Author Topic: Precious Metals  (Read 64234 times)

TomTX

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Re: Precious Metals
« Reply #450 on: April 13, 2020, 03:06:14 PM »
I guess as the self-proclaimed goldbug around this place, it would be remiss not to point out that we have a new 7 year USD high for gold @ $1722..

<snip>

Remember Dalio's prognosis (https://www.linkedin.com/pulse/paradigm-shifts-ray-dalio). What worked well in the last paradigm tends to work much less well when the world transition to a new paradigm. Are we entering that new paradigm? Central bank action and asset prices seem to suggest that we might be. Adjust your thinking and your portfolio accordingly.
So, you're saying that because gold was recently doing well, we can expect it to work out much less well when the world transitions to a new paradigm.

Thanks!

celerystalks

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Re: Precious Metals
« Reply #451 on: April 13, 2020, 07:30:30 PM »
Back in the day I used to set a 5% target of NW in physical bullion. My wife talked me out of it some time ago and it retracted to about 1.5% depending on asset prices. I managed to negotiate with her back to a 3% position. Since we met on that number, I have been setting aside some cash but it has been slow going accumulating the necessary cash. I'm hoping to buy about 8k worth of gold for this round in any coin or bar close to 0.25 troy ounces (sovereigns would be great for this). Current target if the market stays relatively stable in terms of what's in stock and premiums:
https://sdbullion.com/5-us-commemorative-gold-coins-bu-proof

I'm probably shooting myself in the foot waiting to accumulate enough cash to get a volume discount, rather than just DCA'ing a few coins at a time as the price goes up.

I'm upset in myself that I let my position deteriorate to the point where I'm now buying on the upswing instead of over the previous years while prices were relatively low. On the other hand, it's such a small part of my portfolio that it won't matter much.

Actually, good luck finding a vendor with stock ready to ship. Premiums are huge right now, especially on the smaller denomination stuff.  And when I go back and check something often it is out of stock.

But overall I like you approach. $5 commens are a great way to get gold weight with a relatively low premium. Iíve thought about getting some myself.

I have been thinking of adding to my stack, but it has sort of changed it percentage versus stock due to the rise in gold and drop in stock price. So I am going to sit tight.

celerystalks

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Re: Precious Metals
« Reply #452 on: April 13, 2020, 07:50:04 PM »
I guess as the self-proclaimed goldbug around this place, it would be remiss not to point out that we have a new 7 year USD high for gold @ $1722..

<snip>

Remember Dalio's prognosis (https://www.linkedin.com/pulse/paradigm-shifts-ray-dalio). What worked well in the last paradigm tends to work much less well when the world transition to a new paradigm. Are we entering that new paradigm? Central bank action and asset prices seem to suggest that we might be. Adjust your thinking and your portfolio accordingly.
So, you're saying that because gold was recently doing well, we can expect it to work out much less well when the world transitions to a new paradigm.

Thanks!

A few physical gold coins as part of a portfolio never hurt anybody. And during times of extreme volatility and uncertainty they provide an additional asset class to sell from.

I used to think owning gold and silver was kooky. But then I bought a few Silver coins, some 10oz silver bars, a few gold coins, and even a platinum coin.  Itís nice knowing I have some relatively liquid asset to sell in a pinch and for which I could receive a reasonable price if needed.



vand

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Re: Precious Metals
« Reply #453 on: April 14, 2020, 04:18:28 AM »
Gold and gold miners behave VERY differently. You should not consider them anywhere close to being the same asset class; they're not. I consider my miners as part of my equity allocation, not my PM allocation.
Annual returns of gold miners since 1977 are about about 80% like gold and 20% like the broader economy, with double the price movements. Less correlated for returns over shorter periods (1 month, 1 day), but probably more correlated for returns over longer periods.

They are correlated on a daily basis, but they have also drastically underperformed the metal itself over long time periods, as evidenced by long term Gold:Hui ratio.

So while you might get a 200-300% of the upside in a bull market, but you'll also get 80-90% downside in a bear market. The risk/reward profile in mining is asymmetrically skewed towards the side of risk. 

Now, this may be risk worth taking if (like me) your investing thesis is that we are in a long term bull market where the whole sector is going much higher and so are prepared to ride out the 45% corrections we have just seen, but if (like you) your investing thesis is that you have no idea how the cycles will play out and your exposure to the sector based on desired assset allocation, then choosing miners instead of the metal is a very suboptimal way to play it.


appleshampooid

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Re: Precious Metals
« Reply #454 on: April 14, 2020, 07:55:25 AM »
Back in the day I used to set a 5% target of NW in physical bullion. My wife talked me out of it some time ago and it retracted to about 1.5% depending on asset prices. I managed to negotiate with her back to a 3% position. Since we met on that number, I have been setting aside some cash but it has been slow going accumulating the necessary cash. I'm hoping to buy about 8k worth of gold for this round in any coin or bar close to 0.25 troy ounces (sovereigns would be great for this). Current target if the market stays relatively stable in terms of what's in stock and premiums:
https://sdbullion.com/5-us-commemorative-gold-coins-bu-proof

I'm probably shooting myself in the foot waiting to accumulate enough cash to get a volume discount, rather than just DCA'ing a few coins at a time as the price goes up.

I'm upset in myself that I let my position deteriorate to the point where I'm now buying on the upswing instead of over the previous years while prices were relatively low. On the other hand, it's such a small part of my portfolio that it won't matter much.

Actually, good luck finding a vendor with stock ready to ship. Premiums are huge right now, especially on the smaller denomination stuff.  And when I go back and check something often it is out of stock.

But overall I like you approach. $5 commens are a great way to get gold weight with a relatively low premium. Iíve thought about getting some myself.

I have been thinking of adding to my stack, but it has sort of changed it percentage versus stock due to the rise in gold and drop in stock price. So I am going to sit tight.
The link I posted was in stock yesterday and is still in stock today at a modest 5% premium over spot. Things are starting to return to in stock status, slowly and with generally longer shipping times. but not as bad as a few weeks ago.

markbike528CBX

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Re: Precious Metals
« Reply #455 on: April 14, 2020, 02:12:26 PM »
Why aren't gold and silver tracking more closely?
Silver(XAG) is not even at trailing 12month average vs USD..

