Author Topic: Precious Metals  (Read 64174 times)

maizefolk

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Re: Precious Metals
« Reply #550 on: May 16, 2020, 03:18:27 PM »
Now if you ARE buying gold for the collapse of civilization (or even just the collapse of the dollar), I'd suggest buying a number of wedding bands at a local pawnshop.*

Anyone can pawn a single ring for cash, particularly with some sob story about why you need the money, without raising eyebrows. In the low law and order scenarios of a government/currency collapse pawning gold rounds or bars would both involve a much larger sum of money all at one time and raise suspicions that anyone with one gold coin may have more stashed somewhere making you a target for both burglary and armed robbery.

In the case of a lost war that ends in occupation by the victorious army the breakdown of law and order would likely be less complete, but that is counterbalanced somewhat by the risk of asset confiscation (whether official or in crimes of opportunity by individual members of the occupying force).

But all of this (confederate bonds and so on) starts to stray pretty far from the discussion of gold as an investment, don't you think?

*Don't go to a jeweler and don't buy anything with precious stones. The goal is to buy rings for as close as the melt value for the metal as possible, no bonus points for aesthetic value. Bonus points if it fits.

markbike528CBX

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Re: Precious Metals
« Reply #551 on: May 16, 2020, 03:47:52 PM »
But... But...what about my silicone wedding ring. It fits great, bonus points?

Slightly on topic:
I fail to see land per se as proof against societal collapse. 

My ownership is dependent on my deed, a paper record subject to:
   being ignored - I don't think the unwashed horde will bother recording the transfer to their name
   Destroyed- one nice virus, archive destruction or non-accessibility to the archive..
   Confiscated (think eminent domain, tax foreclosure, even with rule-of-law in force)

Even if it is my house that I occupy, my wife and I have limited resistance resources.

celerystalks

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Re: Precious Metals
« Reply #552 on: May 16, 2020, 03:52:53 PM »
I'd suggest buying a number of wedding bands at a local pawnshop.* 

And, if the guy starts asking any question.. Just tell him you are planning to move to Utah.

maizefolk

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Re: Precious Metals
« Reply #553 on: May 16, 2020, 04:33:21 PM »
But... But...what about my silicone wedding ring. It fits great, bonus points?

Slightly on topic:
I fail to see land per se as proof against societal collapse. 

My ownership is dependent on my deed, a paper record subject to:
   being ignored - I don't think the unwashed horde will bother recording the transfer to their name
   Destroyed- one nice virus, archive destruction or non-accessibility to the archive..
   Confiscated (think eminent domain, tax foreclosure, even with rule-of-law in force)

Even if it is my house that I occupy, my wife and I have limited resistance resources.

You are right, civilizational collapse was way too strong a word for me to use.

I think the record of land is reasonably good for things like the south losing the civil war, Japan and Germany losing world war II, inflation such as was seen in Germany between the wars, or just medium sized economic collapses like what was seen in Argentina over the past twenty years or so. But in a true civilizational collapse none of that would matter.

Even in less than civilizational collapse, land is not perfect. As you point out, there is a risk of confiscation (happened to Japanese agricultural but not urban land after WWII, happened to white farmers in Zimbabwe). The same is true of gold. It is easier to avoid handing over your gold when legally obliged to do so (bury it in the backyard and say you had a canoeing accident). But on the flip side gold confiscation laws seem to be somewhat more common in history than land confiscation ones.

TomTX

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Re: Precious Metals
« Reply #554 on: May 16, 2020, 05:18:44 PM »

Even in less than civilizational collapse, land is not perfect. As you point out, there is a risk of confiscation (happened to Japanese agricultural but not urban land after WWII, happened to white farmers in Zimbabwe). The same is true of gold. It is easier to avoid handing over your gold when legally obliged to do so (bury it in the backyard and say you had a canoeing accident). But on the flip side gold confiscation laws seem to be somewhat more common in history than land confiscation ones.

Dunno about that last bit. The English did a pretty good job confiscating the land in Ireland. The Soviet Union did a pretty good job confiscating everything, etc.

Painters Brush

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Re: Precious Metals
« Reply #555 on: May 17, 2020, 04:58:47 PM »
Now if you ARE buying gold for the collapse of civilization (or even just the collapse of the dollar), I'd suggest buying a number of wedding bands at a local pawnshop.*

I won't contradict your advice and it may very well be the most cost effective source. However, I would also consider buying rings at wholesale under the pretext that you have plan to resell them. This is how Victor Kiam and his wife started their financial lives and eventually bought the Remington shaver company.

In a government confiscation scenario(WWII Germany I believe), neighbours will turn you in so you have to sell discretely.

I won't be doing this, FWIW.


waltworks

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Re: Precious Metals
« Reply #556 on: May 17, 2020, 06:03:48 PM »
If I was worried about the end of civilization, I'd hoard industrial gases/noble gases. Especially argon. Give me a generator/power source and some argon (or helium in a pinch) to shield the welds and I can fix almost anything metal. Or just acetylene and O2, I can rock that for any ferrous metals.

