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Learning, Sharing, and Teaching => Investor Alley => Topic started by: MilesTeg on June 14, 2018, 12:43:58 PM

Title: Precious Metals
Post by: MilesTeg on June 14, 2018, 12:43:58 PM
Before I start, know I don't give one hoot about what the MMM perspective is on this question (I don't even know what it is, and don't care to); I am asking this question here only because this is a pretty decent place to find knowledgeable financial/investment folks:

We're looking to convert a small portion of our assets (~5%) into precious metals and to maintain that ratio going forward. We're in the lucky/hard earned position of this being a fairly decent sum. We've looked at dealers like Kitco, et al but really have no idea what the most efficient way to go about doing this is (minimize loss due to fees, shipping, etc.). Lots of marketing department driving advise floating around but hoping for neutral 3rd party advise from someone here with experience (or a pointer to such advise).

Thanks!
Title: Re: Precious Metals
Post by: FIRE@50 on June 14, 2018, 01:45:42 PM
Would you mind sharing how and why you arrived at the decision to put 5% into metals? Thanks.
Title: Re: Precious Metals
Post by: weltschmerz on June 14, 2018, 09:53:33 PM
We're looking to convert a small portion of our assets (~5%) into precious metals and to maintain that ratio going forward.

I don't know what 5% of your stash amounts to, but I would offer that keeping more than $30-50k in physical gold gets difficult.  You can keep some at a bank safety deposit box, some at home, some buried in the back yard, but there is a limit to what you will feel comfortable keeping. I recommend not keeping a set percentage.   Rather, just keep some coins, as an 'insurance policy', and be done with it.  There are a few portfolios, like the Permanent Portfolio, that keep up to 25% gold, but that's crazy.  You can't keep that much physical gold around.

Let's say you have > $2M in assets, and you decided to keep 5% in physical gold.  That's $100k!  Are you just going to keep it at a bank, or some at home?  Don't even think you're going to buy IAU or GLD for the majority and keep just a few coins at home....that's beyond lame.

As far as dealers, APMEX is a good one, check them out.  Don't even worry about selling.  You'll probably just pass the coins on to your heirs.
Title: Re: Precious Metals
Post by: maizefolk on June 14, 2018, 10:42:22 PM
Let's say you have > $2M in assets, and you decided to keep 5% in physical gold.  That's $100k!  Are you just going to keep it at a bank, or some at home?

I mean that's only about 5 lbs of gold. That's what, a 2 x 2 x 2 inch cube?

The financial considerations/concerns are still very real and I wouldn't recommend putting so much of your net worth in what is, essentially, a commodity, but logistically I don't think you'd run into any problems keeping that much gold in a safe deposit box.
Title: Re: Precious Metals
Post by: Radagast on June 15, 2018, 12:09:28 AM
Maybe ironically but I thought this was one of the best references
https://www.bogleheads.org/forum/viewtopic.php?t=234480
Also https://www.gyroscopicinvesting.com/forum/index.php will have that somewhere.

Let's say you have > $2M in assets, and you decided to keep 5% in physical gold.  That's $100k!  Are you just going to keep it at a bank, or some at home?

I mean that's only about 5 lbs of gold. That's what, a 2 x 2 x 2 inch cube?

The financial considerations/concerns are still very real and I wouldn't recommend putting so much of your net worth in what is, essentially, a commodity, but logistically I don't think you'd run into any problems keeping that much gold in a safe deposit box.
Yeah, an ounce of gold is like a Sacagawea dollar, or a little bigger than a quarter. $100k would be like 80 of those. Not a very big stack. That's why it was the bitcoin of ancient times.
Title: Re: Precious Metals
Post by: Classical_Liberal on June 15, 2018, 02:32:45 AM
What's the intended purpose of the metals?  I ask mainly to help you determine if you really need to hold the entire amount as physical. Personally I hold metals in my portfolio, but only keep part of it physical to avoid the cost issues discussed in your OP. 
Title: Re: Precious Metals
Post by: SwordGuy on June 15, 2018, 06:18:02 AM
Before I start, know I don't give one hoot about what the MMM perspective is on this question (I don't even know what it is, and don't care to); I am asking this question here only because this is a pretty decent place to find knowledgeable financial/investment folks:

We're looking to convert a small portion of our assets (~5%) into precious metals and to maintain that ratio going forward. We're in the lucky/hard earned position of this being a fairly decent sum. We've looked at dealers like Kitco, et al but really have no idea what the most efficient way to go about doing this is (minimize loss due to fees, shipping, etc.). Lots of marketing department driving advise floating around but hoping for neutral 3rd party advise from someone here with experience (or a pointer to such advise).

Thanks!

Have you ever noticed that when economic times get shaky, the number of advertisements for gold and silver as great investments skyrockets? 
And how they tout what great investments they are to hold in bad economic times?

Now, let's think about this logically.

They ALREADY own gold.

Bad economic times are just around the corner.

They are spending lots of money to buy adverts in order to GET RID OF their gold.

If they believed their own spiel, they would be spending that advert money to BUY MORE GOLD.

But, obviously, they are doing the EXACT OPPOSITE of what they are advising you to do.

Hmmm.

And that would be why the only gold and silver I own is for making jewelry with for my hobby.

Which, incidently, actually does increase its value if I get good at it...

I wouldn't put 5% of my holdings into precious metals. 
Title: Re: Precious Metals
Post by: Car Jack on June 15, 2018, 06:35:12 AM
I have bought/sold silver coins.  I had planned to get into gold but just never pulled the trigger.

Buying:  You absolutely want to buy from a reputable supplier.  Apmex is where I would go.  They are transparent with prices right on the website.  You can see the difference by volume and if you would rather use a credit card (which is silly because of the fee).  They are not consistent at giving buy prices, however and you would have to call for that.

Apmex does, at times offer free shipping on amounts over some set $$.  If you are selling back, of course, you pay shipping.

I have sold both to a local wholesaler and to private people found on Craigslist.  Private sales will bring in more money.  Ask before you meet what they're paying.  Set up an initial small amount and then meet.  This is harder to do with gold than silver as it's tough to have only $300 in gold, where for silver, that's a small bag of quarters.

For storage, I would suggest a few things.  First, don't tell anyone.  Don't tell your wife or your dog or your neighbor that you even have gold.  Buy a fire safe key lock box and leave it where any thief will find it.  Put things that seem valuable in it but have no real value.  Maybe some recent dimes, penny rolls, costume jewelry.  Then buy a small safe that you can both hide and bolt to concrete.  You want this hidden.  As an example, the safe is bolted 3 feet up on a basement wall with shelves in front of it.  Fill the shelves with crap you're storing.  If nothing else, this will make it harder to find for a thief in a hurry.  Any safe can be broken into, so I wouldn't bother with a plutonium grade kryptonite encrusted bank safe.  I mean, guys have chained their truck to an ATM and dragged it away.....

Back to what to buy.  You'll see that what you're buying will be priced based on various things.  The bars...Apmex or Credit Suisse and the like are cheaper than coins.  Part of the reason for that is that they're less desirable than coins.  Things like Krugerands and libtards and mexican gold have different amounts of gold in them.  Know what it is.  I find that US coins tend to be the highest priced, followed by Canadian maple leafs and on from there.  The larger the denomination the cheaper it is.  If you're buying a quarter ounce or a tenth ounce, you're taking a bath on price.  Easy to see on Apmex.

Good luck.  I've been selling off all my silver, which is "junk silver" as I realized that inflation alone is making it a bad investment.  The fact that it's gone down in number $$ value hurts just a bit more.
Title: Re: Precious Metals
Post by: BobTheBuilder on June 15, 2018, 07:17:32 AM
In Germany there is something called Xetra-Gold.

https://www.xetra-gold.com/en/

1 unit correponds to 1 g of gold, which is actually physically stored in a vault. It is so much like having it in hand that the German tax systems treats those two as equal. That means in Germany you can sell it off after 1year or more without paying any taxes at all on your gains. Which is exactly the same for coins/bars.

You can also let it be delivered to you, which of course only makes sense if you have at least the equivalent of a small bar (50g+)

Maybe there is an equivalent to that in the US?

With silver you will run into the problem that you need large amounts of silver to store the wealth. Also, silver is more related to mining of other industrial metals so the price is more dependent on let's say copper mining volume (they often cohabit the same rocks)
Title: Re: Precious Metals
Post by: tralfamadorian on June 15, 2018, 02:42:14 PM
Would you mind sharing how and why you arrived at the decision to put 5% into metals? Thanks.
Seriously...  Whats with the attitude? The guy came asking an honest question. Many of the portfolios analyzed at portfolio charts include an allocation to gold. 

So, back at ya:

Would you, FIRE@50, mind sharing how and why you arrived at the decision not to put 5% into metals?  Thanks!

Actually, I thought they asked the question very politely.

To answer your question though it was not posed to me:
1) Capital gains tax rate of personal income tax rate (25%).
2) Paying sales tax on physical purchase (5.3%).
3) Storage/insurance issues if being held for a zombie apocalypse type event.
4) Spread on purchase. (5%)
5) Spread on sale. (5%)
5) Lack of dividends or appreciation.
(https://goldprice.org/sites/default/files/inflation-adjusted-gold-price.png)

So in summary, if I decided to buy $10k in gold in my state in physical coins, I would pay $11,300. Suppose that I decided to hold for 20 years with half in my basement in a mustachian hidden safe with a secondary dummy safe ($200 one time) and half in a safety deposit box ($60/yr), which gives a storage cost of $1,400. When it was time to sell the coins, they would be worth ~$10k in 2018 dollars. After the sales spread, taxes and subtracting out the storage costs, I would walk away with $5,725.

Wow! What a winner! Where do I sign up?
Title: Re: Precious Metals
Post by: tralfamadorian on June 15, 2018, 03:32:57 PM
...Legend has it that this can increase risk (e.g. volatility) adjusted returns for the whole portfolio.

Do you have a source for that? I've seen data that supports the idea that a modest percentage of bonds can increase the overall performance of a 100% stock portfolio but I have not seen the same for gold.

And I do think Fire@50's question was fair and polite because there are several reasons that someone may decide to invest in gold. Is it a hobby like yours? Is it an inflation hedge? There are better inflation hedges. Is it a hedge against my snarky zombie apocalypse or another black swan event? In that case it would be better to dig up the birth certificate for dearly departed great-so-and-so to work on getting your Irish passport and investing in some CHF CDs with that 5%.   
Title: Re: Precious Metals
Post by: Eric on June 15, 2018, 03:51:38 PM
As to your chart of gold prices, I agree with you that gold is an inferior investment to stocks.  Although, I think the jury is still out regarding whether gold or bonds are better long term -- some would say that keeping up with inflation while not paying any income is a blessing.  And to believers of MPT, gold is a precious commodity (pun intended) since it offers a volatile uncorrelated asset with which to further diversify a portfolio -- Legend has it that this can increase risk (e.g. volatility) adjusted returns for the whole portfolio.

Those same people likely also believe that if they get bumped up a tax bracket, that they'll end up with less money.  Because they're bad at math!  This would cause them to believe that not paying taxes on income is better than paying taxes on it.  In other words, they'd rather have $0 and no taxes than $1 for which they have to pay $.25 to the government.  It comes as no shock to me that most gold bugs are also anti-government.  The two go hand in hand, just like bad math and poor investment decisions.
Title: Re: Precious Metals
Post by: Classical_Liberal on June 15, 2018, 03:53:43 PM
Do you have a source for that? I've seen data that supports the idea that a modest percentage of bonds can increase the overall performance of a 100% stock portfolio but I have not seen the same for gold. 