TomTX

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Re: Precious Metals
« Reply #456 on: April 14, 2020, 07:49:17 PM »
Why aren't gold and silver tracking more closely?
Silver(XAG) is not even at trailing 12month average vs USD..

Silver has more industrial use and the global economy is going in the crapper. Thus, reduction in industrial use.

Gold is mostly "Ooh, Shiny! Must have and then stash where nobody will find it!"

celerystalks

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Re: Precious Metals
« Reply #457 on: April 14, 2020, 08:10:45 PM »
Why aren't gold and silver tracking more closely?
Silver(XAG) is not even at trailing 12month average vs USD..

Silver and gold demand and supply are driving by different factors.

Silver is used in industry for a variety of things.  It is consumed by being used in products that are disposed of.
Silver is mostly produced as a byproduct of mining other metals, e.g. copper or gold

Gold is mostly hoarded or turned into jewelry. Very little mined gold ends up being disposed.
Gold is produced in dedicated mines.

The market for silver is much more volatile. Overall my guess is silver is very undervalued right now.  At some point the economy will recover ó it always does. And at that time silver demand would naturally increase.

markbike528CBX

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Re: Precious Metals
« Reply #458 on: April 14, 2020, 11:20:41 PM »
Why aren't gold and silver tracking more closely?
Silver(XAG) is not even at trailing 12month average vs USD..

Silver and gold demand and supply are driving by different factors.

Silver is used in industry for a variety of things.  It is consumed by being used in products that are disposed of.
Silver is mostly produced as a byproduct of mining other metals, e.g. copper or gold

Gold is mostly hoarded or turned into jewelry. Very little mined gold ends up being disposed.
Gold is produced in dedicated mines.

The market for silver is much more volatile. Overall my guess is silver is very undervalued right now.  At some point the economy will recover ó it always does. And at that time silver demand would naturally increase.
What ARE the industrial uses of silver?  I've only seem gold on electronics.

2Birds1Stone

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Re: Precious Metals
« Reply #459 on: April 15, 2020, 03:50:25 AM »
Silver is used in the process of soldering and brazing alloys, batteries, dentistry, glass coatings, LED chips, medicine, nuclear reactors, photography, photovoltaic (or solar) energy, RFID chips (for tracking parcels or shipments worldwide), semiconductors, touch screens, water purification, wood preservatives and many other industrial uses.

It's got the highest antimicrobial properies vs. lowest toxicity to human/animal cells. It's extremely conductive (think thermal paste on CPU's).

The price of paper silver has been manipulated through futures contracts and even been in the headlines despite a lack of real fallout. https://www.ft.com/content/2d7be5a6-d87a-11e9-8f9b-77216ebe1f17

ERN actually updated his SWR of articles on gold, and the findings were pretty eye opening.

https://earlyretirementnow.com/2020/01/08/gold-hedge-against-sequence-risk-swr-series-part-34/

appleshampooid

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Re: Precious Metals
« Reply #460 on: April 15, 2020, 05:06:37 AM »
The spot price of silver is totally disconnected from the price you can actually get for bullion from a dealer. For what's available, the premiums are in the 20-70% (!!) range.

celerystalks

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Re: Precious Metals
« Reply #461 on: April 15, 2020, 06:11:08 AM »
Why aren't gold and silver tracking more closely?
Silver(XAG) is not even at trailing 12month average vs USD..

Silver and gold demand and supply are driving by different factors.

Silver is used in industry for a variety of things.  It is consumed by being used in products that are disposed of.
Silver is mostly produced as a byproduct of mining other metals, e.g. copper or gold

Gold is mostly hoarded or turned into jewelry. Very little mined gold ends up being disposed.
Gold is produced in dedicated mines.

The market for silver is much more volatile. Overall my guess is silver is very undervalued right now.  At some point the economy will recover ó it always does. And at that time silver demand would naturally increase.
What ARE the industrial uses of silver?  I've only seem gold on electronics.

Here is a pie chart. Found it googling your question.

Another factor regarding silver demand is that as an industrial metal it has low substitutability. Whereas palladium could be substituted for platinum and visa versa with a little bit of reengineering, silver has unique properties.

Silver is the most heat and electrical conductive element at STPl.
Polished silver has the highest reflectivity.
Antimicrobial silver products are generally safe.
T
« Last Edit: April 15, 2020, 06:23:04 AM by celerystalks »

TomTX

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Re: Precious Metals
« Reply #462 on: April 15, 2020, 09:42:34 AM »
Silver is used in the process of soldering and brazing alloys, batteries, dentistry, glass coatings, LED chips, medicine, nuclear reactors, photography, photovoltaic (or solar) energy, RFID chips (for tracking parcels or shipments worldwide), semiconductors, touch screens, water purification, wood preservatives and many other industrial uses.

It's got the highest antimicrobial properies vs. lowest toxicity to human/animal cells. It's extremely conductive (think thermal paste on CPU's).

The price of paper silver has been manipulated through futures contracts and even been in the headlines despite a lack of real fallout. https://www.ft.com/content/2d7be5a6-d87a-11e9-8f9b-77216ebe1f17

ERN actually updated his SWR of articles on gold, and the findings were pretty eye opening.

https://earlyretirementnow.com/2020/01/08/gold-hedge-against-sequence-risk-swr-series-part-34/

Yeah, by far the best time for gold to be a bear market hedge was during the period you effectively couldn't own gold and the price was under government control. Any data from 1933-1974 (inclusive) is worthless. Redo the analysis with that removed and the answer is far different.

markbike528CBX

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Re: Precious Metals
« Reply #463 on: April 15, 2020, 10:29:14 PM »
Why aren't gold and silver tracking more closely?
Silver(XAG) is not even at trailing 12month average vs USD..

Silver and gold demand and supply are driving by different factors.

