Author Topic: Precious Metals  (Read 76179 times)

chicklets123

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Re: Precious Metals
« Reply #750 on: February 24, 2021, 09:02:36 PM »
Is silver still a good buy now?


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celerystalks

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Re: Precious Metals
« Reply #751 on: February 25, 2021, 04:55:43 AM »
Is silver still a good buy now?


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The price of silver is very volatile. Who knows.

Imanuels

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Re: Precious Metals
« Reply #752 on: February 28, 2021, 10:18:25 AM »
I'm getting concerned about my gold allocation. I kept a bit with the reasoning that it is inversely correlated to stocks and thus would be useful for rebalancing in an event of a market drop. The rising yields issue recently is casting some doubts on this plan.

celerystalks

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Re: Precious Metals
« Reply #753 on: February 28, 2021, 12:27:22 PM »
Gold should be viewed as an asset class, not as a buy once and then get rich speculation. If the desired gold allocation drops in a portfolio due to the price going down or other asset values increasing, it is appropriate to rebalance into gold. And likewise if the allocation increases beyond the desired target one should consider rebalancing out of some of the gold holdings.

BicycleB

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Re: Precious Metals
« Reply #754 on: February 28, 2021, 10:18:35 PM »
I'm getting concerned about my gold allocation. I kept a bit with the reasoning that it is inversely correlated to stocks and thus would be useful for rebalancing in an event of a market drop. The rising yields issue recently is casting some doubts on this plan.

Explain?

I thought yields were rising because higher inflation is anticipated. Isn't higher inflation good for gold?

Meanwhile, inflation is expected due to resurgent demand during/after COVID improvements. Stocks think the overall news is good despite a little inflation. If they stay high, wouldn't you want something to balance out their later fall?

How does all this make gold less useful as the hedge you're looking for?

Not doubting you, I read this thread to learn. Just wanting to understand.  :)

vand

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Re: Precious Metals
« Reply #755 on: March 01, 2021, 01:18:24 AM »
Gold sometimes behaves as a currency, sometimes as a commodity, and sometimes as a flight to safety, which is why its relationship with interest rates and inflation is not straightforward or consistent.

That said, gold tends to negatively correlated with the direction of real interest rates, which is why it took off after Corona panic, and then has struggled since the summer as bonds yields have been rising at least as fast as inflation

Gold's run in the 1970s coincided with a period of negative interest rates which bottomed in 1980 - a period during which paper assets got crushed, of course. And likewise, we can see that the period 2000-present has had largely negative real rates which has helped drive the secular gold bull market since then.

https://www.longtermtrends.net/real-interest-rate/
https://www.sunshineprofits.com/gold-silver/dictionary/real-interest-rates-gold/

*real rates being defined by the spread between the 1yr Bill & the rate of inflation

In order to convince me that the investment case for gold is weakened, you will have to convince me that real rates are going to have a sustained run above 0% - and I don't see that happening any time soon.
« Last Edit: March 01, 2021, 06:43:17 AM by vand »

Imanuels

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Re: Precious Metals
« Reply #756 on: March 01, 2021, 03:37:22 AM »
Thanks, BicycleB, I'm also eager to learn and therefore very greatful for all the feedback.
This is my situation (according to my IPS). Considering my age (33) and risk tolerance, I had originally chosen to have 80% stocks/20% bonds portfolio. However, due to the present situation with tiny or negative yields, I decided to avoid bonds and use another asset class that has a negative correlation with stocks. As the result, I have currently 7% allocation to gold. I sold the difference a couple of months ago to rebalance (unfortunately, had to pay taxes of course) and because generally, I don't feel comfortable having a large portion of my portfolio in gold since IMO it does not generate any real income (such as paying dividends).
Now, I have a small paragraph in my IPS that says: "A remark concerning Gold. When real rates are sufficiently positive, gold does poorly because investors prefer assets that pay interest. But when real rates are very low or negative, gold does well because investors prefer not to lose purchasing power on a “safe” investment. Accordingly, I will move out from Gold when the real interest rates start to increase again."
It is illustrated in the chart from: https://portfoliocharts.com/2020/08/21/metal-money-and-the-measurable-value-of-gold/

I think my concern has been answered by vand in the last post. Namely, the real rates is the key. I also don't think they will get positive in the nearest future.
« Last Edit: March 01, 2021, 10:15:24 AM by Imanuels »

ChpBstrd

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Re: Precious Metals
« Reply #757 on: March 01, 2021, 09:36:32 AM »
In order to convince me that the investment case for gold is weakened, you will have to convince me that real rates are going to have a sustained run above 0% - and I don't see that happening any time soon.

I also don't think they will get positive in the nearest future.

I think the chart demonstrates that high positive real yields are usually a detriment to gold's price, but also look at 2012-2018. If we are predicting a future this pessimistic for real yields, should we be surprised if gold doesn't rise, like it didn't during that timeframe of negative real yields?

IMO, this sometimes-it-correlates, sometimes-it-doesn't asset class is an inferior hedge compared to options, which are 100% predictable.

vand

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Re: Precious Metals
« Reply #758 on: March 01, 2021, 11:22:51 AM »
In order to convince me that the investment case for gold is weakened, you will have to convince me that real rates are going to have a sustained run above 0% - and I don't see that happening any time soon.