-W

TomTX

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Re: Precious Metals
« Reply #557 on: May 17, 2020, 06:56:05 PM »
If I was worried about the end of civilization, I'd hoard industrial gases/noble gases. Especially argon. Give me a generator/power source and some argon (or helium in a pinch) to shield the welds and I can fix almost anything metal. Or just acetylene and O2, I can rock that for any ferrous metals.

-W

Argon's relatively easy to get out of the atmosphere by freezing out the oxygen, nitrogen, etc. Helium would be much more difficult to acquire.

maizefolk

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Re: Precious Metals
« Reply #558 on: May 17, 2020, 07:10:49 PM »
If I was worried about the end of civilization, I'd hoard industrial gases/noble gases. Especially argon. Give me a generator/power source and some argon (or helium in a pinch) to shield the welds and I can fix almost anything metal. Or just acetylene and O2, I can rock that for any ferrous metals.

-W

That's a new one to me. I like it. If I ever do decide to start preparing for the end of civilization will keep this in mind.

waltworks

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Re: Precious Metals
« Reply #559 on: May 17, 2020, 07:48:16 PM »
If I was worried about the end of civilization, I'd hoard industrial gases/noble gases. Especially argon. Give me a generator/power source and some argon (or helium in a pinch) to shield the welds and I can fix almost anything metal. Or just acetylene and O2, I can rock that for any ferrous metals.

-W

Argon's relatively easy to get out of the atmosphere by freezing out the oxygen, nitrogen, etc. Helium would be much more difficult to acquire.

Argon's not easy to get if civilization has collapsed, though.

-W

BicycleB

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Re: Precious Metals
« Reply #560 on: May 17, 2020, 11:21:42 PM »
I knew this thread would be educational!

@waltworks, you make me feel better about humanity. If there's a real collapse, I'll probably be toast, but you will have my best wishes.

MustacheAndaHalf

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Re: Precious Metals
« Reply #561 on: May 18, 2020, 12:47:06 AM »
... However given the forces at work in the world today I still take the opposite view - that gold is far more undervalued than most other asset classes.

At the end of all great bull markets the world is an almost unrecognisable place to what it looked like at the start. This secular gold bull market has been running for 20 years now, and by the time its finished, which might easily be another 20 years, the world will be much changed again.
When I looked at prior stock crashes, gold tended to gain when stocks dropped.  Unfortunately, I tried that in March and it didn't work out that well (stocks, bonds, gold - all dropped at once during the panic).  Why do you think gold dropped with everything else during March?

https://finance.yahoo.com/quote/GLD/
The performance of gold is +13.8% YTD, and +33.1% for the past 12 months.  To me, that's a worry that gold might not be undervalued.  Is there evidence that gold is undervalued?
During 2013-2015 gold performed poorly, so maybe there's room to make gains.

For me, I'm more interested in gold for two reasons:
(1) I'm comparing it to cash, where it doesn't look so bad.
(2) Very uncorrelated to other asset classes

Normally (1) doesn't apply because bonds have higher yields.  Low yield bonds may be very volatile, but to me that makes them more like stocks, rather than a safer asset class.  So I treat my bond allocation as cash.  I also don't usually mention (2), because I doubt many people buy gold for it's low correlation to other asset classes.  For most people, it's just not how they invest.

So back to my two questions for @vand :
Why do you think gold dropped with everything else during March?
What evidence points to gold being undervalued?

mrmoonymartian

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Re: Precious Metals
« Reply #562 on: May 18, 2020, 02:09:10 AM »
So back to my two questions for @vand :
Why do you think gold dropped with everything else during March?
What evidence points to gold being undervalued?
I'm pretty sure the answer is supply... or demand. One of those.

But only one! Definitely not the other one.

vand

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Re: Precious Metals
« Reply #563 on: May 18, 2020, 02:35:38 AM »
Gold is not just an asset, it is money, and it should be evaluated as a a competiting form of money. Look at the expansion of the Fed balance sheet this year and try telling me that gold is not worth its recent appreciation. When the supply of a fiat currency can be expanded at the press of a keystroke, why shouldn't the price of a fixed-supply form of money not be able to respond in kind?

Other ratios such as gold to treasury debt, and gold vs broad measures of money supply which include credit expansion infer that gold remains significantly undervalued.

As for Gold in March.. pft. I can't guess what it does day to day or even month to month. Liquidity issues in the paper markets undoubtedly have a lot to do with it, but I position myself for trends that I think will be significant over much longer time periods.
« Last Edit: May 18, 2020, 02:37:16 AM by vand »

celerystalks

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Re: Precious Metals
« Reply #564 on: May 18, 2020, 08:50:44 AM »
Gold is not just an asset, it is money, and it should be evaluated as a a competiting form of money.

This is partially true. Money is a divisible and fungible (1) unit of account, (2) medium of exchange, and (3) store of wealth. Since Nixon left the gold standard the dollar has no longer really been a long term store of wealth.  So it is not truly money, but is instead only a currency. It must be spent now, or put in an account temporarily with the intention of spending it soon, or must be loaned or traded as an investment to someone else who needs to spend currency today. Gold also is no longer money since it is not really a medium of exchange or unit of account the way it used to be.  So in order to have true money in a portfolio an investor must recreate the three properties of money by having both currency which can be efficiently exchanged today and gold which can be slightly less efficiently exchanged in the future, but which provides for a better long term preservation of wealth.  This is a premise that one must accept before gold allocation begins makes sense.




