources, etc)

The major difference is that these companies are providing products that add some value to humankind. Oil makes planes and cars go, copper makes pipes and wires, coal supplies us with electricity etc. You can argue that the negative externalities of these products outweigh their benefit and that we need to use them more efficiently and find better alternatives, but unlike gold mining, they do have a meaningfully positive impact on our daily lives.

Tyler

  • Handlebar Stache
  • *****
  • Posts: 1158
Re: Is Gold Anti-Mustachian?
« Reply #10 on: March 07, 2013, 12:16:34 PM »
One can intellectually debate all they want why a specific metal has been viewed as money throughout human history. Most money in circulation today exists only as electrons on the Internet representing fully defaultable promises of one anonymous person made to another. Is that any more rational?

Or one can accept that gold has a unique place in the human psyche and can provide a powerful capital appreciation benefit in very specific economic conditions (inflation). Even today, central banks hold literally tons of the stuff in their vaults, and are acquiring more at record rates. So clearly the greatest financial minds in the world believe gold = money.

There's nothing crazy about owning gold, nor about choosing other investments you're more comfortable with. The PP holds it for a very specific reason, and there are mechanisms built in to make the best use of gold as an asset.  One should have the same mindset about any investment they make.


dragoncar

  • Walrus Stache
  • *******
  • Posts: 8774
  • Registered member
Re: Is Gold Anti-Mustachian?
« Reply #11 on: March 07, 2013, 12:58:34 PM »
Well damn, I hope nobody here owns the s&p500 then (oil companies, mining companies, companies that create products out of destructively obtained resources, etc)

The major difference is that these companies are providing products that add some value to humankind. Oil makes planes and cars go, copper makes pipes and wires, coal supplies us with electricity etc. You can argue that the negative externalities of these products outweigh their benefit and that we need to use them more efficiently and find better alternatives, but unlike gold mining, they do have a meaningfully positive impact on our daily lives.

How are you defining value?  Is all the stuff listed in the "useless crap" thread valuable?  I guess if people buy it, you can say it provides value to society.  Well people buy gold too.

Spork

  • Walrus Stache
  • *******
  • Posts: 5753
    • Spork In The Eye
Re: Is Gold Anti-Mustachian?
« Reply #12 on: March 07, 2013, 01:02:38 PM »
Well damn, I hope nobody here owns the s&p500 then (oil companies, mining companies, companies that create products out of destructively obtained resources, etc)

The major difference is that these companies are providing products that add some value to humankind. Oil makes planes and cars go, copper makes pipes and wires, coal supplies us with electricity etc. You can argue that the negative externalities of these products outweigh their benefit and that we need to use them more efficiently and find better alternatives, but unlike gold mining, they do have a meaningfully positive impact on our daily lives.

How are you defining value?  Is all the stuff listed in the "useless crap" thread valuable?  I guess if people buy it, you can say it provides value to society.  Well people buy gold too.

There are also all sorts of industrial uses for gold that add value to humankind.  Maybe not so much for jewelry... but that's not the only use. 

KingCoin

  • Pencil Stache
  • ****
  • Posts: 783
  • Location: Manhattan
  • Achieved FI @ 30
Re: Is Gold Anti-Mustachian?
« Reply #13 on: March 07, 2013, 02:05:25 PM »
How are you defining value?  Is all the stuff listed in the "useless crap" thread valuable?  I guess if people buy it, you can say it provides value to society.  Well people buy gold too.

Yeesh. I'm obviously not making the claim that all products are useful or neccessary, but how about the rubber in your bike tires or the metal in its frame if we want to take this into fully mustachian territory? Surely you recognize the difference between raw materials that serve some utilitarian end and those that only act as a store of value (i.e end up in a safety deposit box doing nothing). And yes, there are industrial uses for gold, but that's certainly not why it's trading at $1500/oz. If all oil refining stopped, the world as we know it would grind to a near halt. If all gold mining stopped? Maybe a rise in the price of gold and not much else. Arguing that people purchase gold and therefore it's de facto "useful" is splitting hairs in my opinion.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8774
  • Registered member
Re: Is Gold Anti-Mustachian?
« Reply #14 on: March 07, 2013, 03:50:03 PM »
How are you defining value?  Is all the stuff listed in the "useless crap" thread valuable?  I guess if people buy it, you can say it provides value to society.  Well people buy gold too.

