Author Topic: Precious Metals  (Read 23623 times)

Classical_Liberal

  • Handlebar Stache
  • *****
  • Posts: 1151
  • Age: 43
Re: Precious Metals
« Reply #50 on: January 25, 2019, 11:26:05 PM »
The "using gold to bribe border guard" scenario makes for good dramatic storytelling, but the many times more common scenario would be people with seed capital outside the failing country quietly using those funds to emigrate - often travelling first class on the way out and leaving behind those people who are attached to physical assets such as real estate or hard-to-safely-transport gold hoards (Also note how loss aversion to wasting physical assets can affect people's decisions to escape in time).

Since this was based on my comment, I will respond by saying that I mostly agree with what @maizeman and @tralfamadorian wrote.  I'll add, that although it is possible to set up accounts in other countries with less difficulties, they tend to be the countries which are not inherently stable themselves.  Unless someone is very wealthy, placing seed money in multiple countries is not realistic. 

If one was smart enough to get out (this is probably more difficult to realize than we think, look at history) before a "bribe the boarder guard" scenario is  needed and one can just take a flight. Its very easy to hide a small amount of "seed money" gold in a personal item, remember it melts and jewelry is made of it.  No one is suggesting an entire FIRE stash worth.  Just small five digits as a chance for a fresh start in very low probability emergencies. 

I'm going to hold gold in my portfolio no matter what, most of it is in low cost ETF's. Plenty of people are willing to pay thousands a year on health insurance for the 1 in 100 chance they get very sick that year.  I'm willing to pay $20 a year in holding costs and a few hundred in one time transitional costs for the 1 in 1000 chance SHTF in my home country during my lifetime.  Not so unreasonable.

vand

  • Bristles
  • ***
  • Posts: 381
  • Location: UK
Re: Precious Metals
« Reply #51 on: January 26, 2019, 03:08:34 AM »
I know its already been posted in this thread, but I did an in depth look at the subject here:
https://forum.mrmoneymustache.com/investor-alley/gold-price-and-the-hazards-of-backtesting/
I included a comparison of gold against other real assets (CPI-U), its cost to mine, and a link to a zerohedge article about its real price history since the year 1200. Right now gold is about 5 consumer price indexes, which is well above its average since it was set free on the market. You can't use gold prices before 1974 because the government set their value by force, and thus not indicative of relative gold prices today.

All the gold miners have enough money that they are investing in capital projects that will lower their cost to produce in the future. Of course a global crises could send gold high in spite of that. But I see no reason to think it is an unusually good time to invest in gold.

I disagree with your value gold (and thus your conclusion), but differing opinions are what make a market. 

In any case, I think Platinum and silver are the standout buys in the PM sector right now, much more so than gold.

I totally get why there is little or no enthusiasm for PMs amongst most investors. They have been through a multi-year bear market while paper assets have moved higher since the PM peak in 2011. You would have improved your wealth far more by being in stocks and bonds in this time, that is undeniable.

As I said, I don't really expect to change anyone's mind. But all markets are cyclical. The only thing that is really going to change sentiment is when there is proof in the pudding of what PM investors are saying and PMs actually start to move higher against other asset classes, and then you will find that the casual investor will be tripping over themselves with reasons to be in that sector instead of others.

vand

  • Bristles
  • ***
  • Posts: 381
  • Location: UK
Re: Precious Metals
« Reply #52 on: January 26, 2019, 03:15:11 AM »
There is no intrinsic value to any of it.

LOL. The clue is in the name. Precious metals are METALS. They share the common physical characteristics of other metals that are found in the natural world. The whole of modern civilisation has been built upon METALS. Try imagining a world where no metals exist. The clue to why they are not used to build bridges, offices, bus shelters or pogo sticks is in the first part of their name - they are RARE. As any below average economist will tell you, when supply is low price is high.
« Last Edit: January 26, 2019, 03:25:44 AM by vand »

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1804
Re: Precious Metals
« Reply #53 on: January 26, 2019, 05:36:37 AM »
I'm going to hold gold in my portfolio no matter what, most of it is in low cost ETF's. Plenty of people are willing to pay thousands a year on health insurance for the 1 in 100 chance they get very sick that year.  I'm willing to pay $20 a year in holding costs and a few hundred in one time transitional costs for the 1 in 1000 chance SHTF in my home country during my lifetime.  Not so unreasonable.
It's reasonable if gold is the only choice available in this scenario.  But in what scenario would an equities all world ETF be almost worthless but a gold ETF still be valuable?

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1804
Re: Precious Metals
« Reply #54 on: January 26, 2019, 05:41:38 AM »
There is no intrinsic value to any of it.
LOL. The clue is in the name. Precious metals are METALS. They share the common physical characteristics of other metals that are found in the natural world. The whole of modern civilisation has been built upon METALS. Try imagining a world where no metals exist.
Your argument seems to hinge on using CAPITAL LETTERS, rather than logic.  Steel is valuable in making buildings and vehicles.  How does that have any relevance to the value of gold?  You're over generalizing, and haven't established a link between the two except in naming.

The clue to why they are not used to build bridges, offices, bus shelters or pogo sticks is in the first part of their name - they are RARE. As any below average economist will tell you, when supply is low price is high.
Gold is a soft metal, making it a poor choice for holding up a bridge.  I happen to own rechargeable batteries, which might surprise you.  They are made from RARE earths.

maizeman

  • Magnum Stache
  • ******
  • Posts: 3895
Re: Precious Metals
« Reply #55 on: January 26, 2019, 07:06:28 AM »
There is no intrinsic value to any of it.

LOL. The clue is in the name. Precious metals are METALS. They share the common physical characteristics of other metals that are found in the natural world. The whole of modern civilisation has been built upon METALS. Try imagining a world where no metals exist. The clue to why they are not used to build bridges, offices, bus shelters or pogo sticks is in the first part of their name - they are RARE. As any below average economist will tell you, when supply is low price is high.

I am certainly a below average economist as I switched majors pretty early on, but even I made it to the lecture where they explain that prices are set by the interaction of supply AND demand.

If you were right and all that mattered was rarity, osmium, which is only 1/2 as common as gold in earth's crust would sell for more than the price of gold, yet osmium currently sells for $400/oz and while gold -- which is only half as rare --  is selling for more than 3x as much as $1,300/oz. But what about tellurium? Only 3% as common as gold (33x rarer). Surely that'll be more valuable than gold, after all it's so much rarer... nope, tellurium sells for about $50 a kilogram right now, or $1.40/oz. 33x smaller supply, but barely more than 1/100th the price.

Okay, maybe pricing is just broken for elements less common than gold, what about palladium? 2x as common as gold in earth's crust. It's a lot less rare so it should be worth a lot less than gold, right? No, the current price I could find for palladium was $1,371/oz, which $65 more per ounce than the, rarer, gold.

vand

  • Bristles
  • ***
  • Posts: 381
  • Location: UK
Re: Precious Metals
« Reply #56 on: January 26, 2019, 12:10:55 PM »
There is no intrinsic value to any of it.

LOL. The clue is in the name. Precious metals are METALS. They share the common physical characteristics of other metals that are found in the natural world. The whole of modern civilisation has been built upon METALS. Try imagining a world where no metals exist. The clue to why they are not used to build bridges, offices, bus shelters or pogo sticks is in the first part of their name - they are RARE. As any below average economist will tell you, when supply is low price is high.