ChpBstrd

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Re: Precious Metals
« Reply #565 on: May 18, 2020, 09:33:53 AM »
Gold is not just an asset, it is money, and it should be evaluated as a a competiting form of money. Look at the expansion of the Fed balance sheet this year and try telling me that gold is not worth its recent appreciation. When the supply of a fiat currency can be expanded at the press of a keystroke, why shouldn't the price of a fixed-supply form of money not be able to respond in kind?

Thereís not a ďfixed supplyĒ of gold. Well over 3,000 metric tons are mined each year, and the pace of mining is increasing.

https://www.statista.com/statistics/238414/global-gold-production-since-2005/

If a currencyís supply is its inflation, why not consider this inflation too?

waltworks

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Re: Precious Metals
« Reply #566 on: May 18, 2020, 09:42:31 AM »
I'm not interested in owning any more "money" or "currency" than I need to make transactions. It could be dollars, yen, gold, cowry shells, bitcoin, whatever. As long as it's an efficient way to facilitate exchange, it's fine with me.

There would need to be a lot more gold available if we were going to be physically exchanging it with each other (or a lot fewer people doing the exchanging), and nobody uses it to do business, so no, it's not money. At least not right now.

-W

maizefolk

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Re: Precious Metals
« Reply #567 on: May 18, 2020, 09:54:27 AM »
I'm not interested in owning any more "money" or "currency" than I need to make transactions. It could be dollars, yen, gold, cowry shells, bitcoin, whatever. As long as it's an efficient way to facilitate exchange, it's fine with me.

Likewise. This is a point I've never understood about the argument to invest in gold because it is like money. I don't put my investments in other kinds of money, I put them into investments that will (hopefully) generate a return.

If my plan had been to achieve FIRE by just accumulating a large enough pile of dollar bills that I could spend them until I die, then yes, this would be a potential argument to accumulate a big pile of gold instead.

Quote
There would need to be a lot more gold available if we were going to be physically exchanging it with each other (or a lot fewer people doing the exchanging), and nobody uses it to do business, so no, it's not money. At least not right now.

-W

Well or the same amount of gold would have to be worth a lot more than it is today.

Back when the USA was on the gold standard this one actually one of the big problems. The number of people and number of transactions were growing much faster than the supply of gold backing the currency. So the value of the gold-backed dollar had to increase causing deflation. This was good for people who had a lot of dollars, but bad for everyone else. This was what motivated William Jennings Bryan's "Cross of Gold" speech. <-- he was a great orator, even if he later tarnished his legacy by participating in the Scopes trial.

waltworks

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Re: Precious Metals
« Reply #568 on: May 18, 2020, 12:02:39 PM »
I was familiar with the basic content of the speech but had never read it. Thanks Maizeman, I learned something interesting today!

-W

MustacheAndaHalf

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Re: Precious Metals
« Reply #569 on: May 18, 2020, 12:18:07 PM »
Other ratios such as gold to treasury debt, and gold vs broad measures of money supply which include credit expansion infer that gold remains significantly undervalued.
Back in the great financial crisis, the Fed doubled their balance sheets, without a corresponding increase in inflation.  If nobody spends money, it's not that available.  The velocity of money moving through the economy - changing hands - is important.  I think that took a severe hit with the economy shutting down.  Money is in short supply - most companies are cutting costs to stay in business.

---
One approach to diversification uses assets that are not very correlated.  People typically start with U.S. stocks (VTI) and add bond market (BND), which are mostly not correlated.  From there, adding commodities could provide diversification - but the risk is that commodities do not provide interest payments or ownership in a company.
https://www.portfoliovisualizer.com/asset-class-correlations

celerystalks

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Re: Precious Metals
« Reply #570 on: May 18, 2020, 09:47:03 PM »
Letís say inflation is running at 5% /year.

Now there are only two investment options available for $1,000.

$1,000 for 1/2 oz of gold (at the time of investment).

Or a long term (7-10 year) fixed coupon dollar denominated bond with a yield of 3%.

Which do you pick? Why?

Now lets say you bought the bond and inflation goes to double digits: 13%/ year. Price of gold starts to go up 9-10% per year, but pays no income.

Would you still be happy with the bond? Or, in hindsight, would the gold look more attractive?

Now a year later, you have another another $1000 to invest at 13% inflation. Yield on the previous bond issue you bought at 3% yield is now trading at 14% yield. Buy more? Even in a taxable account ? Or now put a $1,000 in gold?  You would be able to get 0.45 oz for $1000, and it still pays no income.

(And to those who argue to just buy stocks.  I agree. But most individuals have an allocation in their portfolio to bonds. And so their investment policy would dictate non-stocks for a portion of their allocation).


« Last Edit: May 18, 2020, 09:49:27 PM by celerystalks »

waltworks

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Re: Precious Metals
« Reply #571 on: May 18, 2020, 10:41:16 PM »
If you can predict inflation in advance, you can certainly make the ideal choice!