Yeesh. I'm obviously not making the claim that all products are useful or neccessary, but how about the rubber in your bike tires or the metal in its frame if we want to take this into fully mustachian territory? Surely you recognize the difference between raw materials that serve some utilitarian end and those that only act as a store of value (i.e end up in a safety deposit box doing nothing). And yes, there are industrial uses for gold, but that's certainly not why it's trading at $1500/oz. If all oil refining stopped, the world as we know it would grind to a near halt. If all gold mining stopped? Maybe a rise in the price of gold and not much else. Arguing that people purchase gold and therefore it's de facto "useful" is splitting hairs in my opinion.

You seem to be saying oil has some value (rubber tires, but not plastic chotchkees) and therefore it's mustachian to own oil companies despite the environmental impact.  You also seem to be saying gold has some value (electrical components, but not jewelry), but it's not mustachian to own gold due to the environmental impact.  Please split these hairs so that I can understand.

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1085
Re: Is Gold Anti-Mustachian?
« Reply #15 on: March 07, 2013, 04:44:56 PM »
You seem to be saying oil has some value (rubber tires, but not plastic chotchkees) and therefore it's mustachian to own oil companies despite the environmental impact.  You also seem to be saying gold has some value (electrical components, but not jewelry), but it's not mustachian to own gold due to the environmental impact.  Please split these hairs so that I can understand.

11% of of all gold sold is used in production of electronics, dentistry and other commercial uses.  The other 89% is to make shiny bars, jewelry, and ETF hoardes for people to admire the shiny metal.  I think if the number was 89% of gold being used in commerce to make items that are being used in society, then the answer may be different.   

chucklesmcgee

  • Pencil Stache
  • ****
  • Posts: 613
Re: Is Gold Anti-Mustachian?
« Reply #16 on: March 07, 2013, 08:55:23 PM »
We can argue whether or not it's all that great of an investment, but it sure isn't anti-mustachian. Gold should at least keep pace with inflation and is basically insurance against the collapse or devaluation of a fiat currency.

You might be right that other precious metals are worth buying. I think it depends on your purpose. It's possible metals like silver, platinum or palladium appreciate quite a lot due to increasing industrial demand (catalytic converters for about a billion cars in developing-nations, etc). However, gold to the layman very much is still the most popular and demanded precious metal. If you need to sell some bars in the midst of a panic, you're going to have a much easier time finding a buyer for an ounce of gold vs. an ounce of rhodium or palladium. If you're going to have a serious amount of  metals, it wouldn't be unreasonable to diversify a little bit.

smedleyb

  • Bristles
  • ***
  • Posts: 434
Re: Is Gold Anti-Mustachian?
« Reply #17 on: March 07, 2013, 09:12:16 PM »
I would say owning too much gold in your investment portfolio (say, more than 10%) is anti-Mustachian. 

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28031
  • Age: -999
  • Location: Seattle, WA
Re: Is Gold Anti-Mustachian?
« Reply #18 on: March 07, 2013, 09:14:49 PM »
I would say owning too much gold in your investment portfolio (say, more than 10%) is anti-Mustachian.

What if it's a short term trade based on technical analysis?
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

smedleyb

  • Bristles
  • ***
  • Posts: 434
Re: Is Gold Anti-Mustachian?
« Reply #19 on: March 07, 2013, 09:20:58 PM »
I would say owning too much gold in your investment portfolio (say, more than 10%) is anti-Mustachian.

What if it's a short term trade based on technical analysis?

Well, that's entirely different!

I have a friend who has seemingly nailed every meaningful price move in gold for the past 6 years.  He's currently loaded to the gills with GLD.   