What do you mean by "performance"?   It will probably never increase CAGR, but it can reduce overall volatility of portfolio.  Lower CAGR with lower volatility can increase sustainable WR's.  In draw-down phase I would consider sustainable WR "performance", even if my returns are lower.  Someone in accumulation probably wouldn't care about WR, just CAGR.  This is why investing per personal goals, timeframes, phases of life, etc, is so important.
Title: Re: Precious Metals
Post by: Financial.Velociraptor on June 15, 2018, 04:57:02 PM
I have about 2800 in a numismatic gold coin, 50 dollars face in junk silver, and some MS64+ Morgan dollars (20).  I wish I hadn't bought them.  YMMV.

My older supervisor who is a huge gold bug buys primarily gold bullion.  He has a handful of numismatics but prefers the base metal.  He takes physical delivery.  And also a couple of 100oz silver bars that last I heard, he wanted to sell and use the proceeds to buy more gold.  Can't really advise you here except to note what I know others who are heavily invested in metals have personally done.
Title: Re: Precious Metals
Post by: tralfamadorian on June 15, 2018, 05:13:45 PM
Further perhaps someone would like to buy something of value now that could potentially keep up with inflation and intends on never selling it in their lifetime which could still be many decades (but they could sell it if they wanted to).  In such a case the asset could be entitled to a stepped-up basis at their death and their heirs will inherit it income tax free!  It would be a shame if the asset paid tons of taxable income instead of allowing the value to accrue to capital appreciation in such a case.

If the purpose is to give wealth to future generations in a decades long time frame, why in the world would they not invest the money in index funds?

I think this conversation has really condensed my reasoning for why I am not interested in gold. Except from the POV of a hobby, there is no purpose for gold investing that is not better served elsewhere.
Title: Re: Precious Metals
Post by: Bicycle_B on June 15, 2018, 05:29:11 PM
...Legend has it that this can increase risk (e.g. volatility) adjusted returns for the whole portfolio.

Do you have a source for that? I've seen data that supports the idea that a modest percentage of bonds can increase the overall performance of a 100% stock portfolio but I have not seen the same for gold.

Here's a discussion explaining one calculation of how gold can increase portfolio returns. Gold here is compared to bonds as a complement to stocks, but an example is given where the return using gold is higher than an all-stock portfolio.

https://portfoliocharts.com/2016/01/25/how-to-build-a-portfolio-one-asset-at-a-time/
Title: Re: Precious Metals
Post by: maizefolk on June 15, 2018, 05:41:24 PM
The removal of a fixed USD:gold exchange rate in the 1970s (and it's subsequent charge back to free market prices) coincided with a period of stagflation that produced terrible returns for both bonds and stocks. So right now if you include gold as an asset class in historical analyses it reduces failure rates (and/or allows higher withdrawal rates), but it's not clear that there is still a benefit to including it in future portfolios, since the USD cannot go off the gold standard again now that we're already not on it.

I think this conversation has really condensed my reasoning for why I am not interested in gold. Except from the POV of a hobby, there is no purpose for gold investing that is not better served elsewhere.

The one use case I can see for it would be fleeing across international borders in the event of a personal or national catastrophe or war (think getting out of nazi germany before world war II; or perhaps out of Venezuela today). You really could potentially carry several years salary in gold sewn into your clothing, and it'd be enough to help you start a new life when you got someplace safe. The risk of robbery would be non-trivial, but anything you left behind would be lost anyway, so you might as well try.

Short of that type of scenario, I agree with you, gold doesn't serve much purpose as a long term investment from my perspective.
Title: Re: Precious Metals
Post by: CheapScholar on June 15, 2018, 05:59:06 PM
I'll just say that I've purchased silver and gold over the years from APMEX and I've always been very happy.  I don't buy in high volume, I just like having some precious metal on hand.  And a lot of the coins I purchase are truly beautiful works of art.

I could make an argument that investing in coins is not all that bad.  For example, if you purchased a monster box of silver Eagles from APMEX (not much over spot silver) when silver was relatively low ($13-$15) and then hung on to them and watched them increase for the numismatic value, you could sell them off at a nice profit eventually.

I would never invest in coins/precious metals before doing all the tax advantaged things that we all do here at MMM.  But, after that, coin investing is not as foolish as some on here claim it to be if you have knowledge and invest conservatively.
Title: Re: Precious Metals
Post by: tralfamadorian on June 15, 2018, 06:10:36 PM
The one use case I can see for it would be fleeing across international borders in the event of a personal or national catastrophe or war (think getting out of nazi germany before world war II; or perhaps out of Venezuela today). You really could potentially carry several years salary in gold sewn into your clothing, and it'd be enough to help you start a new life when you got someplace safe. The risk of robbery would be non-trivial, but anything you left behind would be lost anyway, so you might as well try.

I actually had almost this exact situation in mind when I wrote one of my posts above but didn't articulate it. My spouse was friends with a lady who fled Havana during the revolution with significant wealth in jewelry sewn into her clothes. I can't imagine how terrifying that must have been.

However, I still think it would be much more effective use of time and funds to explore whether a second passport could be obtained easily (ie: through Irish or Italian heritage) and the purchase of cd's or bonds in euros or CHF.
Title: Re: Precious Metals
Post by: somers515 on June 15, 2018, 06:29:05 PM
We're looking to convert a small portion of our assets (~5%) into precious metals and to maintain that ratio going forward. We're in the lucky/hard earned position of this being a fairly decent sum. We've looked at dealers like Kitco, et al but really have no idea what the most efficient way to go about doing this is (minimize loss due to fees, shipping, etc.). Lots of marketing department driving advise floating around but hoping for neutral 3rd party advise from someone here with experience (or a pointer to such advise).

Thanks!

I've heard Kitco is reliable.  Also you can consider ishares Commodities Select (COMT) that has a .48% expense ratio and/or Vanguard Precious Metals and Mining fund (VGPMX) that has a .36% expense ratio.

Title: Re: Precious Metals
Post by: pecunia on June 16, 2018, 09:10:56 AM
I asked these guys about gold in the past.  I will paraphrase something simple that was explained to me.

It is not passive income.  It is not like an investment in a beat up old house that you can rent out and get your money back.  What's it do?  It just sits in a drawer or a bank vault or something.

The guys explained that maybe, it will allow you to hold your investment against inflation.  That's a maybe.  If people fall a little out of love with gold, it will fall in value.  Let's say one of these sharp tech guys that answer these posts figure out a way to get iit from seawater.  There will be more gold.  It will fall in value.  Let's say there is a big gold strike (finding) in Iceland.  It will be mined.  The supply will increase.  It will fall in value.

What if the economy really takes a dump?  I'm talking catfood city dump.  Nobody has any money.  Old man depression has returned from his journey to other lands.  OK with the old man around, nobody has any money.  Do you think they want to spend their money on gold?  They will spend their money on food.  It will fall in value.

Why put your money on something where the about the best thing it can do is break even?  It was explained to me that putting the money on decent equities such as Index funds will keep the value of that money and maybe make you about 5% per annum extra. 

It was explained that gold has few industrial uses.  It is not like iron, copper or silver.  These other metals have added value because they perform useful tasks for people.  Gold basically just looks pretty.  You don't use it to grow food or for your housing. 

Thanks for the reminder about precious metals.
Title: Re: Precious Metals
Post by: Radagast on June 16, 2018, 10:57:41 PM
I never trust the arguments of people who post charts that use 1980 CPI methodology.

Once I entered a a whole bunch of assets I was curious about (US, international, small, value, long bonds short bonds, municipal bonds etc I entered about 20 things) into Portfolio Visualizer and made efficient frontiers for various dates. The funny thing was that at no point was gold on any of the efficient frontiers even those starting in the late 1990s and the 2000s. Which means there has never been a meaningful length of time where gold was worth investing in in the US in the past 100 years except a handful of years where the government dictated the price at a below market rate and then only in pointless slips of paper, and then suddenly changed their minds.

But, it can reduce volatility. For as long as I have observed it it has been uncorrelated to stocks and bonds and also for the decades before I observed it. Maybe it can serve a purpose that hasn't showed up in the US recently. I don't see much difference between it and a long term bond that is volatile in price but with a return similar to expected inflation.

I see lots of people say "but if I actually need gold to save me I'd be better off with guns beans and toilet paper" but I have also seen this argument about bonds, international stocks, and stocks not in the S&P500. It should be a designated investing fallacy, the "Zombie Apocolypse Fallacy" which is a false argument that diversification is pointless. Apart from speculative price movement, another use might be that gold would not help you if civilization ended forever, but it could help you out of a temporary lapse in civilization either by you moving to a civilized place or civilization rebuilding around you. For example if your nation lost a war and its stocks and bonds became worthless, at the end you could sell your gold to finance rebuilding which would initially help out your home and eventually make you wealthy.

But the most likely result is that gold will make you less wealthy.
Title: Re: Precious Metals
Post by: Classical_Liberal on June 17, 2018, 12:29:54 AM
But, it can reduce volatility. For as long as I have observed it it has been uncorrelated to stocks and bonds and also for the decades before I observed it. Maybe it can serve a purpose that hasn't showed up in the US recently. I don't see much difference between it and a long term bond that is volatile in price but with a return similar to expected inflation.

This is it's value, noncoorlation (or SHTF bribe a border guard).  During withdrawal phase, particularly when sequence risks are peaked, a small allocation of gold can really make a difference in a very bad case scenario.  Your point of owning a closed end treasury is valid, but remember the loss of principle value to inflation.  Gold doesn't pay interest, but tends to overcome inflation.  In theory, each has a place.  Make no mistake, holding gold WILL lower returns, but it's a trade off. I'm looking at 8-10% in my portfolio by the time I start withdrawals.  Only a very small portion will be physical due to the costs associated with that, but it will be enough to bribe a border guard :)

I'm fine with being less wealthy in good situations if that means a decreased risk of running out of money in bad ones.
Title: Re: Precious Metals
Post by: MustacheAndaHalf on June 17, 2018, 04:07:06 AM
@MilesTeg - You might also check out Provident Metals.  I found their costs to be lower than buying from eBay and they also seemed to have well thought out procedures.

You might consider a mix of physical gold and one of the gold ETFs.  That way you have the gold for an emergency, but also in a form that's easier to sell for portfolio rebalancing.

When looking at gold, make sure you look at 1975-2017 rather than including the extraordinary one-time events of 1972-1974.  The returns of gold doubles when you include those extra years, even though those events are unlikely to happen again.
Title: Re: Precious Metals
Post by: Million2000 on June 18, 2018, 01:57:52 PM
I'll add my voice for Provident Metals. I've bought with them for a few years now, their prices are pretty low and tend to be closer to spot than most. I tend to stay away from ETFs due to fees and to the fact that you can only exchange it with one currency. I store most with GoldMoney.com which sounds a lot like the German firm mentioned above. It is physical gold in a vault of your choosing around the world. The gold is legally owned by you (not an ETF) You can also take physical delivery in a variety of sizes if needed. They also offer some interesting function regarding payments, as in you can pay people through GoldMoney (assuming they have an account) or request a debit card with a currency of your choosing which you can deposit cash from gold sales onto.

Regarding the foam on this thread regarding the value of gold as an investment. With such heated and passionate arguments from both sides, it kind of makes the case for me to buy a little. If things go well and gold becomes irrelevant then I'm only down a little. If our fiat currency does eventually do what all fiat currencies in history have done (inflate away) then I'll be glad I kept at least a small stash in the little yellow metal.
Title: Re: Precious Metals
Post by: toganet on June 18, 2018, 06:40:13 PM
Regarding the foam on this thread regarding the value of gold as an investment. With such heated and passionate arguments from both sides, it kind of makes the case for me to buy a little. If things go well and gold becomes irrelevant then I'm only down a little. If our fiat currency does eventually do what all fiat currencies in history have done (inflate away) then I'll be glad I kept at least a small stash in the little yellow metal.