Too bad you can't.

-W

celerystalks

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Re: Precious Metals
« Reply #572 on: May 19, 2020, 04:45:27 AM »
If you can predict inflation in advance, you can certainly make the ideal choice!

Too bad you can't.

-W

Iíll take this as agreement that if inflation runs hot, gold might be the better choice than bonds?  This is the point: since inflation canít be predicted, it would make sense to have a little bit of gold in the portfolio in the name of diversification. That is all.







« Last Edit: May 19, 2020, 04:47:40 AM by celerystalks »

waltworks

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Re: Precious Metals
« Reply #573 on: May 19, 2020, 06:26:45 AM »
Iíll take this as agreement that if inflation runs hot, gold might be the better choice than bonds?  This is the point: since inflation canít be predicted, it would make sense to have a little bit of gold in the portfolio in the name of diversification. That is all.

You don't need it; stocks are an excellent inflation hedge (as is low interest debt like a mortgage).

-W

celerystalks

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Re: Precious Metals
« Reply #574 on: May 19, 2020, 07:08:05 AM »
Iíll take this as agreement that if inflation runs hot, gold might be the better choice than bonds?  This is the point: since inflation canít be predicted, it would make sense to have a little bit of gold in the portfolio in the name of diversification. That is all.

You don't need it; stocks are an excellent inflation hedge (as is low interest debt like a mortgage).

-W

I think I am starting to understand what Greenspan was talking about when he referred to hysterical antagonism to gold..

Sigh.

https://www.constitution.org/mon/greenspan_gold.htm

waltworks

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Re: Precious Metals
« Reply #575 on: May 19, 2020, 07:54:27 AM »
How so? You said you wanted it as an inflation hedge, I pointed out that you don't need it for that. That's not hysterical at all, it's a simple fact.

Inflation sucks if you have a lot of 1) bonds or 2) cash. Stocks, RE, and a big mortgage constitute pretty effective protection without needing any gold, though.

-W

TomTX

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Re: Precious Metals
« Reply #576 on: May 19, 2020, 08:01:38 AM »
If you can predict inflation in advance, you can certainly make the ideal choice!

Too bad you can't.

-W
Trillions of dollars invested in the bond market don't seem to think inflation is a significant risk.  30 year Treasuries have been below 1.5% for months now.

celerystalks

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Re: Precious Metals
« Reply #577 on: May 19, 2020, 08:14:00 AM »
How so? You said you wanted it as an inflation hedge, I pointed out that you don't need it for that. That's not hysterical at all, it's a simple fact.

Inflation sucks if you have a lot of 1) bonds or 2) cash. Stocks, RE, and a big mortgage constitute pretty effective protection without needing any gold, though.

-W

Thanks for your opinions.

All this anti-gold talk has got me thinking I should probably buy some more and increase my allocation. With everyone obsessed with paper assets of stocks and bonds, owning some Gold is like the ultimate contrarian play. Who knows what could happen next?


waltworks

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Re: Precious Metals
« Reply #578 on: May 19, 2020, 08:30:17 AM »
All this anti-gold talk has got me thinking I should probably buy some more and increase my allocation. With everyone obsessed with paper assets of stocks and bonds, owning some Gold is like the ultimate contrarian play. Who knows what could happen next?

Go for it. I'm just posting to make sure new forum members don't decide reading financial news daily, freaking out, and buying gold is a good idea because it's an inflation hedge - when you can have that hedge AND way better upside other ways.

-W

celerystalks

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Re: Precious Metals
« Reply #579 on: May 19, 2020, 08:42:03 AM »
All this anti-gold talk has got me thinking I should probably buy some more and increase my allocation. With everyone obsessed with paper assets of stocks and bonds, owning some Gold is like the ultimate contrarian play. Who knows what could happen next?

Go for it. I'm just posting to make sure new forum members don't decide reading financial news daily, freaking out, and buying gold is a good idea because it's an inflation hedge - when you can have that hedge AND way better upside other ways.

-W

Are there any circumstances under which you would consider adding gold to your portfolio? This can be answered simply yes/no. So there is no need to divert attention from the question and lecture us on the benefits of other assets, etc.



waltworks

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Re: Precious Metals
« Reply #580 on: May 19, 2020, 08:46:10 AM »
If I was worried about needing to flee for my life due to war/political instability. Otherwise, probably not. I mean, it's historically performed horribly as an investment.

As a *portable* (or, relatively anyway) store of wealth it's pretty damn good. Assuming you can hold onto it during the war/instability. Gemstones might be easier to hide/transport.

There are certainly places in the world where having some just in case would be a good idea.

-W

Buffaloski Boris

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Re: Precious Metals
« Reply #581 on: May 19, 2020, 11:09:03 AM »
If I was worried about needing to flee for my life due to war/political instability. Otherwise, probably not. I mean, it's historically performed horribly as an investment.

As a *portable* (or, relatively anyway) store of wealth it's pretty damn good. Assuming you can hold onto it during the war/instability. Gemstones might be easier to hide/transport.

There are certainly places in the world where having some just in case would be a good idea.