KingCoin

  • Pencil Stache
  • ****
  • Posts: 783
  • Location: Manhattan
  • Achieved FI @ 30
Re: Is Gold Anti-Mustachian?
« Reply #20 on: March 07, 2013, 09:41:34 PM »
You seem to be saying oil has some value (rubber tires, but not plastic chotchkees) and therefore it's mustachian to own oil companies despite the environmental impact.  You also seem to be saying gold has some value (electrical components, but not jewelry), but it's not mustachian to own gold due to the environmental impact.  Please split these hairs so that I can understand.

Are you really arguing that gold has functional utility anywhere near that of fossil fuels? Again, if oil disappeared the world economy would come to a screeching halt, and life as we know it would become very different (certainly substantially worse in the short to medium term). If gold disappeared, it wouldn't matter. We'd find some slightly less conductive material to put in our electronics and high end audio cables contacts.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28031
  • Age: -999
  • Location: Seattle, WA
Re: Is Gold Anti-Mustachian?
« Reply #21 on: March 07, 2013, 10:28:02 PM »
I would say owning too much gold in your investment portfolio (say, more than 10%) is anti-Mustachian.

What if it's a short term trade based on technical analysis?

Well, that's entirely different!

I have a friend who has seemingly nailed every meaningful price move in gold for the past 6 years.  He's currently loaded to the gills with GLD.

:D

Thanks for the laugh, smedley.  I appreciate your convictions.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8774
  • Registered member
Re: Is Gold Anti-Mustachian?
« Reply #22 on: March 07, 2013, 10:39:56 PM »
You seem to be saying oil has some value (rubber tires, but not plastic chotchkees) and therefore it's mustachian to own oil companies despite the environmental impact.  You also seem to be saying gold has some value (electrical components, but not jewelry), but it's not mustachian to own gold due to the environmental impact.  Please split these hairs so that I can understand.

Are you really arguing that gold has functional utility anywhere near that of fossil fuels? Again, if oil disappeared the world economy would come to a screeching halt, and life as we know it would become very different (certainly substantially worse in the short to medium term). If gold disappeared, it wouldn't matter. We'd find some slightly less conductive material to put in our electronics and high end audio cables contacts.

Well you seem to care about the environment as a measure of mustachianism ("You could argue that mining gold is massively resource intensive and environmentally destructive").  If oil dried up, and our economy came to a halt, that would be great for the environment.  Cheap fossil fuel energy is what has enabled the rampant consumerism and waste that mustachians decry.  The vast majority of equities out there propagate this through product development and marketing.  Poor gold is just sitting there storing value, yet somehow it is considered anti-mustachian?

Edit: And by the way, although you seem to consider environmental destruction to be anti-mustachian, the local environment around mimes has no functional utility to me.  Your argument implies that functional utility is the measure of mustachianism on a forum in which the readers are mostly pursuing non-functional goals (i.e., retirement). 
« Last Edit: March 07, 2013, 10:46:52 PM by dragoncar »

the fixer

  • Handlebar Stache
  • *****
  • Posts: 1037
  • Location: Seattle, WA
Re: Is Gold Anti-Mustachian?
« Reply #23 on: March 08, 2013, 08:33:29 AM »
Or one can accept that gold has a unique place in the human psyche and can provide a powerful capital appreciation benefit in very specific economic conditions (inflation). Even today, central banks hold literally tons of the stuff in their vaults, and are acquiring more at record rates. So clearly the greatest financial minds in the world believe gold = money.
I'll just chirp in that this is not a good reason to own an asset. "Everybody else is buying it right now, therefore I will too" == bubble.

Tyler

  • Handlebar Stache
  • *****
  • Posts: 1158
Re: Is Gold Anti-Mustachian?
« Reply #24 on: March 08, 2013, 09:22:14 AM »
I agree, Fixer. But I think you missed my point.

Gold has been a reliable form of money for all of human history. So it's not just a recent fad.

The PP holds gold at all times, whether it's popular or not. It serves a specific purpose for those who want inflation protection in their portfolios.

chucklesmcgee

  • Pencil Stache
  • ****
  • Posts: 613
Re: Is Gold Anti-Mustachian?
« Reply #25 on: March 08, 2013, 11:57:25 AM »
Gold has been a reliable form of money for all of human history. So it's not just a recent fad.
It serves a specific purpose for those who want inflation protection in their portfolios.