Silver is used in industry for a variety of things.  It is consumed by being used in products that are disposed of.
Silver is mostly produced as a byproduct of mining other metals, e.g. copper or gold

Gold is mostly hoarded or turned into jewelry. Very little mined gold ends up being disposed.
Gold is produced in dedicated mines.

The market for silver is much more volatile. Overall my guess is silver is very undervalued right now.  At some point the economy will recover ó it always does. And at that time silver demand would naturally increase.
What ARE the industrial uses of silver?  I've only seem gold on electronics.

Here is a pie chart. Found it googling your question.

Another factor regarding silver demand is that as an industrial metal it has low substitutability. Whereas palladium could be substituted for platinum and visa versa with a little bit of reengineering, silver has unique properties.

Silver is the most heat and electrical conductive element at STPl.
Polished silver has the highest reflectivity.
Antimicrobial silver products are generally safe.
T
Thanks @celerystalks

Wrenchturner

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Re: Precious Metals
« Reply #464 on: April 15, 2020, 11:10:15 PM »
The spot price of silver is totally disconnected from the price you can actually get for bullion from a dealer. For what's available, the premiums are in the 20-70% (!!) range.
I'm seeing a spread up here of 5% for gold and 10% for silver from a local place, not sure how that reflects historical spreads though.  Applies to ozs and kgs of silver.

vand

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Re: Precious Metals
« Reply #465 on: April 16, 2020, 02:41:42 AM »
With all the talk of the increased premiums on physical...is nobody buying gold ETFs?
Personally I have a mixture of both physical and ETFs. At times like this it's kind of a no-brainer to just buy the ETF and wait for the stress in the physical supply chains to subside. Increasingly though I'm sticking with ETFs. I already have enough physical that I'll be fine in the event of a nuclear strike.

cool7hand

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Re: Precious Metals
« Reply #466 on: April 16, 2020, 06:17:00 AM »
With all the talk of the increased premiums on physical...is nobody buying gold ETFs?
Personally I have a mixture of both physical and ETFs. At times like this it's kind of a no-brainer to just buy the ETF and wait for the stress in the physical supply chains to subside. Increasingly though I'm sticking with ETFs. I already have enough physical that I'll be fine in the event of a nuclear strike.

We use Ray Dalio's all season's portfolio, which calls for among other things 7.5% in a gold etf. We rebalance quarterly in times of low volatility, monthly in higher volatility, but now is the first time we have ever rebalanced weekly. Oh has it paid off. While our friends who use 100% stocks or 60/40 stocks/bonds are down substantially, we're currently up.

I never really understood the value of physical gold. If there is a "nuclear strike" as you put it, guns and bullets, food, survival gear, etc. would have value. Not gold.

celerystalks

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Re: Precious Metals
« Reply #467 on: April 16, 2020, 06:23:48 AM »
With all the talk of the increased premiums on physical...is nobody buying gold ETFs?
Personally I have a mixture of both physical and ETFs. At times like this it's kind of a no-brainer to just buy the ETF and wait for the stress in the physical supply chains to subside. Increasingly though I'm sticking with ETFs. I already have enough physical that I'll be fine in the event of a nuclear strike.

We use Ray Dalio's all season's portfolio, which calls for among other things 7.5% in a gold etf. We rebalance quarterly in times of low volatility, monthly in higher volatility, but now is the first time we have ever rebalanced weekly. Oh has it paid off. While our friends who use 100% stocks or 60/40 stocks/bonds are down substantially, we're currently up.

I never really understood the value of physical gold. If there is a "nuclear strike" as you put it, guns and bullets, food, survival gear, etc. would have value. Not gold.

Physical gold will always be valuable to humans. For thousands of years it has been the ultimate status symbol and luxury item. And desire for luxuries is unlimited.  This will not change.

vand

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Re: Precious Metals
« Reply #468 on: April 16, 2020, 07:20:59 AM »
I never really understood the value of physical gold. If there is a "nuclear strike" as you put it, guns and bullets, food, survival gear, etc. would have value. Not gold.

Actually.. I can think of at least one VERY significant advantage of physical gold (and silver) which is almost never mentioned on these pages...

And that is that a some gold coins will, in time become collectables and command significant premiums on the secondary market. Series such as the Lunar 1&2 series, pre-2016 Panda, 1st Kookaburra series and the Queens Beasts can sometimes become so sought after that the value of the metal content is secondary to the premium. If you manage to collect the full set of a sought-after series then it can be very lucrative even if the price of the metal doesn't do anything special.



markbike528CBX

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Re: Precious Metals
« Reply #469 on: April 16, 2020, 08:05:46 AM »
With all the talk of the increased premiums on physical...is nobody buying gold ETFs?
Personally I have a mixture of both physical and ETFs. At times like this it's kind of a no-brainer to just buy the ETF and wait for the stress in the physical supply chains to subside. Increasingly though I'm sticking with ETFs. I already have enough physical that I'll be fine in the event of a nuclear strike.

We use Ray Dalio's all season's portfolio, which calls for among other things 7.5% in a gold etf. We rebalance quarterly in times of low volatility, monthly in higher volatility, but now is the first time we have ever rebalanced weekly. Oh has it paid off. While our friends who use 100% stocks or 60/40 stocks/bonds are down substantially, we're currently up.

I never really understood the value of physical gold. If there is a "nuclear strike" as you put it, guns and bullets, food, survival gear, etc. would have value. Not gold.
Add toilet paper to the list!  One of the big surprises for me from Covid-19.

waltworks

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Re: Precious Metals
« Reply #470 on: April 16, 2020, 08:24:57 AM »
We use Ray Dalio's all season's portfolio, which calls for among other things 7.5% in a gold etf. We rebalance quarterly in times of low volatility, monthly in higher volatility, but now is the first time we have ever rebalanced weekly. Oh has it paid off. While our friends who use 100% stocks or 60/40 stocks/bonds are down substantially, we're currently up.

How much are you up over the last 10 or 20 years, though? That's a pretty significant drag over at least the last decade.