I am certainly a below average economist as I switched majors pretty early on, but even I made it to the lecture where they explain that prices are set by the interaction of supply AND demand.

If you were right and all that mattered was rarity, osmium, which is only 1/2 as common as gold in earth's crust would sell for more than the price of gold, yet osmium currently sells for $400/oz and while gold -- which is only half as rare --  is selling for more than 3x as much as $1,300/oz. But what about tellurium? Only 3% as common as gold (33x rarer). Surely that'll be more valuable than gold, after all it's so much rarer... nope, tellurium sells for about $50 a kilogram right now, or $1.40/oz. 33x smaller supply, but barely more than 1/100th the price.

Okay, maybe pricing is just broken for elements less common than gold, what about palladium? 2x as common as gold in earth's crust. It's a lot less rare so it should be worth a lot less than gold, right? No, the current price I could find for palladium was $1,371/oz, which $65 more per ounce than the, rarer, gold.

Nice straw man you just made there

vand

  • Bristles
  • ***
  • Posts: 381
  • Location: UK
Re: Precious Metals
« Reply #57 on: January 26, 2019, 12:12:57 PM »
There is no intrinsic value to any of it.
LOL. The clue is in the name. Precious metals are METALS. They share the common physical characteristics of other metals that are found in the natural world. The whole of modern civilisation has been built upon METALS. Try imagining a world where no metals exist.
Your argument seems to hinge on using CAPITAL LETTERS, rather than logic.  Steel is valuable in making buildings and vehicles.  How does that have any relevance to the value of gold?  You're over generalizing, and haven't established a link between the two except in naming.

The clue to why they are not used to build bridges, offices, bus shelters or pogo sticks is in the first part of their name - they are RARE. As any below average economist will tell you, when supply is low price is high.
Gold is a soft metal, making it a poor choice for holding up a bridge.  I happen to own rechargeable batteries, which might surprise you.  They are made from RARE earths.

Gold has excellent ductile and malleability, and makes for outstanding electrical wiring. Platinum could easily play a role in bridge construction.  You get the point.

maizeman

  • Magnum Stache
  • ******
  • Posts: 3895
Re: Precious Metals
« Reply #58 on: January 26, 2019, 12:15:31 PM »
There is no intrinsic value to any of it.

LOL. The clue is in the name. Precious metals are METALS. They share the common physical characteristics of other metals that are found in the natural world. The whole of modern civilisation has been built upon METALS. Try imagining a world where no metals exist. The clue to why they are not used to build bridges, offices, bus shelters or pogo sticks is in the first part of their name - they are RARE. As any below average economist will tell you, when supply is low price is high.

I am certainly a below average economist as I switched majors pretty early on, but even I made it to the lecture where they explain that prices are set by the interaction of supply AND demand.

If you were right and all that mattered was rarity, osmium, which is only 1/2 as common as gold in earth's crust would sell for more than the price of gold, yet osmium currently sells for $400/oz and while gold -- which is only half as rare --  is selling for more than 3x as much as $1,300/oz. But what about tellurium? Only 3% as common as gold (33x rarer). Surely that'll be more valuable than gold, after all it's so much rarer... nope, tellurium sells for about $50 a kilogram right now, or $1.40/oz. 33x smaller supply, but barely more than 1/100th the price.

Okay, maybe pricing is just broken for elements less common than gold, what about palladium? 2x as common as gold in earth's crust. It's a lot less rare so it should be worth a lot less than gold, right? No, the current price I could find for palladium was $1,371/oz, which $65 more per ounce than the, rarer, gold.

Nice straw man you just made there

Hey, I'm going off the words you wrote. You're always welcome to retract (or revise) your statement if you no longer believe it to be correct or believe it doesn't correctly convey your actual position.
« Last Edit: January 26, 2019, 12:18:46 PM by maizeman »

Classical_Liberal

  • Handlebar Stache
  • *****
  • Posts: 1151
  • Age: 43
Re: Precious Metals
« Reply #59 on: January 26, 2019, 03:21:41 PM »
I'm going to hold gold in my portfolio no matter what, most of it is in low cost ETF's. Plenty of people are willing to pay thousands a year on health insurance for the 1 in 100 chance they get very sick that year.  I'm willing to pay $20 a year in holding costs and a few hundred in one time transitional costs for the 1 in 1000 chance SHTF in my home country during my lifetime.  Not so unreasonable.
It's reasonable if gold is the only choice available in this scenario.  But in what scenario would an equities all world ETF be almost worthless but a gold ETF still be valuable?

I dont expect the ETF to be available, I expect the physical to significantly add to my chances of leaving "bad place" and hopefully have a little left over to restart at "new place",  while I try to iron out a way to retrieve whatever other valuables (like ETFs) that still hold value.

With ETF's holding gold is about the same cost as a niche index fund (free trades with vanguard too).  So, there is only additional cost in the physical.
« Last Edit: January 26, 2019, 03:25:45 PM by Classical_Liberal »

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1589
  • Location: West of the Mountains, East of the Sea
  • One does not simply work into Mordor
Re: Precious Metals
« Reply #60 on: January 29, 2019, 10:08:24 PM »
I know its already been posted in this thread, but I did an in depth look at the subject here:
https://forum.mrmoneymustache.com/investor-alley/gold-price-and-the-hazards-of-backtesting/
I included a comparison of gold against other real assets (CPI-U), its cost to mine, and a link to a zerohedge article about its real price history since the year 1200. Right now gold is about 5 consumer price indexes, which is well above its average since it was set free on the market. You can't use gold prices before 1974 because the government set their value by force, and thus not indicative of relative gold prices today.

All the gold miners have enough money that they are investing in capital projects that will lower their cost to produce in the future. Of course a global crises could send gold high in spite of that. But I see no reason to think it is an unusually good time to invest in gold.

I disagree with your value gold (and thus your conclusion), but differing opinions are what make a market. 

In any case, I think Platinum and silver are the standout buys in the PM sector right now, much more so than gold.

I totally get why there is little or no enthusiasm for PMs amongst most investors. They have been through a multi-year bear market while paper assets have moved higher since the PM peak in 2011. You would have improved your wealth far more by being in stocks and bonds in this time, that is undeniable.

As I said, I don't really expect to change anyone's mind. But all markets are cyclical. The only thing that is really going to change sentiment is when there is proof in the pudding of what PM investors are saying and PMs actually start to move higher against other asset classes, and then you will find that the casual investor will be tripping over themselves with reasons to be in that sector instead of others.
Can you be specific on which part you disagree with?
Price of gold right now?
CPI-U?
Publicly reported cost to mine each ounce?
Average price of gold since 1974?
That the real price of gold is well above its post 1974 average right now (which follows from the above)?
The price history of gold in the zerohedge article?
That the price of gold should be indexed against real prices rather than an exponentially growing asset class?
Is BRK.B or GLD a paper asset? Which one, neither, or both?

vand

  • Bristles
  • ***
  • Posts: 381
  • Location: UK
Re: Precious Metals
« Reply #61 on: January 30, 2019, 04:47:18 AM »
I know its already been posted in this thread, but I did an in depth look at the subject here:
https://forum.mrmoneymustache.com/investor-alley/gold-price-and-the-hazards-of-backtesting/
I included a comparison of gold against other real assets (CPI-U), its cost to mine, and a link to a zerohedge article about its real price history since the year 1200. Right now gold is about 5 consumer price indexes, which is well above its average since it was set free on the market. You can't use gold prices before 1974 because the government set their value by force, and thus not indicative of relative gold prices today.