This is sort of why I have a small portion in precious metals as well, in an ETF and in physical metals.  Whether I think they are worth something in an extreme situation isn't the issue -- it's whether someone else does.  And based on my observations here and elsewhere, there will always be a buyer for gold.  I'll take US dollars, bitcoin, or beans & bullets, depending on the circumstances.
Title: Re: Precious Metals
Post by: Xlar on June 19, 2018, 09:39:38 AM
...Legend has it that this can increase risk (e.g. volatility) adjusted returns for the whole portfolio.

Do you have a source for that? I've seen data that supports the idea that a modest percentage of bonds can increase the overall performance of a 100% stock portfolio but I have not seen the same for gold.

Here's a discussion explaining one calculation of how gold can increase portfolio returns. Gold here is compared to bonds as a complement to stocks, but an example is given where the return using gold is higher than an all-stock portfolio.

https://portfoliocharts.com/2016/01/25/how-to-build-a-portfolio-one-asset-at-a-time/

Note that all of these charts start in 1972. This artificially increases the return of Au making it seem to be better than it is. Here is a really great thread on the hazards of backtesting with Au: https://forum.mrmoneymustache.com/investor-alley/gold-price-and-the-hazards-of-backtesting/ (https://forum.mrmoneymustache.com/investor-alley/gold-price-and-the-hazards-of-backtesting/)

As you can see in the early 70s there is a crossover with stock prices. This seems to be a coincidental timing of stocks decreasing at the same time that the US stopped fixing the price of Au. This gives the impression that Au is anti-correlated with the stock market similar to bonds. BUT this is pretty much the only time that occurs. Due to the short historical length the data leads to missleading conclusions. The event that caused the anti-correlation with the stock market (the US no longer fixing the price of Au) is not a repeatable event that will happen every time that the stock market crashes.
Title: Re: Precious Metals
Post by: Classical_Liberal on June 19, 2018, 04:06:55 PM
...Legend has it that this can increase risk (e.g. volatility) adjusted returns for the whole portfolio.

Do you have a source for that? I've seen data that supports the idea that a modest percentage of bonds can increase the overall performance of a 100% stock portfolio but I have not seen the same for gold.

Here's a discussion explaining one calculation of how gold can increase portfolio returns. Gold here is compared to bonds as a complement to stocks, but an example is given where the return using gold is higher than an all-stock portfolio.

https://portfoliocharts.com/2016/01/25/how-to-build-a-portfolio-one-asset-at-a-time/

Note that all of these charts start in 1972. This artificially increases the return of Au making it seem to be better than it is. Here is a really great thread on the hazards of backtesting with Au: https://forum.mrmoneymustache.com/investor-alley/gold-price-and-the-hazards-of-backtesting/ (https://forum.mrmoneymustache.com/investor-alley/gold-price-and-the-hazards-of-backtesting/)

As you can see in the early 70s there is a crossover with stock prices. This seems to be a coincidental timing of stocks decreasing at the same time that the US stopped fixing the price of Au. This gives the impression that Au is anti-correlated with the stock market similar to bonds. BUT this is pretty much the only time that occurs. Due to the short historical length the data leads to missleading conclusions. The event that caused the anti-correlation with the stock market (the US no longer fixing the price of Au) is not a repeatable event that will happen every time that the stock market crashes.

This is wrong.  Gold values were horrible starting in the early/mid-1980's (exception of 1987 area, what happened there?) and 1990's.  Then increased valuation again throughout the 2000's.  Go to portfolio charts (https://portfoliocharts.com/) and look at a heat map (https://portfoliocharts.com/portfolio/heat-map/) of 100% gold. 

I'm sick of this argument of the "one off event" coming off the gold standard.  Of course this is true and had an impact.  However, gold is still a non-correlator to equities!  I could make the same argument with bonds.  "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...

Yet for some reason people still accept treasuries as a safe haven/non-correlator for a portion of portfolio.
Title: Re: Precious Metals
Post by: Xlar on June 19, 2018, 05:16:04 PM
...Legend has it that this can increase risk (e.g. volatility) adjusted returns for the whole portfolio.

Do you have a source for that? I've seen data that supports the idea that a modest percentage of bonds can increase the overall performance of a 100% stock portfolio but I have not seen the same for gold.

Here's a discussion explaining one calculation of how gold can increase portfolio returns. Gold here is compared to bonds as a complement to stocks, but an example is given where the return using gold is higher than an all-stock portfolio.

https://portfoliocharts.com/2016/01/25/how-to-build-a-portfolio-one-asset-at-a-time/

Note that all of these charts start in 1972. This artificially increases the return of Au making it seem to be better than it is. Here is a really great thread on the hazards of backtesting with Au: https://forum.mrmoneymustache.com/investor-alley/gold-price-and-the-hazards-of-backtesting/ (https://forum.mrmoneymustache.com/investor-alley/gold-price-and-the-hazards-of-backtesting/)

As you can see in the early 70s there is a crossover with stock prices. This seems to be a coincidental timing of stocks decreasing at the same time that the US stopped fixing the price of Au. This gives the impression that Au is anti-correlated with the stock market similar to bonds. BUT this is pretty much the only time that occurs. Due to the short historical length the data leads to missleading conclusions. The event that caused the anti-correlation with the stock market (the US no longer fixing the price of Au) is not a repeatable event that will happen every time that the stock market crashes.

This is wrong.  Gold values were horrible starting in the early/mid-1980's (exception of 1987 area, what happened there?) and 1990's.  Then increased valuation again throughout the 2000's.  Go to portfolio charts (https://portfoliocharts.com/) and look at a heat map (https://portfoliocharts.com/portfolio/heat-map/) of 100% gold. 

I'm sick of this argument of the "one off event" coming off the gold standard.  Of course this is true and had an impact.  However, gold is still a non-correlator to equities!  I could make the same argument with bonds.  "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...

Yet for some reason people still accept treasuries as a safe haven/non-correlator for a portion of portfolio.

So Au was terrible until the 2000s? So now we remove 30 years as bad data (1970-2000) but now say that the last 18 are great and support the argument to buy Au? Using 2000 onwards seems like a very small dataset...

But lets look at the heat map for the 2000 onwards. In 2000 the stock market crashes. The value of Au also goes down. Au recovers in 2002 while stocks take until 2003. Bonds are positive in 2000, 2001, 2002, and 2003.

Au then avoids the crash in 2008. This seems to be the only time? Note that bonds are positive in 2008 as well. Is one positive event really worth basing your portfolio off of?

Doesn't this data show that bonds should be what you use to reduce volatility even if we just look at such a small dataset? From 2000-present Au follows stocks for 1 crash and doesn't for the other crash.
Title: Re: Precious Metals
Post by: Classical_Liberal on June 19, 2018, 08:04:49 PM
I didn't remove that data, I simply pointed out it backs up the assumption gold valuation  is uncorrelated to equities.  You stated this wasn't the case, and it is.
This seems to be a coincidental timing of stocks decreasing at the same time that the US stopped fixing the price of Au. This gives the impression that Au is anti-correlated with the stock market similar to bonds. BUT this is pretty much the only time that occurs. Due to the short historical length the data leads to missleading conclusions.

I don't think anyone "should" own gold, simply stating that it is uncorrelated to other asset classes.  This a very good thing when you are drawing down from a stache. Bonds tend to also be uncorrelated to stocks, but the 4% rule close calls and failures in the 1960's are related to the fact there was a period of poor treasury performance(due to high inflationary pressures) at the same time there was also poor equity performance.  This is VERY bad for someone drawing from their stache, particularly if treasuries were supposed to be the safety asset. Right now Treasuries are at near historically low yield and CAPE is very high.  This is the type of scenario we saw in the 1960's, just say'en.  I can't predict the future, but a small hedge of gold helps me sleep at night, so it's a good asset class for me, even though I know it will lower my long term returns.  IOW, I understand why I want to own it. 
Title: Re: Precious Metals
Post by: maizefolk on June 19, 2018, 08:48:15 PM
So I think you folks may be talking past each other a little.

Xlar said that if you exclude the use rise in gold prices from coming off of a fixed price during the 1970s stagflation, there isn't good evidence that gold is anti-correlated with the stock market.

Classical_Liberal, you're saying that gold is non-correlated with the stock market.

These two statements are not necessarily contradictory.
Title: Re: Precious Metals
Post by: Classical_Liberal on June 19, 2018, 08:54:34 PM
@maizeman

Thanks for the attempt at mediation :)  I think you are correct for the most part. 
Title: Re: Precious Metals
Post by: vand on January 21, 2019, 09:40:23 AM
Looks like I've finally found the PMs thread..

Just to add that I like PMs as an investment, but more so as a diversification tool and a hedge against paper assets (stocks & bonds). I think they are currently very undervalued by historical standards.

There are lots of myths and half-truths when it comes to discussing precious metals. I know I'm unlikely to be changing anyone's mind who is deeply anti-PM, but there are some good resources on youtube that helped me really learn more about gold. One channel I recommend is belangp's. Even using tools of modern portfolio theory he shows that holding some gold can be used improves a portfolio's risk-adjusted performance:

Here are a couple of his videos which I would like to put forward:

less volatility, superior returns - making the case for 20-25% gold allocation:
https://www.youtube.com/watch?v=K70aQh9ptpU


the only real asset that is negatively correlated with paper assets:
https://www.youtube.com/watch?v=6eUOSh5mxko

(note that myth that stocks & bonds are anti-correlated is only 50% true.. half of the time they move in tandem, half the time they move opposite).
Title: Re: Precious Metals
Post by: evme on January 21, 2019, 03:26:52 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.
Title: Re: Precious Metals
Post by: vand on January 21, 2019, 04:15:22 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.

There are a couple of ways you can value gold:

Dow/Gold ratio if viewing gold as a traditional asset
Gold vs Monetary base for those who still believe gold is a form of money

I tend to favour ratios. Commodities as an asset class have been through a fairly brutal bear market in the last 3-4 years, and PMs did not buck the trend here. I in fact, you can look at other ratios like the CRB/Dow ratio which has never been lower and conclude that commodities are at record low valuations.

Unfortunately I have found that when discussing precious metals they tends to polarize opinions in a way that other assets do not, because your opinion of them is intrinsically linked to notions of freedom, liberty, and belief systems. Some people regard them as ultimate long term store of wealth, others regard them as worthless shiny stuff.
Title: Re: Precious Metals
Post by: NewDay1 on January 21, 2019, 07:22:48 PM
What about buying a few coins at a reputable coin shop?  Are they to be avoided?
Title: Re: Precious Metals
Post by: tralfamadorian on January 21, 2019, 07:33:58 PM
What about buying a few coins at a reputable coin shop?  Are they to be avoided?

https://forum.mrmoneymustache.com/investor-alley/precious-metals/msg2040055/#msg2040055
Title: Re: Precious Metals
Post by: MustacheAndaHalf on January 21, 2019, 08:37:54 PM
There are a couple of ways you can value gold:
Dow/Gold ratio if viewing gold as a traditional asset
Why is that ratio valid?  Why does gold have to grow in proportion to stocks?

Using Portfolio visualizer's inflation adjusted returns for the past 30 years (1989-2018):
U.S. stock market: +7.1% / year (after inflation)
gold: +1.1% / year (after inflation)
Title: Re: Precious Metals
Post by: vand on January 22, 2019, 12:04:16 AM
There are a couple of ways you can value gold:
Dow/Gold ratio if viewing gold as a traditional asset
Why is that ratio valid?  Why does gold have to grow in proportion to stocks?

Using Portfolio visualizer's inflation adjusted returns for the past 30 years (1989-2018):
U.S. stock market: +7.1% / year (after inflation)
gold: +1.1% / year (after inflation)

Many investors use ratios to determine relative prices. We can look and see that gold is currently at the sort of similar valuations that it was in previous periods like 1929, mid-late 1960's, and early 2000s. Holding gold during these times would have seen a very good return in the subsequent 10 years (better than stocks).
Does that mean that the next 10 years will perform similarly? Not necessarily. There are no guarantees. Past performance is no guarantee of future returns. But we are using past performance as a guide for our expected returns. It's an educated guess, that's all.