-W

I donít agree with ďhorriblyĒ but yeah, it underperforms over the long term. Itís also countercyclical so itís not too bad to buy some in moderation when the price is down.

maizefolk

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Re: Precious Metals
« Reply #582 on: May 19, 2020, 11:36:17 AM »
I donít agree with ďhorriblyĒ but yeah, it underperforms over the long term. Itís also countercyclical so itís not too bad to buy some in moderation when the price is down.

Agreed that one of the upsides of gold is that it shows pretty low correlation with the sorts of things folks normally invest in. However, how would a person make the call on when the price of gold is down though?

Since gold has a lower annual return than, for example, stocks I'd imagine things like the ratio of the price of gold to various stock indices (posted by someone else as a metric to argue gold is under valued) aren't a particularly good metric since we'd expect any ratio to widen over time so gold would almost always look under valued relative to historical averages.

BicycleB

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Re: Precious Metals
« Reply #583 on: May 19, 2020, 11:53:44 AM »
I donít agree with ďhorriblyĒ but yeah, it underperforms over the long term. Itís also countercyclical so itís not too bad to buy some in moderation when the price is down.

Agreed that one of the upsides of gold is that it shows pretty low correlation with the sorts of things folks normally invest in. However, how would a person make the call on when the price of gold is down though?

Since gold has a lower annual return than, for example, stocks I'd imagine things like the ratio of the price of gold to various stock indices (posted by someone else as a metric to argue gold is under valued) aren't a particularly good metric since we'd expect any ratio to widen over time so gold would almost always look under valued relative to historical averages.

Excellent and interesting point about gold price vs stock index!

Re making the call on when the price is down, it seems that if the value of gold is be uncorrelated with other assets, a good strategy would be to maintain a fixed % of your portfolio in gold vs other asset categories, rebalancing on a periodic basis. This would make the decision automatic, with a reasonable likelihood of being right over time.

I haven't quite gotten to point of actually doing that, but tentatively plan to do so "soon" - probably later this year. Exactly when is more a matter of completing personal tasks, not reacting to market prices. Tentatively.

I may have posted this before, but an example of this was implicitly done in the thread on "Portfolio Design: Idiots v. Gurus". IRRC, @Radagast backtested an "idiot" portfolio consisting of equally weighting all the assets listed on portfoliocharts.com, comparing it to all the guru-recommended portfolios on the site. The portfolio included a dollop of gold along with bonds, cash, REITs and stock. I believe the test rebalanced annually though without fees. Results were excellent - high returns, high stability.

https://forum.mrmoneymustache.com/investor-alley/portfolio-design-idiots-v-gurus/

Of course, we can go around in circles about how the early 1970s skewed results in that data set. But the ups and downs since then have been considerable. So to me a fixed % with rebalancing seems like a decent plan.

Open to wiser comments though. Educate me before I make a real life mistake!
« Last Edit: May 19, 2020, 11:55:48 AM by BicycleB »

TomTX

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Re: Precious Metals
« Reply #584 on: May 19, 2020, 12:24:11 PM »

Of course, we can go around in circles about how the early 1970s skewed results in that data set. But the ups and downs since then have been considerable. So to me a fixed % with rebalancing seems like a decent plan.

Yep. Any portfolio analysis using gold in the modern era needs to start no sooner than 1974.

Wrenchturner

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Re: Precious Metals
« Reply #585 on: May 19, 2020, 05:37:43 PM »
If you can predict inflation in advance, you can certainly make the ideal choice!

Too bad you can't.

-W
Trillions of dollars invested in the bond market don't seem to think inflation is a significant risk.  30 year Treasuries have been below 1.5% for months now.

Has the bond market not been badly distorted by CB liquidity?  I'm far from an expert here.  Is it reasonable to believe that many markets have been disrupted by this manipulation?  Stocks and assets via interest rates, etc.  How much pricing has been interfered with by central banks inventing demand where it wouldn't otherwise exist?

Buffaloski Boris

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Re: Precious Metals
« Reply #586 on: May 19, 2020, 07:39:44 PM »
I donít agree with ďhorriblyĒ but yeah, it underperforms over the long term. Itís also countercyclical so itís not too bad to buy some in moderation when the price is down.

Agreed that one of the upsides of gold is that it shows pretty low correlation with the sorts of things folks normally invest in. However, how would a person make the call on when the price of gold is down though?

Since gold has a lower annual return than, for example, stocks I'd imagine things like the ratio of the price of gold to various stock indices (posted by someone else as a metric to argue gold is under valued) aren't a particularly good metric since we'd expect any ratio to widen over time so gold would almost always look under valued relative to historical averages.

Good point @maizeman and if you do figure out the perfect way to know when to buy stocks or gold to maximize short term gains, Iíd sure like to know. One or the other would be fine. It doesnít need to be both.😆

I suppose if I were making a significant one time investment Iíd want to look at the relative cash price. Has it been on a recent upward or downward trend? Other than that it would mean lots of research. If thatís your thing, great. For what pittance Iíd throw at it I doubt itíd be worth the time so picking a allocation and periodically rebalancing is probably as good a strategy as any.