I also don't think they will get positive in the nearest future.

I think the chart demonstrates that high positive real yields are usually a detriment to gold's price, but also look at 2012-2018. If we are predicting a future this pessimistic for real yields, should we be surprised if gold doesn't rise, like it didn't during that timeframe of negative real yields?

IMO, this sometimes-it-correlates, sometimes-it-doesn't asset class is an inferior hedge compared to options, which are 100% predictable.

Its not a perfect short-term hedge. There's lots of stuff that drives the price of any asset and gold is no different, really.  If you want that then broad commodities and TIPs are also options, but again neither are perfect. Protecting your portfolio against inflation is difficult, which is why it presents a challenge to portfolio management.

Regarding gold's performance over the last decade, it was probably driven into its 2011 peak as the European debt crisis - you can see that real rates went very negative as 2011 unfolded, and then started clawing back to 0% by 2015. Gold itself bottomed at $1150 in the last part of 2015, so it fits pretty well. The real rate matters, but the direction of change also matters.. 2nd derivatives and all that which markets tend to price in way ahead of you can attatch a coherent narrative to the actual price movement so it makes it all seem rather random..

J Boogie

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Re: Precious Metals
« Reply #759 on: March 01, 2021, 12:43:00 PM »
Also good to keep in mind that an ever increasing percentage of the historical demand for precious metals as a store of value is being satisfied by crypto.

I am leaning into FNV right now because I think there will be some rotation out of the overheated crypto, but it remains to be seen if my thesis will play out.

I am actually against using crypto as a store of value because this causes it to become volatile which causes it to lose utility as a currency. And I am all for crypto, especially for those who live in nations with poorly managed economies / central banks.

BicycleB

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Re: Precious Metals
« Reply #760 on: March 01, 2021, 02:21:07 PM »
Thanks for the explanation, @Imanuels, and helpful additional comments, everyone. :)

waltworks

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Re: Precious Metals
« Reply #761 on: March 01, 2021, 02:29:47 PM »
Yeah, people currently think of crypto as electronic gold. That could hurt gold in the long run as older people die off/their gold is sold by heirs and younger people just go all in on crypto. Maybe.

It's a shame, because I'd love to see a useful/widespread/stable cryptocurrency kill off the credit card companies once and for all. If BTC had been designed intelligently that might be happening now.

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Re: Precious Metals
« Reply #762 on: March 01, 2021, 09:16:47 PM »
Also good to keep in mind that an ever increasing percentage of the historical demand for precious metals as a store of value is being satisfied by crypto.


Do we know that for sure?  Are crypto investors the same people who would have been gold investors? 

Radagast

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Re: Precious Metals
« Reply #763 on: March 01, 2021, 10:22:46 PM »
Thanks, BicycleB, I'm also eager to learn and therefore very greatful for all the feedback.
This is my situation (according to my IPS). Considering my age (33) and risk tolerance, I had originally chosen to have 80% stocks/20% bonds portfolio. However, due to the present situation with tiny or negative yields, I decided to avoid bonds and use another asset class that has a negative correlation with stocks. As the result, I have currently 7% allocation to gold. I sold the difference a couple of months ago to rebalance (unfortunately, had to pay taxes of course) and because generally, I don't feel comfortable having a large portion of my portfolio in gold since IMO it does not generate any real income (such as paying dividends).
Now, I have a small paragraph in my IPS that says: "A remark concerning Gold. When real rates are sufficiently positive, gold does poorly because investors prefer assets that pay interest. But when real rates are very low or negative, gold does well because investors prefer not to lose purchasing power on a “safe” investment. Accordingly, I will move out from Gold when the real interest rates start to increase again."
It is illustrated in the chart from: https://portfoliocharts.com/2020/08/21/metal-money-and-the-measurable-value-of-gold/

I think my concern has been answered by vand in the last post. Namely, the real rates is the key. I also don't think they will get positive in the nearest future.
There's nothing wrong with a small gold allocation per se. But you need to realize the 1) it's expected long term real return is 0.00 +/-15% per year; and 2) it has no correlation with stocks or essentially anything else, not negative correlation, zero correlation. 0 returns, 0 correlation. The best way to buy in is through dollar cost averaging over a long period, to avoid accidentally buying at a high.

I saw a good hypothesis about the price of gold here: https://www.bogleheads.org/forum/viewtopic.php?p=5395727#p5395727. Market timer is a person I have followed (well, at least noted) because he made a highly entertaining thread on leverage during the 2008 crisis and ended up deep in debt. Reading it which was a formative experience to my investing.

J Boogie

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Re: Precious Metals
« Reply #764 on: March 02, 2021, 08:49:07 AM »
Also good to keep in mind that an ever increasing percentage of the historical demand for precious metals as a store of value is being satisfied by crypto.


Do we know that for sure?  Are crypto investors the same people who would have been gold investors?

No and no. Crypto has attracted tons of people outside of the usual investing community. But I am increasingly hearing big name investors mention bitcoin as a store of value worth a place however small in one's portfolio. And we are seeing crypto go mainstream as banks and corporations warm up to it.