Using 7% past return of the stocks market as a guide for expected future returns is flawed. Future expected returns are a function of current valuations. you have to determine how expensive stocks are (hint, they aren't cheap) and how that will impact the long term expected return.
 
Title: Re: Precious Metals
Post by: theolympians on January 22, 2019, 01:48:05 AM
OK, I'll jump in......A relative of mine purchased a bunch of gold coins after 2008. He no longer trusted the stock market.

With stocks/mutual funds/etfs you own shares of something. You can daily check the value of your portfolio. If they pay dividends, you can own more shares, increasing value. If you need money, you can sell a portion and transfer the funds into cash.

How do you get money out of gold? It sits there in the safe. I don't see it as money, no store I know of accepts it as currency. As a gold owner, and I need money, how do I turn the gold into US dollars? A coin shop???????

I am not completely against PM, people do seem to pay for them. I am just unclear as to the method.

Title: Re: Precious Metals
Post by: Classical_Liberal on January 22, 2019, 02:39:40 AM
I am just unclear as to the method.

https://www.apmex.com/sell-gold-sell-silver-overview

Edit:  I was being a dick
Title: Re: Precious Metals
Post by: vand on January 22, 2019, 02:41:07 AM
OK, I'll jump in......A relative of mine purchased a bunch of gold coins after 2008. He no longer trusted the stock market.

With stocks/mutual funds/etfs you own shares of something. You can daily check the value of your portfolio. If they pay dividends, you can own more shares, increasing value. If you need money, you can sell a portion and transfer the funds into cash.

How do you get money out of gold? It sits there in the safe. I don't see it as money, no store I know of accepts it as currency. As a gold owner, and I need money, how do I turn the gold into US dollars? A coin shop???????

I am not completely against PM, people do seem to pay for them. I am just unclear as to the method.

There is a presumption in this that your ultimate aim is to acquire more dollar wealth (or whatever your local currency is), but a part of gold's attraction is that it is a store of value outside of traditional currencies and so provides diversification and protection against the very worst case scenario, ie currency destruction like we are currently seeing in Venezuela, Argentina, Russia (are you so sure it can never happen in the US when you have a govt that continues to spend 4 dollars for every 3 dollars it takes it...?) Fiat currencies all die eventually. A 3% loss of purchasing power may be acceptable year on year, but when the currency dies it tends to accelerate towards the abyss. One old line that is often trotted out is "Put 10% in gold and hope it does badly."

OK, so much for doomster scenarios. Physical gold has high transaction cost and liquidity issues associated with it, that is true. Accumulating physical gold with the aim of trading it for more dollars at a later date is really not what gold is about.  However, from a portfolio balancing/investing point of view there are other options. You can buy the GLD etf for example, which is just as liquid as any equity. And/or you can invest in gold miners, which are a leveraged play on gold prices.
Title: Re: Precious Metals
Post by: MustacheAndaHalf on January 22, 2019, 09:08:50 AM
There are a couple of ways you can value gold:
Dow/Gold ratio if viewing gold as a traditional asset
Why is that ratio valid?  Why does gold have to grow in proportion to stocks?

Using Portfolio visualizer's inflation adjusted returns for the past 30 years (1989-2018):
U.S. stock market: +7.1% / year (after inflation)
gold: +1.1% / year (after inflation)
Many investors use ratios to determine relative prices. We can look and see that gold is currently at the sort of similar valuations that it was in previous periods like 1929, mid-late 1960's, and early 2000s. Holding gold during these times would have seen a very good return in the subsequent 10 years (better than stocks).
Does that mean that the next 10 years will perform similarly? Not necessarily. There are no guarantees. Past performance is no guarantee of future returns. But we are using past performance as a guide for our expected returns. It's an educated guess, that's all.
Do you have a specific source for why gold and stocks should have a ratio?

Using 7% past return of the stocks market as a guide for expected future returns is flawed. Future expected returns are a function of current valuations. you have to determine how expensive stocks are (hint, they aren't cheap) and how that will impact the long term expected return.
I didn't say anything about future returns.

But since you bring it up, future stock returns mostly ignore valuations.  According to a Vanguard white paper, there's only a 0.40 correlation between current P/E values and stock values 10-20 years from now.
https://personal.vanguard.com/pdf/s338.pdf
Title: Re: Precious Metals
Post by: vand on January 22, 2019, 03:04:13 PM
There are a couple of ways you can value gold:
Dow/Gold ratio if viewing gold as a traditional asset
Why is that ratio valid?  Why does gold have to grow in proportion to stocks?

Using Portfolio visualizer's inflation adjusted returns for the past 30 years (1989-2018):
U.S. stock market: +7.1% / year (after inflation)
gold: +1.1% / year (after inflation)
Many investors use ratios to determine relative prices. We can look and see that gold is currently at the sort of similar valuations that it was in previous periods like 1929, mid-late 1960's, and early 2000s. Holding gold during these times would have seen a very good return in the subsequent 10 years (better than stocks).
Does that mean that the next 10 years will perform similarly? Not necessarily. There are no guarantees. Past performance is no guarantee of future returns. But we are using past performance as a guide for our expected returns. It's an educated guess, that's all.
Do you have a specific source for why gold and stocks should have a ratio?

Using 7% past return of the stocks market as a guide for expected future returns is flawed. Future expected returns are a function of current valuations. you have to determine how expensive stocks are (hint, they aren't cheap) and how that will impact the long term expected return.
I didn't say anything about future returns.

But since you bring it up, future stock returns mostly ignore valuations.  According to a Vanguard white paper, there's only a 0.40 correlation between current P/E values and stock values 10-20 years from now.
https://personal.vanguard.com/pdf/s338.pdf

Its entirely reasonable to expect a long term relationship. Gold is extremely rare; it takes a certain amount amount of economic energy to even extract it out of the ground.
Title: Re: Precious Metals
Post by: Radagast on January 22, 2019, 08:24:03 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.
Title: Re: Precious Metals
Post by: ChpBstrd on January 25, 2019, 01:17:15 PM
I would think TIPS would do better as an inflation hedge and volatility reducer. They are mathematically linked to inflation, pay interest, and are far less volatile than metals. Plus the buying, selling, and holding costs are astronomically lower, while liquidity is better. To me, the odds of a TIPS default are lower than the odds of people in India changing their wedding customs over a 15 year period, or of a new mining technology, or of the replacement of gold with cryptocurrency, or of a meaningless 50% drop in gold's price which is driven by speculation anyway.

In a Venezuela, Syria, or Nazi Germany situation, having a Swiss bank account with a few thousand in foreign currency and a passport would fly you out of the country over the heads of the people having their clothes patted down for coins or their homes ransacked by soldiers/rebels. The coin collector hobby shop will not be open. 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).

So if these are the goals the OP's question is kinda like what's the best way to make a suboptimal decision. I guess my answer is compare coin prices, negotiate, get a safe off of Craigslist rather than paying retail, and invest the savings in a Swiss bank account CD ladder.
Title: Re: Precious Metals
Post by: tralfamadorian on January 25, 2019, 03:22:08 PM
... invest the savings in a Swiss bank account CD ladder.

Not to jump on your post specifically but it made me think about what I've read concerning the difficulty for Americans to open a foreign bank account. I ran into this in a obtuse way when I was hearing about American slow travelers and thru hikers having issues opening up bank accounts in the countries they were staying in.

Evidently FBAR is a giant PITA for foreign banks and many responded by closing accounts owned by Americans and/or denying new accounts- even Americans working for foreign companies living in those countries and going to the branches in person. If that's happening, what chance do we as relatively small fry (compared to multi-million dollar deposit customers) have of successfully maintaining CD accounts outside the US?

Given the hurdles, I'm tempted to consider the real estate as a bonds equivalent approach given how much more simple it is to purchase.

Mostly a hypothetical concern at the moment but in the future I would like to diversify outside of US real estate and investments in US bank accounts and brokerages.

Thoughts?
Title: Re: Precious Metals
Post by: maizefolk on January 25, 2019, 05:10:59 PM
In a Venezuela, Syria, or Nazi Germany situation, having a Swiss bank account with a few thousand in foreign currency and a passport would fly you out of the country over the heads of the people having their clothes patted down for coins or their homes ransacked by soldiers/rebels. The coin collector hobby shop will not be open. 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).

I agree with this reasoning. At the same time, the issue tralfamadorian points out with the trend towards increased difficulty in opening foreign bank accounts for americans is definitely real.* That's not an argument _for_ buying gold. I'm just not sure what an effective and generally accessible strategy is right now if you're worried about the nation either collapsing (Venezuela), erupting into civil war (Syria), or turning into a totalitarian nightmare (Nazi Germany).

*Although anecdotally it seems to be worse in the EU than most other parts of the world.
Title: Re: Precious Metals
Post by: WhiteTrashCash on January 25, 2019, 05:25:46 PM
If you are going to put money into gold and silver, you may as well just buy some cryptocurrency. It's basically the same thing. The value of it comes from expecting someone else to want to buy it from you. There is no intrinsic value to any of it. Ask a pawn shop owner if you don't believe me.
Title: Re: Precious Metals
Post by: Classical_Liberal on January 25, 2019, 06:34:13 PM
If you are going to put money into gold and silver, you may as well just buy some cryptocurrency. It's basically the same thing. The value of it comes from expecting someone else to want to buy it from you.

Except that precious metals have a 10,000+ year human history as a store of value.  Crypto has a very poor track record as a store of value over only a decade. 

Remember, all stores of value, no matter if we are talking real estate, PM, equities, bonds, etc... They are all merely a social contract between individual humans or human social organizations. Unless, of course, they can DIRECTLY provide for your needs without additional input or trade (ie permaculture garden).  The stronger the social contract, the better chance that it holds value in the future.  There is a reason people still raid the tombs of ancient royalty, their store of value in the form of art and gold still have value today.

For those of us who have some gold in our portfolio, the fact that it does not provide returns is actually a feature of the investment, not a failing of it.
Title: Re: Precious Metals
Post by: Classical_Liberal 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.
Title: Re: Precious Metals
Post by: vand 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.
Title: Re: Precious Metals
Post by: vand 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.
Title: Re: Precious Metals
Post by: MustacheAndaHalf 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?
Title: Re: Precious Metals
Post by: MustacheAndaHalf 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.
Title: Re: Precious Metals
Post by: maizefolk 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.
Title: Re: Precious Metals
Post by: vand 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
Title: Re: Precious Metals
Post by: vand 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.
Title: Re: Precious Metals
Post by: maizefolk 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.
Title: Re: Precious Metals
Post by: Classical_Liberal 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.
Title: Re: Precious Metals
Post by: Radagast 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?
Title: Re: Precious Metals
Post by: vand 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...
Title: Re: Precious Metals
Post by: waltworks 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
Title: Re: Precious Metals
Post by: vand 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 goldís role; to preserve wealth, more so than to build it. Preserving wealth is a perfectly desirable function of any portfolio constituent, wouldnít 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 donít 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 lifeís 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.
Title: Re: Precious Metals
Post by: waltworks 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
Title: Re: Precious Metals
Post by: trollwithamustache 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.
Title: Re: Precious Metals
Post by: maizefolk 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.)
Title: Re: Precious Metals
Post by: Car Jack 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.
Title: Re: Precious Metals
Post by: Radagast 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.
Title: Re: Precious Metals
Post by: GuitarBrian 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...
Title: Re: Precious Metals
Post by: MustacheAndaHalf 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.
Title: Re: Precious Metals
Post by: Classical_Liberal 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 :)
Title: Re: Precious Metals
Post by: Classical_Liberal 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?
Title: Re: Precious Metals
Post by: waltworks 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
Title: Re: Precious Metals
Post by: Classical_Liberal 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?
Title: Re: Precious Metals
Post by: Radagast 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.
Title: Re: Precious Metals
Post by: MustacheAndaHalf 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.
Title: Re: Precious Metals
Post by: waltworks 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
Title: Re: Precious Metals
Post by: maizefolk 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.
Title: Re: Precious Metals
Post by: waltworks 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
Title: Re: Precious Metals
Post by: tralfamadorian on February 01, 2019, 02:27:16 PM
Maizeman really is the most eloquent one of us all, isn't he?
Title: Re: Precious Metals
Post by: GuitarBrian 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.
Title: Re: Precious Metals
Post by: Classical_Liberal 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. 
Title: Re: Precious Metals
Post by: maizefolk 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?
Title: Re: Precious Metals
Post by: vand 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.
Title: Re: Precious Metals
Post by: MustacheAndaHalf 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.
Title: Re: Precious Metals
Post by: waltworks 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
Title: Re: Precious Metals
Post by: maizefolk 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.
Title: Re: Precious Metals
Post by: waltworks 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
Title: Re: Precious Metals
Post by: maizefolk 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)
Title: Re: Precious Metals
Post by: Telecaster 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.