BicycleB

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Re: Precious Metals
« Reply #587 on: May 19, 2020, 08:41:58 PM »
If you can predict inflation in advance, you can certainly make the ideal choice!

Too bad you can't.

-W
Trillions of dollars invested in the bond market don't seem to think inflation is a significant risk.  30 year Treasuries have been below 1.5% for months now.

Has the bond market not been badly distorted by CB liquidity?  I'm far from an expert here. 

Not an expert either, but:

Maybe the market's been distorted "goodly" by Central Bank liquidity. Maybe the liquidity is needed and that need is greater than the inflation risk. This would mean that the CB is making wise decisions. Sounds strange, but it's conceivable.

If the liquidity was distorting markets in a manner likely to cause inflation, rational bond buyers would require higher rates than 1.5%, wouldn't they?

(leans on cane, peers over reading glasses) When I was a kid, Treasury bonds were paying 13%.

Is it reasonable to believe that many markets have been disrupted by this manipulation?  Stocks and assets via interest rates, etc. 

It's reasonable to believe that many markets have been affected by this manipulation. As far as disrupted, it's reasonable to believe that coronavirus-related shutdowns probably put a lot of markets at risk of disruption (collapse, actually) but the CB's intervention is more likely to have kept those markets functioning instead of collapsing. That's the CB's job. It's possible that in the long run, CB intervention created some risks that wouldn't have existed, but it's reasonable to believe that those risks are only possible because the CB kept markets afloat in the first place.

How much pricing has been interfered with by central banks inventing demand where it wouldn't otherwise exist?

Lots of pricing has been interfered with, in the sense that markets may well have collapsed without it. Adding demand to a system where demand is plunging probably has the effect of stabilizing the system. It's hard to say whether the resulting prices are perfect from any particular viewpoint, but they might be better than the ones that would have happened without the "interference".

Which, again, is the CB's job. It was created to interfere with prices in order to keep them from periodically collapsing.

It's possible that it still hasn't produced enough demand. That the ongoing economic collapse from coronavirus-related shutdowns will end up swamping the system. I agree it looks weird that stocks are high while unemployment is higher, that bonds appear secure for now when they could have been heading for default, and that tons of new money doesn't yet cause inflation. But the money appears to be needed, and so far doing more good than harm. It remains to be seen whether the asset inflation, an indirect stimulus, will preserve enough economic activity to prevent sustained collapse.

I suppose that the inflation-preventing key is to wind down the bond buying when other demand ramps up. Only time will tell if that will work. If you can tell now what will happen, you're more knowledgeable than I am.

BAR BATTLE
One time, a big guy in a bar grabbed my wrist and looked challengingly down at my face. I did nothing (not a fast thinker). Then he shoved me by surprise, hard, toward the ground.

By the time I knew he'd shoved me, I was standing about four feet back, perfectly balanced, arms in the same position of modest readiness as before. My martial arts practice from years before had saved me. The ensuing staredown ended when he realized his intimidation hadn't worked; after a pause, he let his scowling girlfriend drag him away from the stupidity.

I feel like our current position is a bit similar. We've been tossed backward by a sudden downwards shove. Our prepared reflexes, some in the form of CB intervention and some in the form of stimulus, have helped us keep our balance for now to some extent. They're moves in probably the right direction, but what happens afterward is anyone's guess.
« Last Edit: May 19, 2020, 09:15:41 PM by BicycleB »

vand

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Re: Precious Metals
« Reply #588 on: May 20, 2020, 02:42:18 AM »
Iíll take this as agreement that if inflation runs hot, gold might be the better choice than bonds?  This is the point: since inflation canít be predicted, it would make sense to have a little bit of gold in the portfolio in the name of diversification. That is all.

You don't need it; stocks are an excellent inflation hedge (as is low interest debt like a mortgage).

-W

This statement somehow doesn't surprise me from someone whose idea of a short position was a smaller long position.

mrmoonymartian

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Re: Precious Metals
« Reply #589 on: May 20, 2020, 05:00:58 AM »
The negative effects of the inflationary epoch could have been largely avoided if only the universe had been more heavily invested in stocks early on. Stars, people and precious metals wouldn't have formed, and the guaranteed withdrawal rate of 0% would be perfectly safe forever. Alas, inflation went unchecked and here we are. Struggling to communicate with apes about why everything went so horribly wrong.

celerystalks

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Re: Precious Metals
« Reply #590 on: May 20, 2020, 06:42:36 AM »
Re making the call on when the price is down, it seems that if the value of gold is be uncorrelated with other assets, a good strategy would be to maintain a fixed % of your portfolio in gold vs other asset categories, rebalancing on a periodic basis. This would make the decision automatic, with a reasonable likelihood of being right over time.

....
So to me a fixed % with rebalancing seems like a decent plan.

Precisely. It really doesnít matter all too much exactly when you get started. Just pick a percentage allocation DCA up to it, and then rebalance when necessary.

It is hard to make a mistake by adding a small portion of gold (3-5%) to an otherwise diversified portfolio. It acts sort of like financial catastrophe insurance. Except it can be sold whenever desired.