-W

appleshampooid

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Re: Precious Metals
« Reply #471 on: April 16, 2020, 08:44:58 AM »
The spot price of silver is totally disconnected from the price you can actually get for bullion from a dealer. For what's available, the premiums are in the 20-70% (!!) range.
I'm seeing a spread up here of 5% for gold and 10% for silver from a local place, not sure how that reflects historical spreads though.  Applies to ozs and kgs of silver.
Interesting, I have never bought PMs locally since I moved states. I know there is a dealer in my local downtown, but I have never even price checked them. I just assume those places are way higher than the online shops, but if you are seeing 10% spread for physical silver then I guess I should take a look. That's way lower anything I can find online right now.

Radagast

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Re: Precious Metals
« Reply #472 on: April 16, 2020, 11:25:00 PM »
Gold and gold miners behave VERY differently. You should not consider them anywhere close to being the same asset class; they're not. I consider my miners as part of my equity allocation, not my PM allocation.
Annual returns of gold miners since 1977 are about about 80% like gold and 20% like the broader economy, with double the price movements. Less correlated for returns over shorter periods (1 month, 1 day), but probably more correlated for returns over longer periods.

They are correlated on a daily basis, but they have also drastically underperformed the metal itself over long time periods, as evidenced by long term Gold:Hui ratio.

So while you might get a 200-300% of the upside in a bull market, but you'll also get 80-90% downside in a bear market. The risk/reward profile in mining is asymmetrically skewed towards the side of risk. 

Now, this may be risk worth taking if (like me) your investing thesis is that we are in a long term bull market where the whole sector is going much higher and so are prepared to ride out the 45% corrections we have just seen, but if (like you) your investing thesis is that you have no idea how the cycles will play out and your exposure to the sector based on desired assset allocation, then choosing miners instead of the metal is a very suboptimal way to play it.
I do not have a strong opinion on where the price of gold is headed. It is not cheap by historic standards, but current events, based on past history, do seem favorable for it over the next few years. I do have an opinion that miners are likely to have better returns than the metal over the coming years and decades, and that even if the returns end up the same the extra volatility of the miners will allow me to have a relatively lower cost basis for the eventual good times. I'd ask you to provide evidence for your last statement, but my thesis is that miners were overpriced for decades until 2015, so obviously any backtest will work against me. I also have a pretty good list of other reasons to prefer mining companies over the metal.

vand

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Re: Precious Metals
« Reply #473 on: April 17, 2020, 02:19:55 AM »
Gold and gold miners behave VERY differently. You should not consider them anywhere close to being the same asset class; they're not. I consider my miners as part of my equity allocation, not my PM allocation.
Annual returns of gold miners since 1977 are about about 80% like gold and 20% like the broader economy, with double the price movements. Less correlated for returns over shorter periods (1 month, 1 day), but probably more correlated for returns over longer periods.

They are correlated on a daily basis, but they have also drastically underperformed the metal itself over long time periods, as evidenced by long term Gold:Hui ratio.

So while you might get a 200-300% of the upside in a bull market, but you'll also get 80-90% downside in a bear market. The risk/reward profile in mining is asymmetrically skewed towards the side of risk. 

Now, this may be risk worth taking if (like me) your investing thesis is that we are in a long term bull market where the whole sector is going much higher and so are prepared to ride out the 45% corrections we have just seen, but if (like you) your investing thesis is that you have no idea how the cycles will play out and your exposure to the sector based on desired assset allocation, then choosing miners instead of the metal is a very suboptimal way to play it.
I do not have a strong opinion on where the price of gold is headed. It is not cheap by historic standards, but current events, based on past history, do seem favorable for it over the next few years. I do have an opinion that miners are likely to have better returns than the metal over the coming years and decades, and that even if the returns end up the same the extra volatility of the miners will allow me to have a relatively lower cost basis for the eventual good times. I'd ask you to provide evidence for your last statement, but my thesis is that miners were overpriced for decades until 2015, so obviously any backtest will work against me. I also have a pretty good list of other reasons to prefer mining companies over the metal.

I'm not going to prove it out myself, but it's possible to use the MPT tools to show why Gold is superior to "gold proxies" that are correlated to gold but have more variability and poorer long term returns than gold itself.

Have a watch of this: https://www.youtube.com/watch?v=K70aQh9ptpU

He shows that silver is a bad substitute for gold in any portfolio because it both lowers the return AND increases the unpredictability of the portfolio. The point of asset allocation is to trade return for more predictability, not less.

Silver and mining shares are actually quite similar; both are more volatile than gold and have inferior long term returns (if anything mining shares are even worse - silver has at least maintained purchasing power, mining shares have lost absolute purchasing power).

That is why it is always GOLD that is added to create efficient portfolios. Not silver, or mining shares or general commodities.
« Last Edit: April 17, 2020, 02:22:55 AM by vand »

Radagast

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Re: Precious Metals
« Reply #474 on: April 17, 2020, 09:07:57 AM »
I'm not going to prove it out myself, but it's possible to use the MPT tools to show why Gold is superior to "gold proxies" that are correlated to gold but have more variability and poorer long term returns than gold itself.

Have a watch of this: https://www.youtube.com/watch?v=K70aQh9ptpU

He shows that silver is a bad substitute for gold in any portfolio because it both lowers the return AND increases the unpredictability of the portfolio. The point of asset allocation is to trade return for more predictability, not less.

Silver and mining shares are actually quite similar; both are more volatile than gold and have inferior long term returns (if anything mining shares are even worse - silver has at least maintained purchasing power, mining shares have lost absolute purchasing power).