All the gold miners have enough money that they are investing in capital projects that will lower their cost to produce in the future. Of course a global crises could send gold high in spite of that. But I see no reason to think it is an unusually good time to invest in gold.

I disagree with your value gold (and thus your conclusion), but differing opinions are what make a market. 

In any case, I think Platinum and silver are the standout buys in the PM sector right now, much more so than gold.

I totally get why there is little or no enthusiasm for PMs amongst most investors. They have been through a multi-year bear market while paper assets have moved higher since the PM peak in 2011. You would have improved your wealth far more by being in stocks and bonds in this time, that is undeniable.

As I said, I don't really expect to change anyone's mind. But all markets are cyclical. The only thing that is really going to change sentiment is when there is proof in the pudding of what PM investors are saying and PMs actually start to move higher against other asset classes, and then you will find that the casual investor will be tripping over themselves with reasons to be in that sector instead of others.
Can you be specific on which part you disagree with?
Price of gold right now?
CPI-U?
Publicly reported cost to mine each ounce?
Average price of gold since 1974?
That the real price of gold is well above its post 1974 average right now (which follows from the above)?
The price history of gold in the zerohedge article?
That the price of gold should be indexed against real prices rather than an exponentially growing asset class?
Is BRK.B or GLD a paper asset? Which one, neither, or both?

Price of gold right now?
Nope.

CPI-U?
Yep. Gold is a form of non-dilutable money (some argue the purest form of money). It's not a a yoghurt in your basket of CPI. Measuring it by CPI is to misunderstand gold. Measure it against it currency creation, not consumable goods prices.

Publicly reported cost to mine each ounce?
Yep. If gold is so cheap to mine and all these miners are making a 100%+ margin on each ounce, then why have their share prices lost 90% in the last 6 years?  If getting gold out of the ground and selling it was that easy they should be able to buy back half their shares and instantly deliver spectacular gain to their shareholders.

Average price of gold since 1974?

Yep. Gold has history before 1974, even if it was artificially pegged for many years. Anyway, gold has risen by from $129 to $1315 since 1974, which is 7% nominal growth, well ahead of the overall pace of consumer inflation over 35 years.

That the real price of gold is well above its post 1974 average right now (which follows from the above)?
See above.

The price history of gold in the zerohedge article?
I tend to say away from ZH. Too much perma bear food.

That the price of gold should be indexed against real prices rather than an exponentially growing asset class?

Is BRK.B or GLD a paper asset? Which one, neither, or both?
Is that just rhetorical? actually, don't bother...

waltworks

  • Magnum Stache
  • ******
  • Posts: 3394
Re: Precious Metals
« Reply #62 on: January 30, 2019, 02:30:30 PM »
Yep. Gold has history before 1974, even if it was artificially pegged for many years. Anyway, gold has risen by from $129 to $1315 since 1974, which is 7% nominal growth, well ahead of the overall pace of consumer inflation over 35 years.

Actually that is in the ballpark of 4.5%, not 7%. 7% would put gold at about $5300/oz. Inflation over that period was about 3% (with some huge swings) so it did slightly beat inflation.

Stock market returns over the same period were close to 11% nominal (dividends reinvested). Your $129 would be $12,600 or so, or about 10 times what you'd have if you held gold over that time period.

-W
« Last Edit: January 30, 2019, 03:02:53 PM by waltworks »

vand

  • Bristles
  • ***
  • Posts: 381
  • Location: UK
Re: Precious Metals
« Reply #63 on: January 31, 2019, 12:22:14 AM »
Let's both of us get our maths right...  100 / 124 * 1315 = 1060, so a 960% gain, which to the 45th root is  1.054,  ie about 5.4%.
Not as good as stocks over this timeframe (but then again what else has).

And that has been gold’s role; to preserve wealth, more so than to build it. Preserving wealth is a perfectly desirable function of any portfolio constituent, wouldn’t you say?   It has fulfilled this role through 5,000 years of recorded human history and as demonstrated has readily done so since 1974. Stocks have a 200 year history of building wealth in local currency. But those who have studied monetary history know that currencies don’t last forever. That likely means that one day the dollar will not exist, so if you held all your wealth in dollars at that time then you wealth goes to zero also. It might not happen in our lifetimes... but can you really be very sure of that? You are literally staking your life’s earnings on that assumption. The petrodollar system is already very old and not fit for purpose.

BTW, I use USD denomination even though I'm a UK based investor, where the difference in gold vs stock performance is much closer. In fact, of the 200-odd local currencies, gold is pushing new highs in around 70 of them, which strengthens the claim of it being a long term store of value outside of local currencies. This BB is US-based and most investors here look at things through the lense of the USD which itself is a very filtered view of the world. As I say, history suggests that one day the USD will no longer be the currency in that is in the ascendancy.
« Last Edit: January 31, 2019, 03:17:47 AM by vand »

waltworks

  • Magnum Stache
  • ******
  • Posts: 3394
Re: Precious Metals
« Reply #64 on: January 31, 2019, 07:16:39 AM »
Why does owning stocks imply you own dollars? I own very few dollars, but a lot of *shares* in companies that make stuff/transport stuff/sell stuff/invent stuff. I'm no more worried about hyperinflation or the dollar ceasing to exist than I am about a giant meteor or zombies.

Yeah, I goofed and used 1964 in that calculation, thanks for catching that.

-W

trollwithamustache

  • Pencil Stache
  • ****
  • Posts: 693
Re: Precious Metals
« Reply #65 on: January 31, 2019, 07:43:35 AM »
well, OP asked about the transaction details and not if it was a good idea.

Call around to some independent dealers, assume you are paying paper cash, and see what wiggle room there is. Real coin/bullion dealers, not pawn shops and not the "We buy gold" people who just want to low ball offer on your jewelry. Everyone knows they are completing with Kitco and ampex.  One of the things that fascinates me about precious metals is how much it is still a face to face / paper (real!) cash for physical gold. if the dealer wants to get the deal done, you being a real person walking into his store with real cash can be to your advantage. conversely, he may think he has the advantage if he doesn't need to get the deal done.  So, ampex is the fastest. A better deal will take time, but may be a lot of fun because there are a ton of entertaining characters in this gold game.

note if privacy is a goal, you would spread this across a series of purchases all just under 10k. You would not be structuring the transaction of course, just a series of independent decisions to buy separated by weeks or months.

maizeman

  • Magnum Stache
  • ******
  • Posts: 3895
Re: Precious Metals
« Reply #66 on: January 31, 2019, 07:53:12 AM »
note if privacy is a goal, you would spread this across a series of purchases all just under 10k. You would not be structuring the transaction of course, just a series of independent decisions to buy separated by weeks or months.

OP, don't do this. It's not worth the risk.