Car Jack

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Re: Precious Metals
« Reply #591 on: May 20, 2020, 07:08:04 AM »

Of course, we can go around in circles about how the early 1970s skewed results in that data set. But the ups and downs since then have been considerable. So to me a fixed % with rebalancing seems like a decent plan.

Yep. Any portfolio analysis using gold in the modern era needs to start no sooner than 1974.

This guy gets it!

and that would be after Dec 31, 1974.  I say 1975 to be within the fully legal to own in the US period.

Oh....and for you people taking physical gold and silver.......have a magnet handy.  Especially with junk silver coins, you absolutely will find fakes that'll stick to the magnet.  For gold, most likely the inner slug is made of lead and heavily plated in gold, then struck.  Fake, but harder to detect without a scale.  But of course, most of us would be guying only a small number of 1 oz gold coins, so it's worthwhile to own a precise scale to check every coin.  And don't forget some good calipers to measure thickness and diameter.  You'll find coins that are slightly thicker and slightly larger in diameter to make up for the lighter lead.  Even then, the weight won't match as gold is almost twice as heavy as lead.  Any coin dealer will know just by picking up a coin if it's fake, made with a lead slug.

celerystalks

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Re: Precious Metals
« Reply #592 on: May 20, 2020, 07:18:40 AM »
@Car Jack yes it is important to buy from a reputable source. But they do exist.

Also most modern gold counterfeiting is through inserting tungsten slugs into 10oz or kilo bars. I think that modern gold bullion coins or pre-33 gold, bought from a reputable source, is relatively safe.

waltworks

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Re: Precious Metals
« Reply #593 on: May 20, 2020, 08:07:55 AM »
Iíll take this as agreement that if inflation runs hot, gold might be the better choice than bonds?  This is the point: since inflation canít be predicted, it would make sense to have a little bit of gold in the portfolio in the name of diversification. That is all.

You don't need it; stocks are an excellent inflation hedge (as is low interest debt like a mortgage).

-W

This statement somehow doesn't surprise me from someone whose idea of a short position was a smaller long position.

Where did I say that? I'm 100% always long. I've been continuing to invest at exactly the same rate throughout the covid-19 crisis, so my long position has continued to grow. And I took out the biggest mortgage I possibly could last year so I could invest more. I'm an eternal optimist, because I'm a former professional statistician (which is probably a rare combination, lol) and I've seen enough market volatility in my lifetime to not be worried about it.

-W
« Last Edit: May 20, 2020, 08:19:32 AM by waltworks »

vand

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Re: Precious Metals
« Reply #594 on: May 20, 2020, 11:04:52 AM »
Iíll take this as agreement that if inflation runs hot, gold might be the better choice than bonds?  This is the point: since inflation canít be predicted, it would make sense to have a little bit of gold in the portfolio in the name of diversification. That is all.

You don't need it; stocks are an excellent inflation hedge (as is low interest debt like a mortgage).

-W

This statement somehow doesn't surprise me from someone whose idea of a short position was a smaller long position.

Where did I say that? I'm 100% always long. I've been continuing to invest at exactly the same rate throughout the covid-19 crisis, so my long position has continued to grow. And I took out the biggest mortgage I possibly could last year so I could invest more. I'm an eternal optimist, because I'm a former professional statistician (which is probably a rare combination, lol) and I've seen enough market volatility in my lifetime to not be worried about it.

-W

Sorry, it was not you, it was Mustacheandhalf.

But you are dead wrong about stocks inflation-hedging properties. Stocks are a lousy inflation hedge.  A hedge is something that goes the opposite way to whatever it is hedging. Stocks don't spike up when inflation flares up, they tend to sell off.

During periods of higher inflation you want to avoid stocks and bonds and hold real assets - commodities and especially precious metals. Real estate has historically tolerated moderately higher inflation, but it doesn't exhibit hedging characteristics.

I present the evidence here: https://forum.mrmoneymustache.com/investor-alley/stocks-are-not-an-inflation-hedge

waltworks

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Re: Precious Metals
« Reply #595 on: May 20, 2020, 11:24:20 AM »
Boo hoo, I only make a 4% real return during high inflation years?

Your numbers say stocks tolerate inflation just fine, like I said. That, for me, constitutes all the hedging I care about.

-W

MustacheAndaHalf

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Re: Precious Metals
« Reply #596 on: May 20, 2020, 11:11:31 PM »
Iíll take this as agreement that if inflation runs hot, gold might be the better choice than bonds?  This is the point: since inflation canít be predicted, it would make sense to have a little bit of gold in the portfolio in the name of diversification. That is all.
You don't need it; stocks are an excellent inflation hedge (as is low interest debt like a mortgage).

-W
This statement somehow doesn't surprise me from someone whose idea of a short position was a smaller long position.
Where did I say that? I'm 100% always long. I've been continuing to invest at exactly the same rate throughout the covid-19 crisis, so my long position has continued to grow. And I took out the biggest mortgage I possibly could last year so I could invest more. I'm an eternal optimist, because I'm a former professional statistician (which is probably a rare combination, lol) and I've seen enough market volatility in my lifetime to not be worried about it.