That is why it is always GOLD that is added to create efficient portfolios. Not silver, or mining shares or general commodities.
So, first, let's show that gold miner funds have not lost purchasing power, and even now have better long term returns than the metal. Also consider that gold costs would have been about 0.5% annualized for this backtest, rather than the pure price index shown. Further, a gold miner ETF would be 1% per year less expensive now than the backtested funds for this period. Feel free to test these against 95% VFINX to see portfolio results.
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2020&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&showYield=false&reinvestDividends=true&benchmark=-1&benchmarkSymbol=%5EGOLD&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=FKRCX&allocation1_1=100&symbol2=OPGSX&allocation2_2=100&symbol3=FSAGX&allocation3_3=100

Bernstein examined as much history as he had available and demonstrated that (unsurprisingly by now) gold does not have a record of going parabolic in real terms during periods of high inflation, as ever its track record is mixed. In fact gold miners were the asset class with the strongest inflation adjusted track record during high inflation. Throw in that gold miners have historically better returns than the metal in any case, as expected for something that pays you a small amount for owning it rather than vice versa. Then consider that gold mine stock prices have been historically low relative to the metal since mid 2014 and the choice between the two seemed clear. So I added 5% extreme long term government bonds for deflation and 5% gold miners for inflation (which hasn't happened recently). The 2013-2015 crash really helps me, because recency bias causes everyone to have the opinion you just stated. Of course, gold mines have done worse than the metal during deflationary financial crises which is what we've had recently.

Silver: no argument, I see no particular benefit.

vand

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Re: Precious Metals
« Reply #475 on: April 17, 2020, 10:05:16 AM »
@Radagast
thanks -a good rebuke.

However my counter argument would be that change the daterange a little and you will end up with some different results and conclusion. For example change the start date to any year in the 1990s and those mining funds start to underperform gold by a whole lot.

As I commonly say, you can win any A vs B performance argument by changing the date range, and that 1985 starting date seems to be particularly favourable to gold funds.

In fact, it's a shame we can't get more historic data on gold miners. bigcharts has data on Newmont back to 1985 too, which confirms that the 1985-1987 period was basically a bonanza for gold stocks.. NEM went from sub $10 to over $50. Without those specific few years the argument for holding the miners looks much weaker.
« Last Edit: April 17, 2020, 10:15:02 AM by vand »

Radagast

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Re: Precious Metals
« Reply #476 on: April 17, 2020, 10:38:06 AM »
@Radagast
thanks -a good rebuke.

However my counter argument would be that change the daterange a little and you will end up with some different results and conclusion. For example change the start date to any year in the 1990s and those mining funds start to underperform gold by a whole lot.

As I commonly say, you can win any A vs B performance argument by changing the date range, and that 1985 starting date seems to be particularly favourable to gold funds.

In fact, it's a shame we can't get more historic data on gold miners. bigcharts has data on Newmont back to 1985 too, which confirms that the 1985-1987 period was basically a bonanza for gold stocks.. NEM went from sub $10 to over $50. Without those specific few years the argument for holding the miners looks much weaker.
Yup, it is easy to make either case and I don't really have good data either. FKRCX is the oldest gold mine fund I see, going back to the fixed gold price in 1969 from which point it badly underperformed the metal, but I have no idea what happened with the fund in the meantime. It is not an index fund. Since either case can be made depending on start date, I propose that for start dates in the past few years, the prices of one of these two is low relative to the other for most of its history.

Addition: I perceive that gold mine equity entered a bubble beginning in the late 1980's and it becoming increasingly egregious for the next 22ish years. People might look and think that the bubble didn't really take off until 2009. However 1989 is really the point from which the stock prices became increasingly untethered from both the price of the metal and sentiment on the ground. Relatively speaking, 1992-2002 was nearly as bad a bubble for gold miner stocks as 2002-2012 was.
« Last Edit: April 17, 2020, 12:08:36 PM by Radagast »

mrmoonymartian

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Re: Precious Metals
« Reply #477 on: April 17, 2020, 07:04:25 PM »
Isn't the biggest problem with miners and paper PM that you don't get to play with the shiny things? Seems like a no-brainer that getting physical maximises happiness.

celerystalks

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Re: Precious Metals
« Reply #478 on: April 17, 2020, 07:36:09 PM »
Isn't the biggest problem with miners and paper PM that you don't get to play with the shiny things? Seems like a no-brainer that getting physical maximises happiness.
Yes. Physical gold is portable wealth.

Once the price of gold passes $3100 Physical gold will be more portable than Federal Reserve Notes. This is because there are 31.1 grams in an ozt of gold and a $100 bill weighs one gram. So 1 Troy oz of hundred dollar bills is worth $3100.

  I anticipate that once that happens criminal enterprise will switch to setting payments in gold instead of hundred dollar bills.

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Re: Precious Metals
« Reply #479 on: April 17, 2020, 08:47:37 PM »
Isn't the biggest problem with miners and paper PM that you don't get to play with the shiny things? Seems like a no-brainer that getting physical maximises happiness.
Yes. Physical gold is portable wealth.

Once the price of gold passes $3100 Physical gold will be more portable than Federal Reserve Notes. This is because there are 31.1 grams in an ozt of gold and a $100 bill weighs one gram. So 1 Troy oz of hundred dollar bills is worth $3100.

  I anticipate that once that happens criminal enterprise will switch to setting payments in gold instead of hundred dollar bills.
mind=blown

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Re: Precious Metals
« Reply #480 on: April 19, 2020, 08:45:51 PM »
Isn't the biggest problem with miners and paper PM that you don't get to play with the shiny things? Seems like a no-brainer that getting physical maximises happiness.
Yes. Physical gold is portable wealth.

Once the price of gold passes $3100 Physical gold will be more portable than Federal Reserve Notes. This is because there are 31.1 grams in an ozt of gold and a $100 bill weighs one gram. So 1 Troy oz of hundred dollar bills is worth $3100.

  I anticipate that once that happens criminal enterprise will switch to setting payments in gold instead of hundred dollar bills.

Gold is the betamax or laserdisc of untraceable criminal currencies. It's not coming back and it was never a thing to begin with. Cryptocurrency has a weight of nothing. A person can transport millions across borders, on airplanes, into and out of prisons, etc. by anyone with a cell phone.

celerystalks

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Re: Precious Metals
« Reply #481 on: April 19, 2020, 09:00:12 PM »
Isn't the biggest problem with miners and paper PM that you don't get to play with the shiny things? Seems like a no-brainer that getting physical maximises happiness.
Yes. Physical gold is portable wealth.