One transaction above 10k triggers reporting requirements and filling out an extra form. Multiple transactions below 10k can end up with your bank account seized via civil asset forfeiture and having to sue the government to get your own money back with the burden of proof being on you to prove that you're innocent, rather than them having to prove that you are guilty.

https://whotv.com/2014/10/29/irs-seizes-iowa-restaurants-money-despite-not-doing-anything-wrong-case-gets-national-attention/
(She ultimately got her money back, but it took months, lots of legal bills, and nationwide press and public opinion pressure.)

Car Jack

  • Handlebar Stache
  • *****
  • Posts: 1336
Re: Precious Metals
« Reply #67 on: January 31, 2019, 08:33:08 AM »
Is BRK.B or GLD a paper asset? Which one, neither, or both?

What's it cost to sell $100k in BRK/B?  Answer: $4.95 at Schwab.  $100k of physical gold?  A hell of a lot more than $4.95 with a hell of a lot more risk.

Quote
Yep. Gold has history before 1974, even if it was artificially pegged for many years. Anyway, gold has risen by from $129 to $1315 since 1974, which is 7% nominal growth, well ahead of the overall pace of consumer inflation over 35 years.

What about keys of Heroine?  It existed before 1974.  We could probably find a price history.  Why not?  Not legal to own?  Ok, so how's that any different than gold?  Yah,  I'm being factious just to point out the fact that regardless of price, in the US, we couldn't invest in gold before '75.  Heck, if I were to get in my Delorean and set the date back to 1973, when I was working at a Burger Chef and always looking through the change drawer for silver coins....which I found every day....I'd probably get 5 jobs as a cashier or make deals with other cashiers to buy the silver coins.  But my Mr. Fusion is broken and I have to wait until 2034 for the part to be invented to fix it.

I would not discount the risk of buying "fake" gold.  It is not unheard of to find gold plated lead within gold coins.  Heck....this is even done with silver coins.  It's why it's important to buy from a reputable place like Apmex rather than the guy in a craigslist ad.

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1589
  • Location: West of the Mountains, East of the Sea
  • One does not simply work into Mordor
Re: Precious Metals
« Reply #68 on: January 31, 2019, 11:47:25 AM »
Price of gold right now?
Nope.
OK so we agree on the price of gold per dollar, just not per ounce of yoghurt.

Quote
CPI-U?
Yep. Gold is a form of non-dilutable money (some argue the purest form of money). It's not a a yoghurt in your basket of CPI. Measuring it by CPI is to misunderstand gold. Measure it against it currency creation, not consumable goods prices.
Interesting that you see meaning in comparing two abstract numbers against each other. Personally I value investments, currencies, and gold against the price of yoghurt. I view yoghurt as a non dilutable form of money, because I can eat it.

Quote
Publicly reported cost to mine each ounce?
Yep. If gold is so cheap to mine and all these miners are making a 100%+ margin on each ounce, then why have their share prices lost 90% in the last 6 years?  If getting gold out of the ground and selling it was that easy they should be able to buy back half their shares and instantly deliver spectacular gain to their shareholders.
In 2007-2009 many investment banks went bankrupt because they owned home mortgages, which 90% of all homeowners who had mortgages paid every month without fail. If receiving a check in the mail is so easy, why did they lose 100% of their value? They could have just bought back their shares using the income stream and given their shareholders spectacular gains. Following your logic, it follows that my $810 monthly mortgage payment cannot be assigned a value in either dollars or yoghurts because some investment banks went bankrupt as a result of mortgages.

Quote
Average price of gold since 1974?
Yep. Gold has history before 1974, even if it was artificially pegged for many years. Anyway, gold has risen by from $129 to $1315 since 1974, which is 7% nominal growth, well ahead of the overall pace of consumer inflation over 35 years.

Oh, so if you pick a year where the price was below average and then draw a line to a year where the price was above average you find the line went up. Mind blown.

Quote
That the real price of gold is well above its post 1974 average right now (which follows from the above)?
See above.

The price history of gold in the zerohedge article?
I tend to say away from ZH. Too much perma bear food.
I had fun writing it though. If you didn't look at my gold price chart from the 13th century but you want to talk about gold prices before 1974, please post your own so we can be on the same page.

Quote
That the price of gold should be indexed against real prices rather than an exponentially growing asset class?

Is BRK.B or GLD a paper asset? Which one, neither, or both?
Is that just rhetorical? actually, don't bother...
Based on comments you made earlier in the thread, I had the impression you thought gold was a real asset but Burlington Northern Santa Fe Railroad was a paper asset. I wanted to clarify.

BTW, I use USD denomination even though I'm a UK based investor, where the difference in gold vs stock performance is much closer. In fact, of the 200-odd local currencies, gold is pushing new highs in around 70 of them, which strengthens the claim of it being a long term store of value outside of local currencies. This BB is US-based and most investors here look at things through the lense of the USD which itself is a very filtered view of the world. As I say, history suggests that one day the USD will no longer be the currency in that is in the ascendancy.
I don't always value gold in yoghurts, but when I don't, I value it in SkyMiles.

GuitarBrian

  • Bristles
  • ***
  • Posts: 251
  • Age: 31
  • Location: Panama
Re: Precious Metals
« Reply #69 on: January 31, 2019, 07:46:51 PM »
The OP asked about the best way to buy gold. Here is what I've found to work best.

APMEX or other large dealers (Silvertown, Bay Precious Metals, JM, etc) on eBay stacking eBay Bucks and cashback from credit card.

1. Sign up for eBay Bucks.
2. Wait for a bonus bucks day. 8 or 10%.
3. Find a listing that qualifies. You can find tips on goldismoney2 under the thread "eBay heads up, sales, deals and offers" or by searching for 1 oz gold coin in catagories other than "bullion". (US coins and Paper money, Coins:Canada, etc)

Basically you buy 1oz coins and get $100 in rewards buy more coins/anything on eBay. Plus you use a credit card to get at least 2% cash back. You can get a higher percentage churning credit cards, during the minimum spend, it can be 10% or more. Even without this, just the $100+%2 you should find coins under spot.

Now, you can buy 5 coins ($500 in eBay Bucks) every 3 months, for each eBay Bucks account. Each person can have one eBay Bucks account, and it doesn't matter who's PayPal account you pay with. So everyone in the family can have one...

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1804
Re: Precious Metals
« Reply #70 on: January 31, 2019, 08:48:01 PM »
In just about every gold topic I've seen, someone can't resist bringing gold's performance from 1972-1974 (inclusive) into the conversation - as if the events of those years will repeat.  Here's data from portfolio visualizer on gold's performance for two different time periods: 

https://www.portfoliovisualizer.com/backtest-asset-class-allocation
1972 - 2018: 7.32% / year (after inflation, +3.27%)
1975 - 2018: 4.33% / year (after inflation, +0.66%)

And that's why those years are always used by those encouraging others to buy gold - it's a dramatic difference.  But the U.S. is no longer on the gold standard, so we can't leave the gold standard again.  Many events of that time won't repeat, so counting on gold's performance during those 3 specific years is not a reasonable way to predict it's returns.

Classical_Liberal

  • Handlebar Stache
  • *****
  • Posts: 1151
  • Age: 43
Re: Precious Metals
« Reply #71 on: January 31, 2019, 08:50:50 PM »
Sorry to interrupt the dialog...
I view yoghurt as a non dilutable form of money, because I can eat it.