Admittedly, it's been far more volatile in the recently due to a lot of speculation, so it's not as though purchasing today gives you a high probability of matching inflation unless it's held for a while.

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1085
Re: Is Gold Anti-Mustachian?
« Reply #26 on: March 08, 2013, 12:41:30 PM »
The PP holds gold at all times, whether it's popular or not. It serves a specific purpose for those who want inflation protection in their portfolios.

Gold has almost no correlation to inflation.   

http://goldratefortoday.org/gold-inflation-relationship-correlation/
"First, the Wall Street Journal commissioned a study from the research firm Ibbotson Associates. According to their research, between 1978 and 2010 gold and the inflation rate have a correlation value of 0.08. This is nearly no correlation (on a scale ranging from -1 to 1, where 1 is perfect correlation, and -1 perfect negative correlation, and zero is the absence of a relationship).

Second, also Citibank comes in 2009 to the conclusion that “there is no obvious relationship between the gold price and inflation”.  Sometimes the development of gold follows inflation, at other times there is an inverse trend or just on obvious pattern at all.

Therefore, it can be concluded that there is no, or only a weak, relationship between the gold rate and inflation levels."


Tyler

  • Handlebar Stache
  • *****
  • Posts: 1158
Re: Is Gold Anti-Mustachian?
« Reply #27 on: March 08, 2013, 01:12:33 PM »
It's not simply a matter of inflation, but real interest rates.  Discussing the nuances of federal reserve actions is just too inside-baseball for most people, so "inflation" is the simplest way to communicate the idea.

http://www.q1publishing.com/blog/viewblog/contentId/672

There's nothing anti-mustachian about gold.  And nothing crazy about smartly using it as a portion of a balanced portfolio.  Like any investment, you just have to understand why you use it and under what circumstances you will buy or sell.  There's also nothing wrong with avoiding it if it's not your cup of tea.
« Last Edit: March 08, 2013, 01:44:34 PM by Tyler »

Xtal

  • 5 O'Clock Shadow
  • *
  • Posts: 96
Re: Is Gold Anti-Mustachian?
« Reply #28 on: March 10, 2013, 01:56:03 PM »
It's nice to see this discussion.  Every currency in use is a fiction -- a very powerful fiction, but a fiction.  Gold is just one more fiction among many.  A dollar has a certain value because everyone who uses it agrees that it has this value.  Every currency loses value over time, and every currency has a risk (however slight) of failure.

I'm amazed at people who have all of their savings as 1s and 0s on a computer.  I wish I had their faith!

To me the beauty of the PP is the way it provides protection against one's own foolishness.  Regardless of what the market is doing, you just hold your 4 assets, rebalance when necessary, and watch your stash slowly and securely grow.

I feel very good about gold right now.  I just wish I could feel good about my long-term Treasuries!  I have a 25% allocation in Treasuries, like I'm supposed to, but I feel very dubious regarding their continued worth.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28031
  • Age: -999
  • Location: Seattle, WA
Re: Is Gold Anti-Mustachian?
« Reply #29 on: March 10, 2013, 02:22:00 PM »
I'm amazed at people who have all of their savings as 1s and 0s on a computer.  I wish I had their faith!

As opposed to... ?

Holding precious metals or gems?  Cash stuffed under a mattress?  Real property (the ownership of which is often just proven by 1s and 0s)?

How do you store your savings?
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Xtal

  • 5 O'Clock Shadow
  • *
  • Posts: 96
Re: Is Gold Anti-Mustachian?
« Reply #30 on: March 10, 2013, 02:30:43 PM »
Well, most of it is in 1s and 0s just like everybody else's.  Stocks, Long-Term Treasuries, Cash, and a gold ETF.

But I do hold some physical gold.  I think it is good insurance against "small probability high impact" events.