Once the price of gold passes $3100 Physical gold will be more portable than Federal Reserve Notes. This is because there are 31.1 grams in an ozt of gold and a $100 bill weighs one gram. So 1 Troy oz of hundred dollar bills is worth $3100.

  I anticipate that once that happens criminal enterprise will switch to setting payments in gold instead of hundred dollar bills.

Gold is the betamax or laserdisc of untraceable criminal currencies. It's not coming back and it was never a thing to begin with. Cryptocurrency has a weight of nothing. A person can transport millions across borders, on airplanes, into and out of prisons, etc. by anyone with a cell phone.

Oh here we go again with Au v. Cryptos..

mrmoonymartian

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Re: Precious Metals
« Reply #482 on: April 20, 2020, 03:54:40 AM »
Isn't the biggest problem with miners and paper PM that you don't get to play with the shiny things? Seems like a no-brainer that getting physical maximises happiness.
Yes. Physical gold is portable wealth.

Once the price of gold passes $3100 Physical gold will be more portable than Federal Reserve Notes. This is because there are 31.1 grams in an ozt of gold and a $100 bill weighs one gram. So 1 Troy oz of hundred dollar bills is worth $3100.

  I anticipate that once that happens criminal enterprise will switch to setting payments in gold instead of hundred dollar bills.

Gold is the betamax or laserdisc of untraceable criminal currencies. It's not coming back and it was never a thing to begin with. Cryptocurrency has a weight of nothing. A person can transport millions across borders, on airplanes, into and out of prisons, etc. by anyone with a cell phone.

I agree we should outlaw everything to do with crypto. Not sure why it's taking so long.

celerystalks

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Re: Precious Metals
« Reply #483 on: April 20, 2020, 06:21:50 AM »
Isn't the biggest problem with miners and paper PM that you don't get to play with the shiny things? Seems like a no-brainer that getting physical maximises happiness.
Yes. Physical gold is portable wealth.

Once the price of gold passes $3100 Physical gold will be more portable than Federal Reserve Notes. This is because there are 31.1 grams in an ozt of gold and a $100 bill weighs one gram. So 1 Troy oz of hundred dollar bills is worth $3100.

  I anticipate that once that happens criminal enterprise will switch to setting payments in gold instead of hundred dollar bills.

Gold is the betamax or laserdisc of untraceable criminal currencies. It's not coming back and it was never a thing to begin with. Cryptocurrency has a weight of nothing. A person can transport millions across borders, on airplanes, into and out of prisons, etc. by anyone with a cell phone.

I agree we should outlaw everything to do with crypto. Not sure why it's taking so long.

Agreed. Cryptos are a scam.

Gold and cryptos have virtually nothing in common.

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Re: Precious Metals
« Reply #484 on: April 21, 2020, 10:34:11 AM »
Isn't the biggest problem with miners and paper PM that you don't get to play with the shiny things? Seems like a no-brainer that getting physical maximises happiness.
Yes. Physical gold is portable wealth.

Once the price of gold passes $3100 Physical gold will be more portable than Federal Reserve Notes. This is because there are 31.1 grams in an ozt of gold and a $100 bill weighs one gram. So 1 Troy oz of hundred dollar bills is worth $3100.

  I anticipate that once that happens criminal enterprise will switch to setting payments in gold instead of hundred dollar bills.
There are still added costs of converting gold from/to the currency for spending outside of criminal activities, so the weight difference might need to favor gold more heavily before the majority of criminal enterprises start preferring cold hard money. Since legal enterprises primarily transfer wealth electronically these days, there would be little demand for improved value per gram of paper money. While crypto currency does provide some advantages for criminals, blockchain transactions are public so physical exchange would still be preferred for some criminal transfers.

magnet18

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Re: Precious Metals
« Reply #485 on: April 21, 2020, 11:18:49 AM »
I agree we should outlaw everything to do with crypto. Not sure why it's taking so long.

Can't tell if really good sarcasm, or...


Agreed. Cryptos are a scam.

Gold and cryptos have virtually nothing in common.

It's only a scam if someone sells it to you, or your grandma.
Otherwise it's just an unbacked currency.

celerystalks

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Re: Precious Metals
« Reply #486 on: April 21, 2020, 05:18:34 PM »
I agree we should outlaw everything to do with crypto. Not sure why it's taking so long.

Can't tell if really good sarcasm, or...


Agreed. Cryptos are a scam.

Gold and cryptos have virtually nothing in common.

It's only a scam if someone sells it to you, or your grandma.
Otherwise it's just an unbacked currency.

Beg your pardon.. but the topic of this thread is about PM. So I think it is okay to summarily dismiss crypto posts.

Cryptos are nothing at all. They are a non-anonymous permanent ledger entry that cannot be corrected for any reason. An infinite number of cryptos can be created by just having a hard fork or starting a new block chain. They Require an internet connection to transact. They cannot be melted down or fashioned into jewelry. They have only existed at all since 2009.  There is no option for physical exchange. Once mined they require continuous energy input to be kept alive.

Gold could not be more different than crypto claptrap.

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Re: Precious Metals
« Reply #487 on: April 21, 2020, 06:27:36 PM »
I agree we should outlaw everything to do with crypto. Not sure why it's taking so long.

Can't tell if really good sarcasm, or...

I think it's gotta be sarcasm.


Radagast

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Re: Precious Metals
« Reply #488 on: April 21, 2020, 08:54:16 PM »
Isn't the biggest problem with miners and paper PM that you don't get to play with the shiny things? Seems like a no-brainer that getting physical maximises happiness.
Yes. Physical gold is portable wealth.

Once the price of gold passes $3100 Physical gold will be more portable than Federal Reserve Notes. This is because there are 31.1 grams in an ozt of gold and a $100 bill weighs one gram. So 1 Troy oz of hundred dollar bills is worth $3100.