This gets back to the point of value stores only being a social contract, unless it can provide for your needs directly.  If I could effectively store and move 50 years worth of food, without spoilage, then I would buy it tomorrow.  It'd be the ultimate inflation hedge.  The problem is I can't, that's why humans developed social contract stores of value to begin with.

Continue on :)

Classical_Liberal

  • Handlebar Stache
  • *****
  • Posts: 1151
  • Age: 43
Re: Precious Metals
« Reply #72 on: January 31, 2019, 08:59:02 PM »
In just about every gold topic I've seen, someone can't resist bringing gold's performance from 1972-1974 (inclusive) into the conversation - as if the events of those years will repeat.  Here's data from portfolio visualizer on gold's performance for two different time periods: 

Right, antigold folks always say this, and my response is always the same.

"Hey, did you know 10 year bond yields spiked to above 13% in the early 1980's!  That means treasuries wont return today what they did back then and that fact artificially changes historical results"  No...Shit...Sherlock...

Weird events ALWAYS influence certain asset class performances.  One could even argue the high rates in my previous quote were also a direct result of going off the gold standard (ie the inflation). 

So, are you going to automatically exclude investment in bonds because of a few year anomaly that artificially increased their returns?  How about the tech run up in the late 90's, that probably wont happen again, no tech stocks either?

waltworks

  • Magnum Stache
  • ******
  • Posts: 3394
Re: Precious Metals
« Reply #73 on: January 31, 2019, 09:06:03 PM »
No, I think the bond case is different, because there was at least *a market* in existence. Bond rates could go into double digits again in the future, under many non-crazy scenarios.

Gold was just illegal to own, so there wasn't any effective market for it. That inherently can't happen again (unless it becomes illegal again first, of course).

The tech stock went nuts, and then they crashed back to earth (or, often, zero). So the actual effect on your returns calculation *now* is negligible.

So neither of those cases is comparable, IMO.

Regardless, even if you include those couple of years where the market was finally able to set a price, the returns still suck.

-W

Classical_Liberal

  • Handlebar Stache
  • *****
  • Posts: 1151
  • Age: 43
Re: Precious Metals
« Reply #74 on: January 31, 2019, 09:18:14 PM »
No, I think the bond case is different, because there was at least *a market* in existence. Bond rates could go into double digits again in the future, under many non-crazy scenarios.

Gold was just illegal to own, so there wasn't any effective market for it. That inherently can't happen again (unless it becomes illegal again first, of course).

Gold prices were impacted by government control, no doubt.  Just because you "think" that can't inherently happen again doesn't mean it won't.   Bond yields were also impacted by government control (CB policy), you "think" this could happen again, but it doesn't mean it will.   I think its a very fair comparison, we just have differing opinions on what may or may not happen.  I hedge my bet either way.

The tech stock went nuts, and then they crashed back to earth (or, often, zero). So the actual effect on your returns calculation *now* is negligible.
Didn't the same thing happen to gold once the new monetary system proved effective and inflation came under control?
 
Regardless, even if you include those couple of years where the market was finally able to set a price, the returns still suck.

This is the last time I'm going to repeat myself on this.  "Sucky" return is a feature of gold as an investment for those of us who choose to invest in it. EDIT: Perhaps better wording would be to store value with it?
« Last Edit: January 31, 2019, 09:21:53 PM by Classical_Liberal »

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1589
  • Location: West of the Mountains, East of the Sea
  • One does not simply work into Mordor
Re: Precious Metals
« Reply #75 on: January 31, 2019, 11:35:09 PM »
Sorry to interrupt the dialog...
I view yoghurt as a non dilutable form of money, because I can eat it.

This gets back to the point of value stores only being a social contract, unless it can provide for your needs directly.  If I could effectively store and move 50 years worth of food, without spoilage, then I would buy it tomorrow.  It'd be the ultimate inflation hedge.  The problem is I can't, that's why humans developed social contract stores of value to begin with.

Continue on :)
As I wrote that, I actually thought of a lot of ways to dilute yoghurt.

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1804
Re: Precious Metals
« Reply #76 on: February 01, 2019, 09:19:30 AM »
My earlier post was actually directed at someone else quoting 1974 performance.  But since you jumped in...

In just about every gold topic I've seen, someone can't resist bringing gold's performance from 1972-1974 (inclusive) into the conversation - as if the events of those years will repeat.  Here's data from portfolio visualizer on gold's performance for two different time periods: 

Right, antigold folks always say this, and my response is always the same.

"Hey, did you know 10 year bond yields spiked to above 13% in the early 1980's!  That means treasuries wont return today what they did back then and that fact artificially changes historical results"  No...Shit...Sherlock...

Weird events ALWAYS influence certain asset class performances.  One could even argue the high rates in my previous quote were also a direct result of going off the gold standard (ie the inflation). 

So, are you going to automatically exclude investment in bonds because of a few year anomaly that artificially increased their returns?  How about the tech run up in the late 90's, that probably wont happen again, no tech stocks either?
Do you expect +66% annual returns from gold?  That's gold's performance in 1973-1974.  Do you know of any asset that's expected to have +66% annual returns?  That's worth excluding.

Nixon caused the U.S. to leave the gold standard on Aug 21, 1971.  That one day is an event.  "the 90s" is not an event.

And yes, you should exclude bond performance in the 1980s.  Bond performance isn't just about yield, but about changes in yield.  In the 1980s inflation was incredibly high, interest rates were high, and bonds rose to match.  But once inflation dropped and yields dropped, anyone holding an older bond experienced a great increase in value.  It's much better to have a 12% bond than a 10% bond, and an 8% bond is better than a 6% bond... now we have 3% US treasuries.  Bond yields have been on a slide from the 1980s until now, with our current rather low yields.  If yields go up, existing bonds will drop in value.  But bonds don't have much room to go down, so you can't expect the 1980s to repeat (bonds wouldn't have many buyers if they started yielding negative 5%).  So no, the yield plus capital gains of the 1980s can't repeat right now, until we're looking at the same circumstances as the 1980s.
« Last Edit: February 01, 2019, 09:21:48 AM by MustacheAndaHalf »

waltworks

  • Magnum Stache
  • ******
  • Posts: 3394
Re: Precious Metals
« Reply #77 on: February 01, 2019, 09:37:58 AM »
I guess I would think of it this way - in the early 1970s, the government was basically giving away gold. Most of the gains from gold are from that event.

If you expect someone to give away gold again, then you can expect that sort of event to repeat and you can count it in your future expectations for the performance of gold. Otherwise, not so much.

-W

maizeman

  • Magnum Stache
  • ******
  • Posts: 3895
Re: Precious Metals
« Reply #78 on: February 01, 2019, 11:18:18 AM »
Another way to look at it: If one thinks it is a good idea to incorporate the years right after the US went off the gold standard into determine the return of gold going forward, why not also look at the years before that?

The price of gold in dollars was completely flat at $35/oz from 1934 until the shift off the gold standard (which produced the sudden run up in prices in the 1970s). Calculating back from today's price of $1319/oz to $35/oz in 1934, we get a CAGR of 4.36% nominal and 0.8% real (after inflation), which is quite similar to the numbers you get for gold if you exclude the run up right after going off the gold standard, and is incidentally how the price of most commodities is going to behave over the long term.