Title: Re: Precious Metals
Post by: MustacheAndaHalf 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.
Title: Re: Precious Metals
Post by: waltworks 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
Title: Re: Precious Metals
Post by: tralfamadorian 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.
Title: Re: Precious Metals
Post by: Telecaster 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. 
Title: Re: Precious Metals
Post by: TomTX 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.
Title: Re: Precious Metals
Post by: vand 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.

Title: Re: Precious Metals
Post by: maizefolk 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? 
Title: Re: Precious Metals
Post by: MustacheAndaHalf 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.
Title: Re: Precious Metals
Post by: vand 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.

Title: Re: Precious Metals
Post by: Davnasty on February 04, 2019, 07:15:46 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.

How about rolling periods of 1, 5, 10, 15, 20, 25, 30, 35, and 40 years? That would be a good place to start.

http://visualizingeconomics.com/blog/2014/5/16/rolling-returns-stocks-gold-2013?rq=gold

Unfortunately this only goes up to 2013 which leaves out the May 2013-present increase in the S&P 500* of ~70% and the slight decline in gold prices over the same period.

*S&P 500 with dividends is what this chart is referring to as "stocks"
Title: Re: Precious Metals
Post by: waltworks on February 04, 2019, 07:19:44 AM
But hasn't the return on gold (and ounce buys a nice toga, buys a nice suit today) been essentially zero for the last several thousand years?

If that's your base assumption, you can forget FIRE, because the whole world has and never will progress... economic growth of all sorts for all of human history is a sham. Am I interpreting you correctly?

-W
Title: Re: Precious Metals
Post by: maizefolk on February 04, 2019, 08:28:54 AM
What's your preferred timeframe? 50 years? that seems to be very "cherry picked" for stocks. 

I have provided data for 10 years (even nicer rounder number), 30 years, and 84 years (not a round number, but dictated by the last time the US increased the price of gold through legislation). It's not that any one date is better than 20 years. It is that so many other dates (different intervals AND different start dates) all tell a different story from 20 years starting from 1999. Dabnasty provided even more timepoints and data to support this point.

Ultimately, it is your life and your money and you can choose to roll the dice is you so desire. Unfortunately the odds not in your favor.

Quote
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.

Actually history shows quite the opposite, vand.

Let's look at one of the most recent currencies to die: Zimbabwe dollars. People who owned stocks and real estate in Zimbabwe before April 12th 2009 still owned them after April 12th, the value of the assets were just denominated in a different currency (US dollars, sometimes South Africa rand) than the day before. Bonds ... not so much, but hyperinflation destroys the value of bonds regardless of whether the currency survives or not.

Same when the Ecuadorian Sucre died on January 9, 2000.

We may get to see yet another example here with the BolŪvar soberano in Venezuela here shortly. So far in that country, the local stock market has proved a much more effective store of wealth than leaving your money in currency, but we will have to see what happens when/if the currency actually dies and is replaced by something else.
Title: Re: Precious Metals
Post by: vand on February 05, 2019, 02:41:19 AM
What's your preferred timeframe? 50 years? that seems to be very "cherry picked" for stocks. 

I have provided data for 10 years (even nicer rounder number), 30 years, and 84 years (not a round number, but dictated by the last time the US increased the price of gold through legislation). It's not that any one date is better than 20 years. It is that so many other dates (different intervals AND different start dates) all tell a different story from 20 years starting from 1999. Dabnasty provided even more timepoints and data to support this point.

Ultimately, it is your life and your money and you can choose to roll the dice is you so desire. Unfortunately the odds not in your favor.

Quote
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.

Actually history shows quite the opposite, vand.

Let's look at one of the most recent currencies to die: Zimbabwe dollars. People who owned stocks and real estate in Zimbabwe before April 12th 2009 still owned them after April 12th, the value of the assets were just denominated in a different currency (US dollars, sometimes South Africa rand) than the day before. Bonds ... not so much, but hyperinflation destroys the value of bonds regardless of whether the currency survives or not.

Same when the Ecuadorian Sucre died on January 9, 2000.

We may get to see yet another example here with the BolŪvar soberano in Venezuela here shortly. So far in that country, the local stock market has proved a much more effective store of wealth than leaving your money in currency, but we will have to see what happens when/if the currency actually dies and is replaced by something else.


The wealth of those assets remains (for now), it is the *claims* on that wealth that eventually die. And that is exactly what paper assets represent - claims on wealth, not wealth itself. The problem with the monetary system it has created more claims on wealth than the amount of real wealth that actually exists. Nobody really knows how this will play out, but I think 2008-9 gave us a hint.


And over the long run, even those forms of real wealth rarely survive.. how many houses built or companies set up 200 or 300 years ago are still around? PMs are elemental, and aside for a small amount that is lost at the bottom of the ocean or used in industrial processes, what is mined is still in existence.
Title: Re: Precious Metals
Post by: Car Jack on February 05, 2019, 06:44:53 AM
To recap for physical gold.

Expensive costs to buy.
Expensive costs to sell.
Risk you are buying something other than gold and get ripped off.
Risk that you get robbed when trying to sell.
If you get through all that and make money, bad tax situation.

Sounds great.
Title: Re: Precious Metals
Post by: maizefolk on February 05, 2019, 08:14:25 AM
The wealth of those assets remains (for now), it is the *claims* on that wealth that eventually die. And that is exactly what paper assets represent - claims on wealth, not wealth itself. The problem with the monetary system it has created more claims on wealth than the amount of real wealth that actually exists. Nobody really knows how this will play out, but I think 2008-9 gave us a hint.

It would seem that you're shifting the goalposts a bit now. Before you were saying the death of a currency meant the death of assets denominated in that currency. Specifically "when the currency dies, all paper assets denominated in that currency will all die with it." Do you wish to retract your original statement?

Quote
And over the long run, even those forms of real wealth rarely survive.. how many houses built or companies set up 200 or 300 years ago are still around? PMs are elemental, and aside for a small amount that is lost at the bottom of the ocean or used in industrial processes, what is mined is still in existence.

Actually a lot of houses built 200 to 300 years ago are still around. We build lots of new houses, sure, but in the big east cost cities, most houses are either the first property on their lot, or exist because the previous owner bought another perfectly viable building and tore it down to build something bigger. If you're out on the west coast or pretty much anywhere west of the Mississippi in the USA, sure there aren't a lot of 200 year old houses, but that's because most of the CITIES are less than 200 years old. Heck, even Chicago only dates back to 1833.

In addition, the fact that gold itself is generally not created or destroyed isn't much consolation given that it can certainly be appropriated, stolen, or confiscated. To be clear this is equally a feature of real estate and ownership of companies, but the point here is that, if your claim on assets is what is important. If the asset survives, but you lose your claim on it, that's as big a problem for you, as an individual, as if the asset vanished or was destroyed.
Title: Re: Precious Metals
Post by: trollwithamustache on February 05, 2019, 08:17:23 AM

If you get through all that and make money, bad tax situation.

Sounds great.

Many would disagree  on the tax situation.  If its a cash transaction under the 10k threshold, a lot of gold bugs may not be reporting the gainz.  Assuming of course there are huuuge gainz.
Title: Re: Precious Metals
Post by: Telecaster on February 05, 2019, 10:21:08 AM

And over the long run, even those forms of real wealth rarely survive.. how many houses built or companies set up 200 or 300 years ago are still around? PMs are elemental, and aside for a small amount that is lost at the bottom of the ocean or used in industrial processes, what is mined is still in existence.

How many people are still around after 200 or 300 years? 
Title: Re: Precious Metals
Post by: MustacheAndaHalf on February 06, 2019, 08:23:45 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.
You're making another straw man argument.  You suggest "50 years" and then call the words you're putting in someone else's mouth "cherry picked".  Well, then why did you "cherry pick" "50 years" since you brought it up?

Speaking of putting words in other people's mouths, you're also the one bringing up the S&P 500, not me.  I've said it's best to have a diversified mix of international and U.S. stocks.  I've corrected you and mentioned international repeatedly, but I'm guessing that destroys your whole argument, so you refuse to repeat it.  After all, when did all assets in the world die at the same time?  What event would turn worldwide stocks worthless?  Using a diversified portfolio really boxes you into a very narrow argument, which could explain why I've mentioned it twice, and both times you respond by putting words in my mouth.

Finally, "20 years is a round number" is not an explanation.  So is 10 years, or 30 years.  To me it still seems like you picked a time frame with the dot-com crash (but without the 1990s stock market) and the 2008 crisis.  But here's some other periods using "a round number" of 10 and 30 years.

For 10 years in gold, 2009 open 869.75 ... 2018 close 1281.65 = about 4% / yr
For 10 years in stocks, US market earned 13% / yr, international 6% / yr
(This period was immediately after the 2008 crisis)

For 30 years in gold, 1989 open 413.60 ... 2018 close 1281.65 = just under 4% / yr
For 30 years in stocks, US market earned 10% / yr, international just under 4% / yr
(This period started with very high interest rates)
Title: Re: Precious Metals
Post by: MustacheAndaHalf on February 06, 2019, 08:27:41 AM
As an aside, what source of gold prices do people use?  I picked 5 sources of gold performance / prices, and only 2 of them agree.  Take 2002 for example.

Portfolio Visualizer  +25.57%
macrotrends.net  +23.96%
onlygold.com  +23.96%
usagold.com  +25.11%
measuringworth.com  +14.37%
Title: Re: Precious Metals
Post by: Radagast on February 06, 2019, 09:31:00 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. 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. 
Numbers for December     2018   1998
Gold Price / CPI-U                  5.1      1.8
Gold Price / Cost to Mine       1.9      0.7    (2016 cost, vague and hand wavy, changeable, maybe "elastic" or something)
S&P500 Dividend / Price        48      73.5
S&P500 Earnings10 / Price   28.4    40.5

Funny you mention valuations over that period... looks to me like stock valuations have improved considerably over that time, while valuations for gold got a lot worse. Might be explanatory. If valuations are what you are after then they are saying gold is a worse investment now than it used to be.
Title: Re: Precious Metals
Post by: Radagast on February 06, 2019, 10:07:59 PM
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.
Wow, thank you for that quote. I just finished reading "Big Debt Crises" by Dalio so I had this on my head.

Lets look at some German companies. Bayer, Siemens, Mercedes, Audi, and Allianz were all publicly traded companies prior to World War 1. Let's especially look at Allianz, first because they have a nice history of their company on their website https://www.allianz.com/en/about-us/who-we-are/history.html, and second because as an insurance company and (recently) owner of Pimco their business is literally paper assets which makes this especially fun.