  I anticipate that once that happens criminal enterprise will switch to setting payments in gold instead of hundred dollar bills.
That is a leading reason for why I prefer to own a mine. They are traceable and a lot harder to transport.

On that note I stumbled across this today while looking for something totally different. This is a gold mining company price index relative to the price of gold. It ends in 2015 at the record low point.


I'm not sure how well it plays with what I said earlier in the thread, or with @vand 's preferred ratio:


vand

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Re: Precious Metals
« Reply #489 on: April 22, 2020, 03:05:09 AM »
Good find Radagast.

It basically confirms what I orignally said: there is no long term evidence that gold miners have outperformed the metal over at least the last 80 years, as the miners have become cheaper today than they were in in 1940.

What we also see is that there are periods when you can both make or lose fortunes on a relative basis to gold as they can deliver  x5-10 the return (1960-68) or otherwise lose 80-90% (1968-80). That is why I say they should be used on the long side only if you have a clear opinion that gold is going up further. They should not replace gold if your goal is to create an efficient portfolio.. you are trading increased volatility for no additional long term performance.


vand

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Re: Precious Metals
« Reply #490 on: April 22, 2020, 08:53:43 AM »
On the topic of the miners - GDX looks like it has achieved escape velocity and broken out of a huge 7 year base.  This is very important element of the bull market narrative, which now looks like its shifting into 2nd gear.


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Re: Precious Metals
« Reply #491 on: April 22, 2020, 02:29:58 PM »
Good find Radagast.

It basically confirms what I orignally said: there is no long term evidence that gold miners have outperformed the metal over at least the last 80 years, as the miners have become cheaper today than they were in in 1940.
Yes, but you need to include expenses and dividend yields. If we assume that buying gold bullion will have an annual cost of 0.5%, and that the stocks will have an annual dividend yield of 1%, then after 80 years a huge gap would open up from that 1.5% annualized difference. I do not expect mines to grow in value faster than the price of gold, but I do expect them to generally track gold in an exaggerated fashion and pay dividends along the way. I decided I wanted a small exposure to the price of gold, and the record low prices of gold equity reinforced my opinion that the miners had a better than average chance of being what I wanted.

My expectations:
Spot gold: tracks inflation with 15% standard deviation and little correlation to anything, but perhaps highest and most useful in the aftermath of a crisis
Gold bullion buyers: Spot price, less 0.5% annualized expenses if they are careful and very thrifty, plus some deep extra-spreadsheet risks such as theft, fraud, and an extra chance of dying in a home invasion
Gold ETF buyers: spot price, less 0.X% fund-dependent annualized expenses, plus some deep extra-spreadsheet risks (does anyone really think that the bullion watchers at SGOL are really going sit on $1 billion of untraceable metal for the next century, content with naught but 0.0019 of it per year? Not only does history speak against it, but they'd have to be absolute altruistic imbeciles).
Gold mine equity buyers: spot price, plus dividends, plus tracking error, plus an additional annualized 30% standard deviation, does not have the deep risk of outright theft and murder, and at least there is a strong regulatory framework for possible fraud.

Radagast

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Re: Precious Metals
« Reply #492 on: April 22, 2020, 02:32:43 PM »
Anyhow that 1940-2015 chart is pretty useful. I always wondered why so many gold mines and gold mine funds opened in 1964-1969, considering gold prices were flat, low, and had no prospect for anything else. I guess investors were pumping them full of capital. Which I still do not understand.

vand

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Re: Precious Metals
« Reply #493 on: April 23, 2020, 03:22:08 AM »
Good find Radagast.

It basically confirms what I orignally said: there is no long term evidence that gold miners have outperformed the metal over at least the last 80 years, as the miners have become cheaper today than they were in in 1940.
Yes, but you need to include expenses and dividend yields. If we assume that buying gold bullion will have an annual cost of 0.5%, and that the stocks will have an annual dividend yield of 1%, then after 80 years a huge gap would open up from that 1.5% annualized difference. I do not expect mines to grow in value faster than the price of gold, but I do expect them to generally track gold in an exaggerated fashion and pay dividends along the way. I decided I wanted a small exposure to the price of gold, and the record low prices of gold equity reinforced my opinion that the miners had a better than average chance of being what I wanted.

My expectations:
Spot gold: tracks inflation with 15% standard deviation and little correlation to anything, but perhaps highest and most useful in the aftermath of a crisis
Gold bullion buyers: Spot price, less 0.5% annualized expenses if they are careful and very thrifty, plus some deep extra-spreadsheet risks such as theft, fraud, and an extra chance of dying in a home invasion
Gold ETF buyers: spot price, less 0.X% fund-dependent annualized expenses, plus some deep extra-spreadsheet risks (does anyone really think that the bullion watchers at SGOL are really going sit on $1 billion of untraceable metal for the next century, content with naught but 0.0019 of it per year? Not only does history speak against it, but they'd have to be absolute altruistic imbeciles).
Gold mine equity buyers: spot price, plus dividends, plus tracking error, plus an additional annualized 30% standard deviation, does not have the deep risk of outright theft and murder, and at least there is a strong regulatory framework for possible fraud.

Personally I think you've pretty much invented the relative costs to fit in with your own assumptions.

Gold can cost as little as 0% to store, while gold stocks can and do have costs associated with holding them, so I could just as easily flip those costs in favour of the metal.

And we know that cheap index-trackers haven't been around that long in the scheme of things. How do you think your costs would have looked if you wanted to buy gold stocks back in the 70s?

But even if I dubiously grant you your 1.5% tailwind it doesn't really unwind the uncomfortable fact that miners have still underperformed gold from many historical date ranges that can be considered "long term."

And to be clear, I am not anti-mining. I have exposure myself, because I'm an active investor and it fits in with my investment thesis.
« Last Edit: April 23, 2020, 03:23:42 AM by vand »

ice_beard

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Re: Precious Metals
« Reply #494 on: April 23, 2020, 09:32:21 AM »
I do follow PM prices a bit, primarily because I find them through my favorite hobby of metal detecting.  I am not a stacker. 