Essentially having a fixed price for gold from 1934 to ~1970 shifted a couple of decades of gold price increase until it all came at once in the 1970s. So you can either include the flat price for decades, or exclude the years where everything was shifting back into equilibrium again. But including one without the other is necessarily going to give you a skewed picture of what the future is likely to hold.

waltworks

  • Magnum Stache
  • ******
  • Posts: 3394
Re: Precious Metals
« Reply #79 on: February 01, 2019, 02:10:53 PM »
As usual, Maizeman says what I was trying to say, but much more lucidly.

Curse you, Maizeman!

-W

tralfamadorian

  • Handlebar Stache
  • *****
  • Posts: 1213
Re: Precious Metals
« Reply #80 on: February 01, 2019, 02:27:16 PM »
Maizeman really is the most eloquent one of us all, isn't he?

GuitarBrian

  • Bristles
  • ***
  • Posts: 251
  • Age: 31
  • Location: Panama
Re: Precious Metals
« Reply #81 on: February 01, 2019, 03:28:16 PM »
I also wanted to mention the stock CEF. CentralFund.com is there website, $3.4b invested in physical gold and silver in a vault in Calgary. Currently trading at a 3% discount. If you don't mind the exposure to silver, this is an alternative to the mainstream ETFs.
 
I have owned stock off and on since 2004.

Classical_Liberal

  • Handlebar Stache
  • *****
  • Posts: 1151
  • Age: 43
Re: Precious Metals
« Reply #82 on: February 01, 2019, 03:32:01 PM »
@maizeman
You comment is US centric, believe it or not there are capital markets outside the US.  However, If you want to look at it as pent up demand/value increase that all exploded at once, that seems fair enough.  I think it's a bit more complex than that.

@Everyone else
Trying to have a conversation wrt to gold on this forum is like speaking to toddlers who continually repeat themselves...literally. I've already addressed every point you made in all the new comments today, most of them yesterday, because you said the same thing then.  Repeating the same arguments to me over and over does not make them more valid. 

Look, if you don't want to invest in gold, don't.  But that fact none of you can even comprehend the concept of why someone might want to, shows that you have a weak understanding of macroeconomic interplays and capital markets.  It seems to me if you are going to spend decades living off your investments, you should at least have a basic understanding of the markets. 

Honestly (really, truly, honestly), I  don't care what you do, it's your money.  So, I'm checking out of this conversation. 

maizeman

  • Magnum Stache
  • ******
  • Posts: 3895
Re: Precious Metals
« Reply #83 on: February 01, 2019, 03:49:40 PM »
@maizeman
You comment is US centric, believe it or not there are capital markets outside the US.  However, If you want to look at it as pent up demand/value increase that all exploded at once, that seems fair enough.  I think it's a bit more complex than that.

I would dispute that I was indeed US centric. From 1945 to the end of the gold standard (where ever you'd place that line in the late 1960s early 1970s), a substantial majority of world's economy was in countries* which were maintaining a dollar pegged exchange rate, and from that tied to the same $35/oz gold pricing provided by the US federal government. 

Belgium, Bolivia, Canada, China, Colombia, Czechoslovakia, Egypt, Ethiopia, France, Greece, Honduras, Iceland. India, Iraq, Luxembourg, the Netherlands, Norway, the Philippines, South Africa, the UK, Yugoslavia the Dominican Republic, Ecuador, Guatemala, Paraguay, Iran, Chile, Mexico, & Peru from the start in 1945.
Costa, Brazil, Uruguay, El Salvador, Nicaragua, Panama, Denmark, Venezuela joined the dollar peg club in 1946.
Turkey, Italy, SyriaLebanon, Australia in 1947.
Japan and (West) Germany didn't come in until 1952 until they regained sovereignty.

Which non-US capital markets would you prefer to look at for gold between 1935 and 1971?

Edit to add: I think I actually can understand why someone would want to own (some) gold. I don't have any desire to do so myself but I don't try to pick fights with people who want some to steady out their portfolio. My criticisms are directly solely at those who try to portray gold as something that provides a positive return on investment, or a magical wonder substance that has value solely because it is rare and rare things are by definition worth a lot. While both ideas have shown up in this thread, I don't recall you @Classical_Liberal advocating for either. Is that correct?
« Last Edit: February 01, 2019, 03:55:37 PM by maizeman »

vand

  • Bristles
  • ***
  • Posts: 381
  • Location: UK
Re: Precious Metals
« Reply #84 on: February 02, 2019, 02:15:11 AM »
If you want more evidence of the flaw of holding all your wealth in local currency, then consider there are 170 currencies in the world, and as they are continually debased gold is pushing new highs in about over 70 of them.  Your own micro economy may work on the assumption that you'll always be able to get your hands on your fair share of those additional currency units to preserve your share of the pie each year, but on an aggregated basis this will fall apart in the next downturn when unemployment spikes and workers can't find jobs with the same level of pay (or purchasing power).

As for gold's sucky performance.. Gold has beaten the pants off the stock market over the last 20 years now, even if its *very* long term performance is not as good, and it is because of the relative price both stood at 20 years ago.. which shows you that valuations matter. Regression of relative valuations vs 10 year performance suggest that gold will outperform stocks and bonds over the next decade.   You can ask why there should be a relationship, but that is besides the point. Statistical analysis tell you that there IS a relationship. That's as much as you need to know. 

Everything is cyclical, and just because stocks have the best long very term performance doesn't mean that it is always the best place to park your money. 10 years is a long time when you consider the holding time of the average stock is typically a fraction of that. My own thesis is that the next 50 years will not be anywhere near as kind to stocks as the last 50 years have been for 3 reasons:
- Stocks have been the benefactor of an unprecendented bond super bull market since 1981. That trend cannot continue, indeed it may already have begun to reverse.
- The demographics of the baby boomers generation has acted as a huge tailwind for stocks through 3 cyclical bull markets, but that will start to turn into a headwind as this generation leaves the workforce and the remaining workers must support them. The ratio of workers to retirees is due to shift dramatically over the coming decade.
- Current valuations imply below historic returns for at least the next 10 years

Ultimately the only force that will continue to drive stocks up is the progress of technology which over time raises productivity, but this is a gradual process. Western stock markets otherwise face a much harder task for aspiring generations of investors.
« Last Edit: February 02, 2019, 02:57:04 AM by vand »

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1804
Re: Precious Metals
« Reply #85 on: February 02, 2019, 07:41:47 AM »
@Everyone else
Trying to have a conversation wrt to gold on this forum is like speaking to toddlers who continually repeat themselves...So, I'm checking out of this conversation.
So your last comment is to insult everyone as being "toddlers"?
You're saying previously someone gave you the exact same response about bonds as I did?  I find that hard to believe.

But I think what you're doing is labeling people instead of understanding them.... "antigold" or "toddlers" do not require proof that what you're saying is correct.  I actually refuted the points you made, and you just swept me into your "toddlers" insult.  I think that says more about you than me.

waltworks

  • Magnum Stache
  • ******
  • Posts: 3394
Re: Precious Metals
« Reply #86 on: February 02, 2019, 07:52:32 AM »
Gold has beaten the pants off the stock market over the last 20 years now.