My long-term goal is to have my "wealth" stored in things like a super-insulated house, land with fruit trees and chickens, and good friendships.  I worry that we're in for a bumpy ride, and I'd be happiest if I could secure at least some elements of a good life outside of the financial system.
« Last Edit: March 10, 2013, 06:47:44 PM by Xtal »

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28031
  • Age: -999
  • Location: Seattle, WA
Re: Is Gold Anti-Mustachian?
« Reply #31 on: March 10, 2013, 06:39:29 PM »
Gotcha.  Makes sense.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Mr Mark

  • Handlebar Stache
  • *****
  • Posts: 1181
  • Location: Planet Earth
  • Achieved Financial Independence summer 2014. RE'18
Re: Is Gold Anti-Mustachian?
« Reply #32 on: March 13, 2013, 04:46:19 PM »
To original post,

IMHO

No, gold per se is not anti-mustashian. Is is a sort of 'super tulip', in that people have always digged gold, and been willing to exchange real stuff for it, for ever. Despite it just being super cool shiny metal. So, yes, it has been part of asset allocation strategies.

But, remember it's just super neat, shiny metal. It's really only worth something because other people want super shiny cool metal stuff. And so far it seems hard to replicate. Indians love the stuff, and basically drive the price along with gold nutcases and many nations reserve banks.

So I'd say be cautious and as long as the % allocation is 5% or less, go for it. Take physical possession if it floats your boat. I would.

Personally, I like having a little bit around. High carat necklaces in pre-measured links are great in a crisis. It is pretty. But I consider it fundamentally speculative. Because it doesn't generate intrinsic cash flow, the definition of a productive asset.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8774
  • Registered member
Re: Is Gold Anti-Mustachian?
« Reply #33 on: March 13, 2013, 07:09:50 PM »
Well, most of it is in 1s and 0s just like everybody else's.  Stocks, Long-Term Treasuries, Cash, and a gold ETF.

Back in my day, we only had 0s... and we liked it!

Mr Mark

  • Handlebar Stache
  • *****
  • Posts: 1181
  • Location: Planet Earth
  • Achieved Financial Independence summer 2014. RE'18
Re: Is Gold Anti-Mustachian?
« Reply #34 on: April 15, 2013, 03:31:47 PM »
So, gold had it's biggest fall for 30 years today. -10% or so. And may now drop a further.... 50%? Who knows? As it has no yield, it depends on India and hedge funds.

Glad I don't hold gold, but also note the equity drop  correlation. Albeit -2%. Gold is not a good hedge or store of short term value either.

AdrianM

  • Stubble
  • **
  • Posts: 158
  • Location: Queensland , AUS
Re: Is Gold Anti-Mustachian?
« Reply #35 on: April 17, 2013, 07:28:22 PM »
Yeah, gold down what an awesome event. Time to buy more.

As Baron Rothschild once said "The time to buy is when there's blood in the streets, even if the blood is your own."

http://www.investopedia.com/articles/financial-theory/08/contrarian-investing.asp

Mr Mark, would you be acting so smug if it was stocks taking the fall and not gold, or would you be following Rothchilds advice?


arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28031
  • Age: -999
  • Location: Seattle, WA
Re: Is Gold Anti-Mustachian?
« Reply #36 on: April 17, 2013, 09:28:32 PM »
Yeah, gold down what an awesome event. Time to buy more.


Buy more with what money!?! I was all in on gold!

Oh wait, I can sell some of my spare gold to buy more.  Brilliant!

/ignore me. I have no gold, sold it years ago, I'm mostly all-in on Real Estate right now.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Kriegsspiel

  • Guest
Re: Is Gold Anti-Mustachian?
« Reply #37 on: April 17, 2013, 09:32:35 PM »
Yeah, gold down what an awesome event. Time to buy more.


Buy more with what money!?! I was all in on gold!

Oh wait, I can sell some of my spare gold to buy more.  Brilliant!


That's what I think when people invest 100% of their money in stocks. 

Jamesqf

  • Magnum Stache
  • ******
  • Posts: 4047
Re: Is Gold Anti-Mustachian?
« Reply #38 on: April 17, 2013, 10:08:25 PM »
That's what I think when people invest 100% of their money in stocks.