I picked up a few mining companies (FSM, MAG) a few weeks ago as a bit of a hedge.  I'm finding it fascinating reading the companies websites and learning about their specific mines, the production costs, mineral estimates, upcoming exploration and prospects.  It's very interesting. 

I'm skeptical these will be long term holds for me, but who knows.  BoA did estimate gold at $3k yesterday. 

vand

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Re: Precious Metals
« Reply #495 on: April 23, 2020, 10:09:44 AM »

I'm skeptical these will be long term holds for me, but who knows.  BoA did estimate gold at $3k yesterday.

Right.. and I think this is a good sign that we have now moved into the 2nd stage of the bull market on the classic 4 stage chart model:



In my view we are still a long way away from the public awareness stage, never mind the eventual mania

Radagast

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Re: Precious Metals
« Reply #496 on: April 23, 2020, 11:17:24 AM »
Personally I think you've pretty much invented the relative costs to fit in with your own assumptions.

Gold can cost as little as 0% to store, while gold stocks can and do have costs associated with holding them, so I could just as easily flip those costs in favour of the metal.

And we know that cheap index-trackers haven't been around that long in the scheme of things. How do you think your costs would have looked if you wanted to buy gold stocks back in the 70s?

But even if I dubiously grant you your 1.5% tailwind it doesn't really unwind the uncomfortable fact that miners have still underperformed gold from many historical date ranges that can be considered "long term."

And to be clear, I am not anti-mining. I have exposure myself, because I'm an active investor and it fits in with my investment thesis.
I assume that gold is bought at a 5% premium and held for an average of 10 years with 0 storage costs :). I got the concept from the gyroscopic investing forum, where I believe one poster tracked actual costs and found them to be 0.4% p.a. Per the book, the gold standard of gold storage is remote allocated storage, which runs 1% per year. I think 0.5% annually is a good guess at the low end of the range. The same 5% premium and 10 year holding time could still have been applicable to individual stock purchases during the period, ...but dividends...

Or we can just extrapolate the current situation: the miner ETF RING has a dividend yield of 1.02% after expenses, while the bullion ETF IAU charges 0.25% annually, a gap of 1.27%. Use GLD and GDX if you prefer. I have no reason to think the difference would have been substantially lower in the past.

BicycleB

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Re: Precious Metals
« Reply #497 on: April 23, 2020, 02:03:32 PM »
@Radagast, I like your reasoning but have questions about the fundamentals. You appear to assume that miners' long term price varies in proportion to gold, so that dividends produce a 1 to 1 variance (an advantage) compared to gold. But don't miners have many differences from gold itself, enough differences that they could have a long term performance quite different from gold itself?

To offer two examples, increasing scarcity of minable gold could hamper miners and favor gold; or improved tech could provide an advantage for miners while producing a decrease in gold price. Similarly, business expenses could be such that at current stock prices, the return before dividends is 1% less than the return of gold itself, so that adding 1% dividends makes the return equal.

What is the basis for assuming that dividends haven't already been part of the price calculations?

How do we know that miners' underlying long term yield is gold price + dividends?
« Last Edit: April 23, 2020, 02:58:57 PM by BicycleB »

Wrenchturner

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Re: Precious Metals
« Reply #498 on: April 23, 2020, 03:15:26 PM »
Seems weird to me that a comparison is being drawn between a company that extracts a material and a finished product that stores value.  Maybe I've got the interpretation wrong.

As for metals being bullish--maybe they are; people have been trying to stave off inflation ever since the GFC.  Lots of wealth moved into real estate but COVID has potentially damaged that asset class, especially with all the leverage.  Where else can you park money these days?  Crypto is too volatile/has questionable liquidity...

I'm far from an expert of course...

Radagast

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Re: Precious Metals
« Reply #499 on: April 23, 2020, 07:15:28 PM »
@Radagast, I like your reasoning but have questions about the fundamentals. You appear to assume that miners' long term price varies in proportion to gold, so that dividends produce a 1 to 1 variance (an advantage) compared to gold. But don't miners have many differences from gold itself, enough differences that they could have a long term performance quite different from gold itself?
Yes, definitely, and the charts on this page show it. It will be dictated by gold price and investor sentiment. It will only work out over the very long term, for example from 1960 to 2020, which is about what it has done over that time and how far back it looks like you need to go. But, that works both ways. If there is a sustained period where gold drops extremely low then gold miners could actually have a 100% loss, compared to only a 90% loss for metal owners. Barring that, miner returns should be a magnified version of the metal, with some tracking error. I doubt investors will accept long term returns lower the metal, and given the extra risk I expect they will demand more. The reason people can tolerate such low returns is the poor correlation with bonds and economy. If expectations are not met then there will be a period of reorganization and consolidation, which is exactly what we have seen from 2014-2020.

Quote
To offer two examples, increasing scarcity of minable gold could hamper miners and favor gold; or improved tech could provide an advantage for miners while producing a decrease in gold price. Similarly, business expenses could be such that at current stock prices, the return before dividends is 1% less than the return of gold itself, so that adding 1% dividends makes the return equal.
Yup sure, it should play out like any commodity producer cycle. Prices rise, producers overextend, a glut ensues, prices collapse, many producers go bust, the others reorganize, prices rise, new technology and new resources emerge, producers overextend, repeat... However, it is my guess that right now and for the past few years gold producers are at their strongest relative to the metal since at least the mid 80's.

Quote
What is the basis for assuming that dividends haven't already been part of the price calculations?
If you look at my PV link https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2020&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&showYield=false&reinvestDividends=true&benchmark=-1&benchmarkSymbol=%5EGOLD&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=FKRCX&allocation1_1=100&symbol2=OPGSX&allocation2_2=100&symbol3=FSAGX&allocation3_3=100
...you will see that miners did better than the metal since the mid 80's, but the relative price chart shows them doing worse, so far as I know the discrepancy is dividends. Is that the question you were asking?

Quote
How do we know that miners' underlying long term yield is gold price + dividends?
We don't :) That is my own (somewhat studied) guess.