You definitely win the data point cherrypicking prize for that one.

-W

maizeman

  • Magnum Stache
  • ******
  • Posts: 3895
Re: Precious Metals
« Reply #87 on: February 02, 2019, 09:02:03 AM »
If you want more evidence of the flaw of holding all your wealth in local currency, then consider there are 170 currencies in the world, and as they are continually debased gold is pushing new highs in about over 70 of them.

Now who is building up a straw man to argue with? At any point has anyone in this thread argued that the way to invest is to keep your money sitting around in dollars (or euros or RMB or yen or swiss francs or what have you)?

Also, only 70 out of 170? Because yes, that's how commodities and inflationary currencies work. At any given time I would imagine nominal prices for commodities ranging from coal to lumber to zinc to gold are likely to be exploring new non-inflation adjusted high prices in a whole range of currencies.

Investments have a positive expected return.
Commodities have an expected return centered on zero.
Inflationary currencies have a negative expected return.

As for gold's sucky performance.. Gold has beaten the pants off the stock market over the last 20 years now, even if its *very* long term performance is not as good,

As waltworks already pointed out, the numbers for 10 years (0.4% for gold after inflation, 11% for stocks after inflation) and 30 years (0.9% for gold after inflation, 7.3% for stocks after inflation) suggest that, particularly since the rest of your post only mentions 10 and 50 year time frames, you chose 20 years after some careful evaluation of the alternatives. <-- long winded way of saying cherry picking.

10 years is a long time when you consider the holding time of the average stock is typically a fraction of that.

The average holding time for a share of stock may be quite low given the prevalence of high frequency traders. The average holding time for stocks (or any investment) for folks on this forum is likely multiple decades though.

Quote
Ultimately the only force that will continue to drive stocks up is the progress of technology which over time raises productivity, but this is a gradual process.

False.

Even in the middle of the dark/middle ages where population growth, economic growth, and technological progress were infinitesimally slow we have records that indicate returns on capital where in the neighborhood of 4-5%/year. That's certainly lower than the 6.8%/year after inflation rate of return we've seen in the stock market over the past century and a half, which suggests somewhere between 2.8 and 1.8 percentage points of modern era returns are attributable to technological progress and/or population/economic growth, but that between 4 and 5 percentage points is not.

waltworks

  • Magnum Stache
  • ******
  • Posts: 3394
Re: Precious Metals
« Reply #88 on: February 02, 2019, 01:05:45 PM »
Maizeman, I also wonder about this. It's as if people believe the alternative to gold is to just hoard physical cash or something.

To be fair, if I were going to just hoard a physical thing, it wouldn't be printed pieces of paper. I'd take gold over that. But that's not saying much.

-W

maizeman

  • Magnum Stache
  • ******
  • Posts: 3895
Re: Precious Metals
« Reply #89 on: February 02, 2019, 01:59:15 PM »
Yeah waltworks I agree there is a missing step in the logic:

1) Gold will likely maintain its value over the long term better than cash under your mattress (because the value of cash goes down with inflation)
2) ...
3) Therefore putting your savings into gold is superior investing them income producing investments like shares of companies or real estate (whose value ultimately does up with inflation)

Telecaster

  • Handlebar Stache
  • *****
  • Posts: 1956
  • Location: Seattle, WA
Re: Precious Metals
« Reply #90 on: February 02, 2019, 08:38:35 PM »
Yeah waltworks I agree there is a missing step in the logic:

1) Gold will likely maintain its value over the long term better than cash under your mattress (because the value of cash goes down with inflation)
2) ...
3) Therefore putting your savings into gold is superior investing them income producing investments like shares of companies or real estate (whose value ultimately does up with inflation)

...trying to resist posting in this thread...but the body is too weak!

There is a parallel to what you posted:

1) The USD could vanish in the future like other fiat currencies have done in the past.  Or their could be some cataclysmic event that renders money useless.
2) ...
3) Therefore putting your savings into gold is superior buying solar panels, stocking up on bullets and dried beans, drilling your own water well, raising chickens, owning a blacksmith forge, etc.




MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1804
Re: Precious Metals
« Reply #91 on: February 02, 2019, 09:17:10 PM »
As for gold's sucky performance.. Gold has beaten the pants off the stock market over the last 20 years now, even if its *very* long term performance is not as good, and it is because of the relative price both stood at 20 years ago.. which shows you that valuations matter.
Your 20 year data excludes the massive bull market of the 1990s, and includes both the dot-com crash and the 2008 crisis.  You might want to mention that.  But on Portfolio Visualizer, their data says stocks still beat gold over the past 20 years:

(Jan 1999 - Dec 2018)
U.S. stocks +6.01% / year
gold +4.10% / year
international stocks +7.34% / year

https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=2&startYear=1999&endYear=2018&portfolio1=Custom&portfolio2=Custom&portfolio3=Custom&TotalStockMarket1=100&IntlDeveloped2=100&Gold3=100

And that is also why people should diversify into international: it can beat U.S. over some time frames, and U.S. can come out ahead during other time frames.
« Last Edit: February 02, 2019, 09:19:02 PM by MustacheAndaHalf »

waltworks

  • Magnum Stache
  • ******
  • Posts: 3394
Re: Precious Metals
« Reply #92 on: February 02, 2019, 09:30:47 PM »
There is a parallel to what you posted:

1) The USD could vanish in the future like other fiat currencies have done in the past.  Or their could be some cataclysmic event that renders money useless.
2) ...
3) Therefore putting your savings into gold is superior buying solar panels, stocking up on bullets and dried beans, drilling your own water well, raising chickens, owning a blacksmith forge, etc.

I actually thing in the full zombie-apocalypse/The Stand scenario gold would be pretty useless. The infrastructure and basic knowledge (very nice balance scales, methods of verifying if the gold is actual gold, etc) needed to use gold as currency aren't really common anymore. If some random dude loitering in the Mad-Max hellscape of the future offered me $10,000 worth of gold coins for my POS Kia that's worth 1/10 of that, I'd probably tell him to get lost because how the heck do I know what he's actually giving me? And how likely am I to be able to get food or medicine or anything useful using said gold?

I'd bet on straight barter. Gold requires a lot of actual civil infrastructure to be usable as currency.

-W

tralfamadorian

  • Handlebar Stache
  • *****
  • Posts: 1213
Re: Precious Metals
« Reply #93 on: February 03, 2019, 10:46:49 AM »
I actually thing in the full zombie-apocalypse/The Stand scenario gold would be pretty useless.

+1 If we're jumping the shark and talking about zombie apocalypse then I vote for investment in useful skills- master gardener, blacksmith, etc.

Telecaster

  • Handlebar Stache
  • *****
  • Posts: 1956
  • Location: Seattle, WA
Re: Precious Metals
« Reply #94 on: February 03, 2019, 11:12:30 AM »

I'd bet on straight barter. Gold requires a lot of actual civil infrastructure to be usable as currency.

-W

Or maybe even just skip barter.   Throughout history when there was a shortage of official currency is that people would simply issue their own tokens, or otherwise invent money.    For example, merchants in 17th and 18th century England would issue tokens that would be good for whatever the merchant was selling, and these tokens would circulate in the local village and be used as regular money.  This also occurred in the U.S. civil war when hording gold and silver caused a general shortage of official currency. 