Why?  If you've invested in good stocks, they'll still be paying dividends.

Just for curiousity's sake, here's a list of the stocks that made up the Dow in 1929: http://en.wikipedia.org/wiki/Historical_components_of_the_Dow_Jones_Industrial_Average#September_14.2C_1929  A good many are still around (or their successors are), and still paying dividends.

Kriegsspiel

  • Guest
Re: Is Gold Anti-Mustachian?
« Reply #39 on: April 17, 2013, 10:29:27 PM »
Well, it was a comment more about the 100% thing than the stock thing.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28031
  • Age: -999
  • Location: Seattle, WA
Re: Is Gold Anti-Mustachian?
« Reply #40 on: April 18, 2013, 01:31:33 AM »
Reinvesting dividends during market troughs to lower your average cost basis is amazing.

Can't do that so much with other investment vehicles (besides somehow taking rents and buying more real estate, if you have enough cash for it and/can get a loan.. stocks have a much lower entry point).

But yes, your point is well taken.

Rebalancing is difficult when you're 100% on asset.  Only way to buy more is have some income elsewhere.  Thus why it may be better to be 100% stocks while working (and can buy on dips with earned income) moreso than when FIRE'd.

Or you can give up the benefits of rebalancing for going long that asset.

Personally I think most early retirees should be 80-90% equities after FIRE, but that's a discussion for another topic..
« Last Edit: April 18, 2013, 01:34:13 AM by arebelspy »
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Spork

  • Walrus Stache
  • *******
  • Posts: 5753
    • Spork In The Eye
Re: Is Gold Anti-Mustachian?
« Reply #41 on: April 18, 2013, 07:38:46 AM »
Well, it was a comment more about the 100% thing than the stock thing.

I'm not sure it's fair to compare "people with 100% in stocks" to "people with 100% in gold".

Maybe... maybe you can compare "people with 100% in a single stock"  ... or "people with 100% in commodities".  But you are comparing a portfolio that is (presumably) diversified across a single type of investment with a single entity of a single type.

I also wouldn't say gold has completely tanked.  It was stupid high on fear.  It could slide some more and still be an inflation hedge (depending on when you bought it, of course.)

That said: I don't own any gold.  I'm not anti-gold, but even if I had owned some, I would have been selling little bits here and there for quite some time now as it went up.
« Last Edit: April 18, 2013, 07:40:53 AM by Spork »

the fixer

  • Handlebar Stache
  • *****
  • Posts: 1037
  • Location: Seattle, WA
Re: Is Gold Anti-Mustachian?
« Reply #42 on: April 18, 2013, 08:43:02 AM »
I thought it was quite interesting that the slide late last week happened in part because Cyprus was being pressured to sell some of its gold reserves to pay its debts. The increased supply of gold on the market would then lower the price. That was a correlation I wouldn't have expected.

chucklesmcgee

  • Pencil Stache
  • ****
  • Posts: 613
Re: Is Gold Anti-Mustachian?
« Reply #43 on: April 18, 2013, 09:13:07 AM »
I thought it was quite interesting that the slide late last week happened in part because Cyprus was being pressured to sell some of its gold reserves to pay its debts. The increased supply of gold on the market would then lower the price. That was a correlation I wouldn't have expected.

It's more a fear response than a direct response to increased quantity. The amount of gold Cyprus could sell is fairly small relative to the total market.

Kriegsspiel

  • Guest
Re: Is Gold Anti-Mustachian?
« Reply #44 on: April 18, 2013, 11:36:03 AM »
Well, it was a comment more about the 100% thing than the stock thing.

I'm not sure it's fair to compare "people with 100% in stocks" to "people with 100% in gold".

Maybe... maybe you can compare "people with 100% in a single stock"  ... or "people with 100% in commodities".  But you are comparing a portfolio that is (presumably) diversified across a single type of investment with a single entity of a single type.

I also wouldn't say gold has completely tanked.  It was stupid high on fear.  It could slide some more and still be an inflation hedge (depending on when you bought it, of course.)