In 1895 Allianz issued an IPO for 250 Marks. Then WW1 starts like 20 years later. Germany loses. There is a hyperinflation that causes all the marks in 1913 to be equal to the price of a sad loaf of bread in 1923 (or some year, not looking right now). The Mark dies, and is replaced with the Reichsmark. There is some deflation and Hitler. Germany goes on to lose WW2. It is divided and occupied by the US and the USSR. The Reichsmark dies, and is replaced by the Deutsche Mark. Germany nearly becomes Ground 0 for WW3 on a few occasions. Today Yahoo Finance reports that Allianz is worth $91,000,000,000 and pays 4.5% dividends, which you could totally trade for gold if you wanted to.

So, a company whose entire business is trading paper assets survived two currency deaths, billion-percent-grade hyperinflation, Hitler, loss of two world wars, communist occupation, and right now is one of the largest companies in the world paying a sweet, sweet dividend. Imagine if it was a company that owned real assets (actually maybe not, as I said that I thought that a company with real assets would have been very expensive to recapitalize after complete destruction, so maybe the paper asset company owner would have come out better, just goes to show that it is really hard to know how things will work out).
Title: Re: Precious Metals
Post by: Radagast on February 06, 2019, 10:59:16 PM
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'd bet on straight barter. Gold requires a lot of actual civil infrastructure to be usable as currency.
I'm basically switching teams now. The "bullets" fallacy has always bugged me, because as waltworks says gold obviously requires civilized society to be of any use. All of the cases in Big Debt Crises involved continuously functioning societies or nearly so, so let's assume functioning societies are the norm for humans. In a functioning society bullets are not especially useful. Take the German examples above. Gold could have actually preserved purchasing power if you lived (most people did) and it stayed hidden and safe (not so sure) while bullets would have made little difference that I can see regarding your life or death and would have not functioned as a store of wealth at all. If bullets are to be useful in a failed society, you had also better count on having at least a million highly organized best buds with the best tech available (basically a functioning society). Further, it would take a shipping container of bullets to equal the value of a few gold coins so that rules out bullets in currency failures as well. I can see possible financial uses for gold, both imaginary and historical. I'm not really against somebody deciding to keep up to 10% of their investable assets in gold if it makes them feel good, more against making that decision in ignorance. I am always surprised that the reasons people come up with almost always seem to be terrible. For example, based on US data beginning in 1970, or since 1998, or by imagining that companies are made of paper, or dozens of other things.
Title: Re: Precious Metals
Post by: JAYSLOL on February 07, 2019, 12:34:16 AM
@Radagast I just want to say I'm thoroughly enjoying this thread and discussion, and these are some truly outstanding comments
Title: Re: Precious Metals
Post by: vand on February 07, 2019, 04:07:29 AM
@Radagast I just want to say I'm thoroughly enjoying this thread and discussion, and these are some truly outstanding comments

TBH the degree of skepticism and resistance shown to the idea of owning gold is not surprising to me and reaffirms my view that PMs are so well shunned they remain a terrific contrarian buy. I don't expect public sentiment to begin changing until gold prices have taken out the old 2011 high and only then will the bull market shift into the long "public awareness" stage.

I may not have his credentials or his track record, but much like Mr Buffett, I'm willing to put on a bet that over a 10 year period PMs will outperform stocks and bonds, and look forward to bumping this in 2029 to remind everyone.
Title: Re: Precious Metals
Post by: MustacheAndaHalf on February 07, 2019, 11:21:30 AM
@Radagast I just want to say I'm thoroughly enjoying this thread and discussion, and these are some truly outstanding comments

TBH the degree of skepticism and resistance shown to the idea of owning gold is not surprising to me and reaffirms my view that PMs are so well shunned they remain a terrific contrarian buy. I don't expect public sentiment to begin changing until gold prices have taken out the old 2011 high and only then will the bull market shift into the long "public awareness" stage.

I may not have his credentials or his track record, but much like Mr Buffett, I'm willing to put on a bet that over a 10 year period PMs will outperform stocks and bonds, and look forward to bumping this in 2029 to remind everyone.
Are you saying historical data is resistance?  You quote 20 year, I show a diversified US/international portfolio beats gold.  I mention 20 years contains the 2 biggest crashes of the century, and you say you use round numbers.  So I quote other round numbers of 10 and 30 years showing that again a diversified portfolio of US and international stocks beats gold.  At every turn, historical data is presented that shows gold doesn't perform better, and you call that "resistance".  I call that historical data, not resistance.  It's easier to learn from historical data than to resist it.

You are no Warren Buffet, which is why you don't have his credentials or track record.  Why would you compare yourself to someone when you have nothing in common with that person?  I'd also like to point out after trying to get to you admit international + U.S. stocks beat gold, you're now trying to change the rules and say "stocks and bonds".  That's not what you claimed earlier - you claimed gold beats stocks.
Title: Re: Precious Metals
Post by: JAYSLOL on February 07, 2019, 12:06:26 PM
@Radagast I just want to say I'm thoroughly enjoying this thread and discussion, and these are some truly outstanding comments

TBH the degree of skepticism and resistance shown to the idea of owning gold is not surprising to me and reaffirms my view that PMs are so well shunned they remain a terrific contrarian buy. I don't expect public sentiment to begin changing until gold prices have taken out the old 2011 high and only then will the bull market shift into the long "public awareness" stage.

I may not have his credentials or his track record, but much like Mr Buffett, I'm willing to put on a bet that over a 10 year period PMs will outperform stocks and bonds, and look forward to bumping this in 2029 to remind everyone.

Skepticism isn't "shunning", I'm very skeptical of what people who buy PMs tell me the reasons are that it's going to be a better investment that stocks or whatever the claim is.  That doesn't mean I shun the idea of PMs, in fact one of my hobbies/side-hustles is buying/collecting/re-selling old coins and currency.  Currently about 6% of my NW is in PM.  That said, I'm not willing to bet that PMs will outperform stocks over the next 10 years, or any other time period, even though there may be the occasional year where they do outperform stocks, that's not a reason to go all-in.  Own it for the stability, not the performance.  See you in Feb, 2029. 
Title: Re: Precious Metals
Post by: Telecaster on February 07, 2019, 03:29:32 PM
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'd bet on straight barter. Gold requires a lot of actual civil infrastructure to be usable as currency.
I'm basically switching teams now. The "bullets" fallacy has always bugged me, because as waltworks says gold obviously requires civilized society to be of any use. All of the cases in Big Debt Crises involved continuously functioning societies or nearly so, so let's assume functioning societies are the norm for humans. In a functioning society bullets are not especially useful. Take the German examples above. Gold could have actually preserved purchasing power if you lived (most people did) and it stayed hidden and safe (not so sure) while bullets would have made little difference that I can see regarding your life or death and would have not functioned as a store of wealth at all. If bullets are to be useful in a failed society, you had also better count on having at least a million highly organized best buds with the best tech available (basically a functioning society). Further, it would take a shipping container of bullets to equal the value of a few gold coins so that rules out bullets in currency failures as well. I can see possible financial uses for gold, both imaginary and historical. I'm not really against somebody deciding to keep up to 10% of their investable assets in gold if it makes them feel good, more against making that decision in ignorance. I am always surprised that the reasons people come up with almost always seem to be terrible. For example, based on US data beginning in 1970, or since 1998, or by imagining that companies are made of paper, or dozens of other things.

That's what why was no Step 2 before getting to stocking up on bullets in Step 3.  People sometimes suggest that a potential societal collapse is a reason to own gold without explaining why that would likely be the case.     

Since Wiemar Germany came up again, it is instructive to look at what stocks did during that period of hyperinflation, and subsequent collapse of the mark.  IIRC, there at least two other versions of the mark that also collapsed before hyperinflation was tamed and the government issued the stable Deutchmark.   During that period German stocks did extremely well, better than U.S. stocks in fact.    Big industrial German companies like Siemens, Krupps, Bayer, BMW, Allianz, etc. all survived and their shareholders did fine.   The notion that stocks are necessarily rendered valueless in a currency collapse is false. 

Title: Re: Precious Metals
Post by: flipboard on February 07, 2019, 11:03:02 PM
@Radagast I just want to say I'm thoroughly enjoying this thread and discussion, and these are some truly outstanding comments

TBH the degree of skepticism and resistance shown to the idea of owning gold is not surprising to me and reaffirms my view that PMs are so well shunned they remain a terrific contrarian buy. I don't expect public sentiment to begin changing until gold prices have taken out the old 2011 high and only then will the bull market shift into the long "public awareness" stage.

I may not have his credentials or his track record, but much like Mr Buffett, I'm willing to put on a bet that over a 10 year period PMs will outperform stocks and bonds, and look forward to bumping this in 2029 to remind everyone.

Skepticism isn't "shunning", I'm very skeptical of what people who buy PMs tell me the reasons are that it's going to be a better investment that stocks or whatever the claim is.  That doesn't mean I shun the idea of PMs, in fact one of my hobbies/side-hustles is buying/collecting/re-selling old coins and currency.  Currently about 6% of my NW is in PM.  That said, I'm not willing to bet that PMs will outperform stocks over the next 10 years, or any other time period, even though there may be the occasional year where they do outperform stocks, that's not a reason to go all-in.  Own it for the stability, not the performance.  See you in Feb, 2029.
This is also my approach (although I haven't gone into gold yet because my NW seems too low - I'll start in a year or two maybe, and at most 5%. With a split between an ETF for rebalancing, and physical in a vault for safety for the portion that is highly unlikely to be needed for rebalancing.)

I found this following page to be quite relevant to this thread:
http://www.efficientfrontier.com/ef/adhoc/gold.htm
Title: Re: Precious Metals
Post by: vand on February 08, 2019, 01:47:49 AM
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'd bet on straight barter. Gold requires a lot of actual civil infrastructure to be usable as currency.
I'm basically switching teams now. The "bullets" fallacy has always bugged me, because as waltworks says gold obviously requires civilized society to be of any use. All of the cases in Big Debt Crises involved continuously functioning societies or nearly so, so let's assume functioning societies are the norm for humans. In a functioning society bullets are not especially useful. Take the German examples above. Gold could have actually preserved purchasing power if you lived (most people did) and it stayed hidden and safe (not so sure) while bullets would have made little difference that I can see regarding your life or death and would have not functioned as a store of wealth at all. If bullets are to be useful in a failed society, you had also better count on having at least a million highly organized best buds with the best tech available (basically a functioning society). Further, it would take a shipping container of bullets to equal the value of a few gold coins so that rules out bullets in currency failures as well. I can see possible financial uses for gold, both imaginary and historical. I'm not really against somebody deciding to keep up to 10% of their investable assets in gold if it makes them feel good, more against making that decision in ignorance. I am always surprised that the reasons people come up with almost always seem to be terrible. For example, based on US data beginning in 1970, or since 1998, or by imagining that companies are made of paper, or dozens of other things.

That's what why was no Step 2 before getting to stocking up on bullets in Step 3.  People sometimes suggest that a potential societal collapse is a reason to own gold without explaining why that would likely be the case.     

Since Wiemar Germany came up again, it is instructive to look at what stocks did during that period of hyperinflation, and subsequent collapse of the mark.  IIRC, there at least two other versions of the mark that also collapsed before hyperinflation was tamed and the government issued the stable Deutchmark.   During that period German stocks did extremely well, better than U.S. stocks in fact.    Big industrial German companies like Siemens, Krupps, Bayer, BMW, Allianz, etc. all survived and their shareholders did fine.   The notion that stocks are necessarily rendered valueless in a currency collapse is false.


hahaha. You're nuts.
You know what other stock market has done spectacularly well in recent years? Venezuela' stock market is "up" by many hundreds of % in recent years.
Well done Venezeulan equity investors. Maybe you'll be able to buy enough real wealth with your profits to fill the one shelf of your fridge.
Title: Re: Precious Metals
Post by: Syonyk on February 08, 2019, 10:17:58 AM
Further, it would take a shipping container of bullets to equal the value of a few gold coins so that rules out bullets in currency failures as well.