Another form of money was tally sticks.   The debt (in whatever denomination, pounds, francs, whatever) would be carved into a stick of wood, and then the stick would be broken in half.  Since the two halves would only match each other, there was a record of the transaction.   One half was called the foil, and the other half was called the stock.   The stocks would circulate as a form of money, because presumably you could match it up with the owner of the foil and claim the debt, and thus had value.   That's why the stock market is called the stock market. 

TomTX

  • Magnum Stache
  • ******
  • Posts: 3716
  • Location: Texas
Re: Precious Metals
« Reply #95 on: February 03, 2019, 01:56:09 PM »
I think they are currently very undervalued by historical standards.

What makes you think PMs are currently very undervalued? I'm not anti-PM, just curious why you think this.

Last time I checked the long-form historical value - gold was still in the right ballpark.

In 562 BCE, 1 oz of gold would buy 350 ~1kg loaves of handmade, whole grain bread. I think that would cost around $4-5 per loaf today at the supermarket. So $1,500-$1,750

You can also do something similar with the pay of a Roman Centurion during the reign of Augustus, compared to a US Army Captain. 38.58 oz of gold is your starting point. An O-3 starting pay is $48,560. The Centurion's pay at today's gold price is around $51,000.

vand

  • Bristles
  • ***
  • Posts: 381
  • Location: UK
Re: Precious Metals
« Reply #96 on: February 03, 2019, 05:06:25 PM »
As for gold's sucky performance.. Gold has beaten the pants off the stock market over the last 20 years now, even if its *very* long term performance is not as good, and it is because of the relative price both stood at 20 years ago.. which shows you that valuations matter.
Your 20 year data excludes the massive bull market of the 1990s, and includes both the dot-com crash and the 2008 crisis.  You might want to mention that.  But on Portfolio Visualizer, their data says stocks still beat gold over the past 20 years:

(Jan 1999 - Dec 2018)
U.S. stocks +6.01% / year
gold +4.10% / year
international stocks +7.34% / year

https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=2&startYear=1999&endYear=2018&portfolio1=Custom&portfolio2=Custom&portfolio3=Custom&TotalStockMarket1=100&IntlDeveloped2=100&Gold3=100

And that is also why people should diversify into international: it can beat U.S. over some time frames, and U.S. can come out ahead during other time frames.

Gold Jan 1999 $287
Gold Dec 2018 $1280

That's a 345% increase, which is slightly north of 6.3%

Maybe you need a new Portfolio visualiser

if I really wanted to "cherry pick data" as claimed I would have picked the top of the dotcom bubble. Or point out how Gold has still beaten stocks over 20 years despite being in a bear market for the last 6 of those years while stocks have nearly doubled in the same time.

It's hilarious how how the equity bulls get so offensively defensive whenever someone questions their "don't time the market/all in on indexes trackers" mantra.

« Last Edit: February 03, 2019, 05:07:56 PM by vand »

maizeman

  • Magnum Stache
  • ******
  • Posts: 3895
Re: Precious Metals
« Reply #97 on: February 03, 2019, 06:02:21 PM »
if I really wanted to "cherry pick data" as claimed I would have picked the top of the dotcom bubble.

The key to good cherry picking is to not make it obvious that you are, in fact, doing that.

But feel free to prove me wrong:

Why do you feel that a 20 year time interval more informative than 5, 10, 15, 25, 30, 35, or 40, vand?

And, assuming you have a convincing argument why a 20 year time interval is so more informative than any of those others intervals, why is January 1999- Dec 2018 more informative '90-'09, '91-'10, .. etc? 

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1804
Re: Precious Metals
« Reply #98 on: February 03, 2019, 07:33:37 PM »
As for gold's sucky performance.. Gold has beaten the pants off the stock market over the last 20 years now, even if its *very* long term performance is not as good, and it is because of the relative price both stood at 20 years ago.. which shows you that valuations matter.
Your 20 year data excludes the massive bull market of the 1990s, and includes both the dot-com crash and the 2008 crisis.  You might want to mention that.  But on Portfolio Visualizer, their data says stocks still beat gold over the past 20 years:

(Jan 1999 - Dec 2018)
U.S. stocks +6.01% / year
gold +4.10% / year
international stocks +7.34% / year

https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=2&startYear=1999&endYear=2018&portfolio1=Custom&portfolio2=Custom&portfolio3=Custom&TotalStockMarket1=100&IntlDeveloped2=100&Gold3=100

And that is also why people should diversify into international: it can beat U.S. over some time frames, and U.S. can come out ahead during other time frames.

Gold Jan 1999 $287
Gold Dec 2018 $1280

That's a 345% increase, which is slightly north of 6.3%

Maybe you need a new Portfolio visualiser

if I really wanted to "cherry pick data" as claimed I would have picked the top of the dotcom bubble. Or point out how Gold has still beaten stocks over 20 years despite being in a bear market for the last 6 of those years while stocks have nearly doubled in the same time.

It's hilarious how how the equity bulls get so offensively defensive whenever someone questions their "don't time the market/all in on indexes trackers" mantra.
You might be right about portfolio visualizer getting gold's return wrong.

But looking at gold's prices over time, I see gold has several years of low prices at exactly the time you picked to start your comparison.  In 1993 gold was at $392, and in 2003 it was in $417.  So adjust by 5 years and you shave off +100% return.  And yet you didn't point that out - why is that?

That's called cherry picking - you select 1998 instead of 1993 or 2003 because it supports your data.  And that's why you used 1974 in an earlier post: gold went from $106.48 to $183.77 in one year, for a +72.59% return.

You also keep saying "beat stocks", which is again false.  Gold beat U.S. stocks in your cherry picked 20 year sample.  But it did not beat international stocks.  Further, a portfolio of 80% U.S. / 20% international (rebalanced annually) beat gold over the past 20 years.

So gold did not beat international stocks for the past 20 years, a time period which started with gold at a much lower price than 15 or 25 years ago.  And including 1974 in your data is only to re-use a +72% performance year.

vand

  • Bristles
  • ***
  • Posts: 381
  • Location: UK
Re: Precious Metals
« Reply #99 on: February 04, 2019, 04:21:02 AM »
if I really wanted to "cherry pick data" as claimed I would have picked the top of the dotcom bubble.

The key to good cherry picking is to not make it obvious that you are, in fact, doing that.

But feel free to prove me wrong:

Why do you feel that a 20 year time interval more informative than 5, 10, 15, 25, 30, 35, or 40, vand?

And, assuming you have a convincing argument why a 20 year time interval is so more informative than any of those others intervals, why is January 1999- Dec 2018 more informative '90-'09, '91-'10, .. etc?

I used 20 years because it's a nice round number. People tend to like round numbers.
Long enough to demonstrate that there there are other assets classes you may wish to consider for such timeframes.

What's your preferred timeframe? 50 years? that seems to be very "cherry picked" for stocks.  How about 2000 years? I can guarantee you that gold has outperformed stocks over 2000 years, and will outperform the S&P500 over the next 2000 years, because when the currency dies, all paper assets denominated in that currency will all die with it. History has shown this to be the case.