That said: I don't own any gold.  I'm not anti-gold, but even if I had owned some, I would have been selling little bits here and there for quite some time now as it went up.

If you have 100% of your money in stocks (VTSAX, say), plus a bit in your checking account for your monthly expenses, then you have nothing to re-balance into stocks when they go on sale.  Just your monthly paycheck.  So if some day, stocks drop 3%, 10%, or whatever, over night/over a week/over a month, you will still only be able to put in the money from your monthly paycheck.


Jamesqf

  • Magnum Stache
  • ******
  • Posts: 4047
Re: Is Gold Anti-Mustachian?
« Reply #45 on: April 18, 2013, 11:56:01 AM »
If you have 100% of your money in stocks (VTSAX, say), plus a bit in your checking account for your monthly expenses, then you have nothing to re-balance into stocks when they go on sale.  Just your monthly paycheck.  So if some day, stocks drop 3%, 10%, or whatever, over night/over a week/over a month, you will still only be able to put in the money from your monthly paycheck.

But if you don't have all your money in stocks, and they go up... what, 30% or so in the last year? you've lost out on that much gain.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28031
  • Age: -999
  • Location: Seattle, WA
Re: Is Gold Anti-Mustachian?
« Reply #46 on: April 18, 2013, 12:45:33 PM »
If you have 100% of your money in stocks (VTSAX, say), plus a bit in your checking account for your monthly expenses, then you have nothing to re-balance into stocks when they go on sale.  Just your monthly paycheck.  So if some day, stocks drop 3%, 10%, or whatever, over night/over a week/over a month, you will still only be able to put in the money from your monthly paycheck.

The latter is called dollar cost averaging.

The former is called market timing.

I favor the former much more.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

mobilisinmobili

  • Stubble
  • **
  • Posts: 217
  • Age: 36
  • Location: Montreal
  • Advance daily
Re: Is Gold Anti-Mustachian?
« Reply #47 on: April 18, 2013, 01:59:19 PM »

Neither of these seem very Mustachian to me. Your stash should be providing passive income, and in the first justification gold does not do this. You would be better off owning TIPS, which at least throw off a tiny amount of return.

Agreed.

Let's say the financial apocalypse happens. Gold becomes currency. You 'own' a lot of gold. Is that gold in your basement? No.. it's held by a big FI.. try trading someone some pieces of paper (or an e.bill) for food / water.. chances are it's not going to happen. Which means now you have a big cache of gold in your house.. if it's in your safety deposit box.. good luck getting it out.

Could this kind of collapse happen? Sure. If you want to prepare you should be buying stocks of food, hunting gear, and teaching yourself wildness skills and how to hunt and farm. Or maybe build a house / bunker in the hills somewhere. Owning gold is unlikely to do much.

I'm hedging that this won't happen.. it is does.. well yes, I might be ganked. Fortunately I can fire a gun, survive in the winter, build a fire, and hunt animals.

If it doesn't happen (which I think is more likely considering how the world is today and the rapid speed of our adaptability) then I'm covered with my current investments, which are always building on themselves.

If you think there's going to be a metal shortage, you'd be better off investing in mining companies or companies that control those resources.. a resource mutual fund or some such.

DoubleDown

  • Handlebar Stache
  • *****
  • Posts: 1989
Re: Is Gold Anti-Mustachian?
« Reply #48 on: April 18, 2013, 02:51:52 PM »

The latter is called dollar cost averaging.

The former is called market timing.

I favor the former much more.

Wait, you favor market timing??? Or did you mean you favor the latter (dollar cost averaging)?

mobilisinmobili

  • Stubble
  • **
  • Posts: 217
  • Age: 36
  • Location: Montreal
  • Advance daily
Re: Is Gold Anti-Mustachian?
« Reply #49 on: April 18, 2013, 04:02:22 PM »

The latter is called dollar cost averaging.

The former is called market timing.

I favor the former much more.

Wait, you favor market timing??? Or did you mean you favor the latter (dollar cost averaging)?

Dollar cost averaging is market all-the-timing. :P