Ok... sorry, I have to ask, where are you buying a shipping container full of bullets for a few gold coins (presumably 1oz, since that's a common size)?

A 40' high top (9.5') shipping container alone is ~$4500, which is around 3.5oz gold.  You could get a regular height for about 3oz, or a 20' for about 1.5oz.

But ammo to fill it?  I can find .223 for $0.33/round easily, so call it $0.20/round in serious bulk.

An ounce of gold ($1300) is only 6500 rounds, which fits (physically, if not weight-wise) in a medium UPS shipping box or so.

It's going to take an awful lot of those to fill a shipping container.

Shipping containers are big.  This is from maybe 10' into mine...

(https://4.bp.blogspot.com/-g_y8ciFwXL0/XC6ang3Z5RI/AAAAAAAAyI0/X5D2g0b3EKU-ulnElo1V0jPW3mw9IPaWACLcBGAs/s640/P1030243.jpeg)
Title: Re: Precious Metals
Post by: waltworks on February 08, 2019, 11:24:31 AM
I'd actually bet that holders of stock in Venezuelan companies (I include myself in that, since I'm guessing my Vanguard int'l fund has at least some exposure) will be just fine. Now, I'd certainly only *sell* such stock for dollars, but the fate of the bolivar is pretty irrelevant to me.

Even if all of my Venezuelan holdings go to zero, it's a rounding error in terms of the whole world, so just as I'm not worried about a company or two in the S&P500 going under, I'm not worried about Venezuela.

So if your point is that you'd rather have gold than bolivars (a very low hurdle), I'll concede. Just as I'll concede that gold is a better idea than hoarding large sums of cash of any kind at all.

-W
Title: Re: Precious Metals
Post by: RWD on February 08, 2019, 11:46:59 AM

If you get through all that and make money, bad tax situation.

Sounds great.

Many would disagree  on the tax situation.  If its a cash transaction under the 10k threshold, a lot of gold bugs may not be reporting the gainz.  Assuming of course there are huuuge gainz.

Add IRS audits, structuring (https://en.wikipedia.org/wiki/Structuring), and civil forfeiture (https://en.wikipedia.org/wiki/Civil_forfeiture_in_the_United_States) to the list of risks...
Title: Re: Precious Metals
Post by: Radagast on February 08, 2019, 09:04:14 PM
@Radagast I just want to say I'm thoroughly enjoying this thread and discussion, and these are some truly outstanding comments
Thanks :) I was able to read the thread's posts more than a day before I was able to reply, which probably helped improve the info-tainment properties.

@Radagast I just want to say I'm thoroughly enjoying this thread and discussion, and these are some truly outstanding comments

TBH the degree of skepticism and resistance shown to the idea of owning gold is not surprising to me and reaffirms my view that PMs are so well shunned they remain a terrific contrarian buy. I don't expect public sentiment to begin changing until gold prices have taken out the old 2011 high and only then will the bull market shift into the long "public awareness" stage.

I may not have his credentials or his track record, but much like Mr Buffett, I'm willing to put on a bet that over a 10 year period PMs will outperform stocks and bonds, and look forward to bumping this in 2029 to remind everyone.

Skepticism isn't "shunning", I'm very skeptical of what people who buy PMs tell me the reasons are that it's going to be a better investment that stocks or whatever the claim is.  That doesn't mean I shun the idea of PMs, in fact one of my hobbies/side-hustles is buying/collecting/re-selling old coins and currency.  Currently about 6% of my NW is in PM.  That said, I'm not willing to bet that PMs will outperform stocks over the next 10 years, or any other time period, even though there may be the occasional year where they do outperform stocks, that's not a reason to go all-in.  Own it for the stability, not the performance.  See you in Feb, 2029.
Right. Likewise, far from shunning gold, I have more exposure to its price than probably anybody here even though I don't own any outside of miscellaneous electronics (DW and I even have silver and base metal rings). That leads me to view it from a very pragmatic viewpoint of "how will this help me pay rent over the next year?" and not "what price will shiny pretty speculative metal increase to in the happy imaginary unicorn future?." There are solid arguments for having a small exposure to the price of gold, but none of them involve knowing gold will increase in price by more than the total return of global stocks or bonds, starting-today-go.

Along those lines, it is funny that gold miners, both people and companies, don't seem eager to keep their gold right now. They trade it for cash ASAP with no regrets except that it took so friggin long to get the cash from it. They must believe it is pretty useless in the real world. I can personally attest that, as a person with both a mortgage and a rent, I am contractually obliged to not pay either of them with gold. The local grocer takes paper, plastic, and radio waves only.
Title: Re: Precious Metals
Post by: Radagast on February 08, 2019, 09:22:44 PM
@Radagast I just want to say I'm thoroughly enjoying this thread and discussion, and these are some truly outstanding comments

TBH the degree of skepticism and resistance shown to the idea of owning gold is not surprising to me and reaffirms my view that PMs are so well shunned they remain a terrific contrarian buy. I don't expect public sentiment to begin changing until gold prices have taken out the old 2011 high and only then will the bull market shift into the long "public awareness" stage.

I may not have his credentials or his track record, but much like Mr Buffett, I'm willing to put on a bet that over a 10 year period PMs will outperform stocks and bonds, and look forward to bumping this in 2029 to remind everyone.
No, contrarian timing would have been when gold was at its lowest real price in more than 25 years since the world's governments ceased their conspiracy to depress it, technetcoms were known to be the future, and The Bank of England sold most of its remaining reserves of the useless archaic metal (https://en.wikipedia.org/wiki/Sale_of_UK_gold_reserves,_1999%E2%80%932002), around 1999 or so. Here in 2019, gold prices are well above their historical real market averages, everyone is expecting an imminent decline in stocks and bonds, mining companies invested in lots of new things in a recent price run up and then delevered so they are able to continue producing at low prices for well into the future, and the entire world just observed Russia try to load gold bullion, the last valuable asset in Venezuela, onto planes to Moscow. You are not buying the bubble anymore, but neither are you a contrarian. Now stocks, long term bonds, and gold all have annualized standard deviations of around 15% plus the odd freak event so things could very well go your way in the short term, but in the long term (US) bonds are priced to return 1maybe%, stocks 5%, and gold 0% (all post-inflation) and that is the prevailing wind direction. Contrarian moves are probably back in England's court. Or maybe Russia's. Or Venezuela's.
Title: Re: Precious Metals
Post by: Radagast on February 08, 2019, 10:17:56 PM
Further, it would take a shipping container of bullets to equal the value of a few gold coins so that rules out bullets in currency failures as well.

Ok... sorry, I have to ask, where are you buying a shipping container full of bullets for a few gold coins (presumably 1oz, since that's a common size)?

A 40' high top (9.5') shipping container alone is ~$4500, which is around 3.5oz gold.  You could get a regular height for about 3oz, or a 20' for about 1.5oz.

But ammo to fill it?  I can find .223 for $0.33/round easily, so call it $0.20/round in serious bulk.

An ounce of gold ($1300) is only 6500 rounds, which fits (physically, if not weight-wise) in a medium UPS shipping box or so.

It's going to take an awful lot of those to fill a shipping container.

Shipping containers are big.  This is from maybe 10' into mine...
So, I would say that a shipping container is the standard 20'X8'X8.5' unless otherwise noted. Would you believe I was going to do the numbers but couldn't find the dimensions on a retail box of ammo within a few minutes, so I just said "a few"? You probably would. In my head though I imagined that a box of 500ct .22LR bullets was a $20, and I had a nice imaginary youtube clip of a person carting in 10 of those boxes to pay for groceries, and the cashier counting out the change. Which was a good start.

Lets use your numbers though, but I will spare uninterested people the math. It looks like an ounce of gold is worth roughly 1 cubic foot of of 0.223 ammo. Let's call it 5,200 shells, and say gold is $1300 an ounce, so they can be $0.25 each. A shipping container can fit about 1,200 cubic feet inside. I will agree that most people would call 1,000 or 1,500 gold coins more than a few. The point is still valid though. A standard issue official coin box from the Treasury Dept. would fit 500 1-oz gold coins in 14.75" x 8.5" x 4.5" (but 42 lbs!). Three of them are a cubic foot. So that is about 1,500 times more compact than the equivalent value in 0.223 rounds and also a lot less volatile. In fact quite inert.

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'd bet on straight barter. Gold requires a lot of actual civil infrastructure to be usable as currency.
I'm basically switching teams now. The "bullets" fallacy has always bugged me, because as waltworks says gold obviously requires civilized society to be of any use. All of the cases in Big Debt Crises involved continuously functioning societies or nearly so, so let's assume functioning societies are the norm for humans. In a functioning society bullets are not especially useful. Take the German examples above. Gold could have actually preserved purchasing power if you lived (most people did) and it stayed hidden and safe (not so sure) while bullets would have made little difference that I can see regarding your life or death and would have not functioned as a store of wealth at all. If bullets are to be useful in a failed society, you had also better count on having at least a million highly organized best buds with the best tech available (basically a functioning society). Further, it would take a shipping container of bullets to equal the value of a few gold coins so that rules out bullets in currency failures as well. I can see possible financial uses for gold, both imaginary and historical. I'm not really against somebody deciding to keep up to 10% of their investable assets in gold if it makes them feel good, more against making that decision in ignorance. I am always surprised that the reasons people come up with almost always seem to be terrible. For example, based on US data beginning in 1970, or since 1998, or by imagining that companies are made of paper, or dozens of other things.

That's what why was no Step 2 before getting to stocking up on bullets in Step 3.  People sometimes suggest that a potential societal collapse is a reason to own gold without explaining why that would likely be the case.     

Since Wiemar Germany came up again, it is instructive to look at what stocks did during that period of hyperinflation, and subsequent collapse of the mark.  IIRC, there at least two other versions of the mark that also collapsed before hyperinflation was tamed and the government issued the stable Deutchmark.   During that period German stocks did extremely well, better than U.S. stocks in fact.    Big industrial German companies like Siemens, Krupps, Bayer, BMW, Allianz, etc. all survived and their shareholders did fine.   The notion that stocks are necessarily rendered valueless in a currency collapse is false. 
Right, but in practice I have only seen that argument used by people trying to discredit gold, never by people who put their money in it. People I have seen putting money in gold are speculators/ignorants (ahem), hedgers, modern portfolio theorists, or in some cases people on the internet who think they will be able to get on a plane and use it somewhere safe. They all seem to assume there is a stable society involved. But then, I am probably limited in the types of gold proponents I have knowledge of.

There was a Rentenmark involved, but it was transitory.
Title: Re: Precious Metals
Post by: clumlee on February 14, 2019, 07:10:29 PM
I buy my stuff from JM Bullion. Their selection isn't HUGE as far as miners and sizes but they have the standard stuff and I have had no complaints. Cheers!
Title: Re: Precious Metals
Post by: Syonyk on February 14, 2019, 07:29:51 PM
A shipping container can fit about 1,200 cubic feet inside. I will agree that most people would call 1,000 or 1,500 gold coins more than a few.

Find me one person who would call 1000-1500 gold coins "a few."
Title: Re: Precious Metals
Post by: Telecaster on February 14, 2019, 08:21:51 PM
That's what why was no Step 2 before getting to stocking up on bullets in Step 3.  People sometimes suggest that a potential societal collapse is a reason to own gold without explaining why that would likely be the case.     