-W
Sorry, it was not you, it was Mustacheandhalf.

But you are dead wrong about stocks inflation-hedging properties. Stocks are a lousy inflation hedge.  A hedge is something that goes the opposite way to whatever it is hedging. Stocks don't spike up when inflation flares up, they tend to sell off.

During periods of higher inflation you want to avoid stocks and bonds and hold real assets - commodities and especially precious metals. Real estate has historically tolerated moderately higher inflation, but it doesn't exhibit hedging characteristics.

I present the evidence here: https://forum.mrmoneymustache.com/investor-alley/stocks-are-not-an-inflation-hedge
"A short, or a short position, is created when a trader sells a security first with the intention of repurchasing it or covering it later at a lower price."
https://www.investopedia.com/terms/s/short.asp

celerystalks

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Re: Precious Metals
« Reply #597 on: May 21, 2020, 09:46:34 AM »
Anyother great thing about gold is it makes a great substitute for U.S. savings bonds. The treasury made it very it very difficult to give Savings bonds as gifts.  Sure it is still possible... just ask the recipient (or their parent if they are a minor) to go set up an account at treasury direct and then provide the account details so that a savings bond can be purchased as a gift (of course after setting up your own treasury direct account). Then sit back and enjoy the 0.1% interest rate paid on the Series EE bonds.

Or just purchase a shiny gold coin. For instance, A 1/10 oz American Gold Eagle is about the size of a dime. It Is a marvel to look at. And can be sold at any time...If the gift giver is worried about the gift receiver Might have trouble finding a fair price at some point in the future, they can always politely offer to buy it back at melt value if the receiver ever needs or wants to sell.

vand

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Re: Precious Metals
« Reply #598 on: May 22, 2020, 02:28:50 AM »
Iíll take this as agreement that if inflation runs hot, gold might be the better choice than bonds?  This is the point: since inflation canít be predicted, it would make sense to have a little bit of gold in the portfolio in the name of diversification. That is all.
You don't need it; stocks are an excellent inflation hedge (as is low interest debt like a mortgage).

-W
This statement somehow doesn't surprise me from someone whose idea of a short position was a smaller long position.
Where did I say that? I'm 100% always long. I've been continuing to invest at exactly the same rate throughout the covid-19 crisis, so my long position has continued to grow. And I took out the biggest mortgage I possibly could last year so I could invest more. I'm an eternal optimist, because I'm a former professional statistician (which is probably a rare combination, lol) and I've seen enough market volatility in my lifetime to not be worried about it.

-W
Sorry, it was not you, it was Mustacheandhalf.

But you are dead wrong about stocks inflation-hedging properties. Stocks are a lousy inflation hedge.  A hedge is something that goes the opposite way to whatever it is hedging. Stocks don't spike up when inflation flares up, they tend to sell off.

During periods of higher inflation you want to avoid stocks and bonds and hold real assets - commodities and especially precious metals. Real estate has historically tolerated moderately higher inflation, but it doesn't exhibit hedging characteristics.

I present the evidence here: https://forum.mrmoneymustache.com/investor-alley/stocks-are-not-an-inflation-hedge
"A short, or a short position, is created when a trader sells a security first with the intention of repurchasing it or covering it later at a lower price."
https://www.investopedia.com/terms/s/short.asp

you seem to ignore the key word in this whole definition

mrmoonymartian

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Re: Precious Metals
« Reply #599 on: May 22, 2020, 09:44:37 PM »
Iíll take this as agreement that if inflation runs hot, gold might be the better choice than bonds?  This is the point: since inflation canít be predicted, it would make sense to have a little bit of gold in the portfolio in the name of diversification. That is all.
You don't need it; stocks are an excellent inflation hedge (as is low interest debt like a mortgage).

-W
This statement somehow doesn't surprise me from someone whose idea of a short position was a smaller long position.
Where did I say that? I'm 100% always long. I've been continuing to invest at exactly the same rate throughout the covid-19 crisis, so my long position has continued to grow. And I took out the biggest mortgage I possibly could last year so I could invest more. I'm an eternal optimist, because I'm a former professional statistician (which is probably a rare combination, lol) and I've seen enough market volatility in my lifetime to not be worried about it.

-W
Sorry, it was not you, it was Mustacheandhalf.

But you are dead wrong about stocks inflation-hedging properties. Stocks are a lousy inflation hedge.  A hedge is something that goes the opposite way to whatever it is hedging. Stocks don't spike up when inflation flares up, they tend to sell off.

During periods of higher inflation you want to avoid stocks and bonds and hold real assets - commodities and especially precious metals. Real estate has historically tolerated moderately higher inflation, but it doesn't exhibit hedging characteristics.

I present the evidence here: https://forum.mrmoneymustache.com/investor-alley/stocks-are-not-an-inflation-hedge
"A short, or a short position, is created when a trader sells a security first with the intention of repurchasing it or covering it later at a lower price."
https://www.investopedia.com/terms/s/short.asp

you seem to ignore the key word in this whole definition
Actually in the southern hemisphere if you buy then sell, that means you are selling first. Think about it. Ok, now stop thinking about it. You can't, can you? That's because of the coriolis effect.