Since Wiemar Germany came up again, it is instructive to look at what stocks did during that period of hyperinflation, and subsequent collapse of the mark.  IIRC, there at least two other versions of the mark that also collapsed before hyperinflation was tamed and the government issued the stable Deutchmark.   During that period German stocks did extremely well, better than U.S. stocks in fact.    Big industrial German companies like Siemens, Krupps, Bayer, BMW, Allianz, etc. all survived and their shareholders did fine.   The notion that stocks are necessarily rendered valueless in a currency collapse is false. 
Right, but in practice I have only seen that argument used by people trying to discredit gold, never by people who put their money in it. People I have seen putting money in gold are speculators/ignorants (ahem), hedgers, modern portfolio theorists, or in some cases people on the internet who think they will be able to get on a plane and use it somewhere safe. They all seem to assume there is a stable society involved. But then, I am probably limited in the types of gold proponents I have knowledge of.

There was a Rentenmark involved, but it was transitory.
[/quote]

I might not be making myself clear.  In the event of a currency collapse and a functioning society still exists, owning gold is definitely preferable to owning cash, but in the past people who owned productive asserts like stocks or incoming producing real estate have generally still done okay.  As I mentioned earlier, in times past people have even created their own currencies like leather tokens issued by inn keepers or farmers that circulate like regular money.   So you don't really need a central currency to do business, and history tells us you might not even need to do much barter.   In other words, the notion that gold is a necessary backstop to protect against a currency collapse isn't completely true.  You won't need gold to be able to trade and there are other, better stores of value.  So what's the point of owning gold? 

In the event of currency collapse and there is no functioning society, then you definitely want bullets and dried beans--not gold.  Because being unable to conveniently trade for stuff will be the least of your problems.  So what's the point of owning gold? 
Title: Re: Precious Metals
Post by: JAYSLOL on February 14, 2019, 09:28:47 PM
I buy my stuff from JM Bullion. Their selection isn't HUGE as far as miners and sizes but they have the standard stuff and I have had no complaints. Cheers!

I like to buy mine from garage sales, availability is very sporadic, but the prices can't be beat!
Title: Re: Precious Metals
Post by: Radagast on February 14, 2019, 11:13:53 PM
I might not be making myself clear.  In the event of a currency collapse and a functioning society still exists, owning gold is definitely preferable to owning cash, but in the past people who owned productive asserts like stocks or incoming producing real estate have generally still done okay.  As I mentioned earlier, in times past people have even created their own currencies like leather tokens issued by inn keepers or farmers that circulate like regular money.   So you don't really need a central currency to do business, and history tells us you might not even need to do much barter.   In other words, the notion that gold is a necessary backstop to protect against a currency collapse isn't completely true.  You won't need gold to be able to trade and there are other, better stores of value.  So what's the point of owning gold? 
Only locals are likely to find value in your leather coinage, so that would be of limited use. Real estate is great for preserving real wealth while receiving cashflow (depending on the type and circumstances), and I am a proponent, in fact I own 1 cashflow property versus 0 gold coins. I think we covered stocks enough earlier. But as usual, it is hard to transport real estate or exchange small parts. The idea is to have something that is valuable and easily transportable, which also has value to people who are far away. I see it like this: stocks give 6% real returns each year plus a go on the roulette wheel (you lose a percentage equal to red numbers, gain a percentage equal to black numbers). Long term government bonds give you 3% real return (well not right now) plus a spin of an independent roulette wheel. Gold gives you 0% real returns in exchange for a spin of a third entirely independent roulette wheel each year, for people who want that. Even if your currency and bonds are approaching 0 while stocks are down 95%, gold will still give you the same ol' 0% return plus a spin of the wheel.

So there you have it. Gold combines a transportable exchangeable inert 0% return asset with the variability of a roulette wheel. If that doesn't make you want to run out and buy it / turn you away from ever buying it, then I don't know what will. Though I expect its value to rarely fall outside of the range of 1-10 consumer price indexes, I guess it will be constrained by the cost of mining more. But who can say.

Excel formula for the "roulette wheel" model of financial returns: =(1+(RANDBETWEEN(-36,36)+?)/100)*A1 where ? is the placeholder for real expected return. Drag it through 50 cells, make a graph, and refresh a few times.
Quote
In the event of currency collapse and there is no functioning society, then you definitely want bullets and dried beans--not gold.  Because being unable to conveniently trade for stuff will be the least of your problems.  So what's the point of owning gold?
Right, and like I said I think that is a fallacy, a product of watching too many TV shows. I can't think of any examples of that in history, but I am happy to be informed. The closest I can come is... Somalia?, but I bet gold has value there.
Title: Re: Precious Metals
Post by: flipboard on February 14, 2019, 11:47:42 PM
Quote
I might not be making myself clear.  In the event of a currency collapse and a functioning society still exists, owning gold is definitely preferable to owning cash, but in the past people who owned productive asserts like stocks or incoming producing real estate have generally still done okay.  As I mentioned earlier, in times past people have even created their own currencies like leather tokens issued by inn keepers or farmers that circulate like regular money.   So you don't really need a central currency to do business, and history tells us you might not even need to do much barter.   In other words, the notion that gold is a necessary backstop to protect against a currency collapse isn't completely true.  You won't need gold to be able to trade and there are other, better stores of value.  So what's the point of owning gold? 

In the event of currency collapse and there is no functioning society, then you definitely want bullets and dried beans--not gold.  Because being unable to conveniently trade for stuff will be the least of your problems.  So what's the point of owning gold?
People in some countries with stocks or real-estate _didn't_ do OK. Russian stocks 1918 anyone? Or even property in a country that disposses you? Similar things could happen in any country (perhaps not immediately, but no one expected Russia to do what it did at the time either).

The likelihood of society worldwide collapsing isn't that great. The likelihood of a single country falling apart however is much greater, and this happens somewhat regularly.

If one happens to have gold in multiple countries, that's probably a good backup if you manage to get yourself out of the place you live. Diversifying stocks acros the world meanwhile has the failure point of the country where your funds are domiciled falling apart (which is why you'd probably want to own funds in multiple domiciles).
Title: Re: Precious Metals
Post by: ChpBstrd on February 15, 2019, 01:05:42 PM
The oft-stated reason for owning PMs instead of more efficient hedges like TIPS, options, or a broadly diversified portfolio is that all these other hedges might fail in a societal/currency collapse scenario like Russia 1918, Zimbabwe, Venezuela, Somalia, Yemen, Haiti, or the Weimar Republic.

In the event of a societal breakdown, rules about property ownership and crime usually cease to be enforced. Without a functioning government to punish rule breakers or award damages, ownership amounts to possession and the only consequence of crime is the potential for retaliation by survivors of the victim's clan or tribe. This is the way of life in slums around the world, including neighborhoods in the U.S. where the police cannot be trusted and justice is not effectively administered.

The dream of being the rich person in a collapsed society can be tested to ensure it is a workable plan. March into a slum and buy food, shelter, or clothing with a piece of gold in Rio de Janero, Baltimore, Caracas, Port Au Prince, south Chicago, or Harare.

Did you become a crime victim - i.e. robbed of your gold on the spot?
Was the transaction successful?
At the exchange rate offered, how long would the supplies you obtained last?
Title: Re: Precious Metals
Post by: flipboard on February 15, 2019, 01:12:43 PM
The oft-stated reason for owning PMs instead of more efficient hedges like TIPS, options, or a broadly diversified portfolio is that all these other hedges might fail in a societal/currency collapse scenario like Russia 1918, Zimbabwe, Venezuela, Somalia, Yemen, Haiti, or the Weimar Republic.

In the event of a societal breakdown, rules about property ownership and crime usually cease to be enforced. Without a functioning government to punish rule breakers or award damages, ownership amounts to possession and the only consequence of crime is the potential for retaliation by survivors of the victim's clan or tribe. This is the way of life in slums around the world, including neighborhoods in the U.S. where the police cannot be trusted and justice is not effectively administered.

The dream of being the rich person in a collapsed society can be tested to ensure it is a workable plan. March into a slum and buy food, shelter, or clothing with a piece of gold in Rio de Janero, Baltimore, Caracas, Port Au Prince, south Chicago, or Harare.

Did you become a crime victim - i.e. robbed of your gold on the spot?
Was the transaction successful?
At the exchange rate offered, how long would the supplies you obtained last?
False comparison. People of sufficient means didn't go use gold in their own society, they went and used it in a stable society elsewhere in the world. (Most likely, they already had wealth stored outside of their current country.)
Title: Re: Precious Metals
Post by: Telecaster on February 15, 2019, 03:07:47 PM

People in some countries with stocks or real-estate _didn't_ do OK. Russian stocks 1918 anyone? Or even property in a country that disposses you? Similar things could happen in any country (perhaps not immediately, but no one expected Russia to do what it did at the time either).

Right.  That's why I said in that scenario you want bullets and beans.  In the case of something like the Russian Revolution where an angry mob of peasants is coming for you a big pile of gold isn't an asset, it is a liability.  The Romanovs didn't escape by being rich.  They didn't escape because they were rich. 

I mention that because many gold proponents point to the collapse of society as a reason to own gold.  In that event, it probably isn't a bad thing to own gold, but there is other stuff you will want to own a lot more.   Like guns. 

The angry mob of peasants scenario isn't what happened in Wiemar Germany.   In that scenario, owning gold wouldn't have been a bad thing, but owning stocks would have been better.  In fact, part of the reason why German stocks did well in that period is because of inflation.  It made German exports cheaper, so big industrial companies did well. 

I mention that because many gold proponents point to the collapse of currency as a reason to own gold because it is both a store of value and a medium of exchange.   Which it is!  Again, probably not a bad thing to own gold in that event, but there were better stores of value, and people will simply move to other media of exchange.  I gave several examples previously, but another would be from Wiemar Germany (since we're on the topic), where some cities simply issued their own currency and the local people used that as a medium of exchange. 

I knocked around Ecuador for a bit not long before the collapse of the Sucre.  At that time, anything above about the equivalent of $30 was quoted and paid for in US Dollars.  It was automatic.  They didn't even tell you the price in sucres.   I never saw or heard of anyone using gold to make transactions.   As an aside, there is a raging debate about whether or not to pay off your mortgage early.   I'm firmly in the "not" category.   If the USD collapses, having debt denominated in dollars would be the best thing you could possibly have.  I don't think that's likely, but it would be way better than owning gold. 

If you want to own gold, knock yourself out.  More power to you.  Seriously.   However, I find the reasons most people give as to the benefits of owning gold to be paper thin.  And most gold proponents don't seem to have a clear understanding of what actually happens during a currency collapse.    Hence their logic isn't very compelling. 
Title: Re: Precious Metals
Post by: vand on March 21, 2019, 03:39:13 AM
Don't shoot the messenger yeah
(https://i.imgur.com/FdiqqeU.jpg)
Title: Re: Precious Metals
Post by: vand on March 21, 2019, 03:44:14 AM
Gold also plays a 25% component in the Permanent Portfolio, which is a strategy that gives a risk-adjusted return that would put 100% of professional money managers to shame.
Title: Re: Precious Metals
Post by: TomTX on March 21, 2019, 06:55:44 AM
Gold also plays a 25% component in the Permanent Portfolio, which is a strategy that gives a risk-adjusted return that would put 100% of professional money managers to shame.

Unless you remove the initial runup from when gold was unpegged from the dollar.

Once you do that, the benefit is decidedly meh.
Title: Re: Precious Metals
Post by: MustacheAndaHalf on March 21, 2019, 09:55:43 AM
As I already pointed out in this thread earlier, people who like gold always include 1972-1974 in gold's performance.  Earlier I said:

When looking at gold, make sure you look at 1975-2017 rather than including the extraordinary one-time events of 1972-1974.  The returns of gold doubles when you include those extra years, even though those events are unlikely to happen again.

From 1972-1974 gold gained +62% / year - it quadrupled in price.  Here's what happens when you start to shed those years:
1972 - 2018: gold averaged a gain of +7.3% / year
1975 - 2018: gold averaged a gain of +4.4% / year
1980 - 2018: gold averaged a gain of +2.2% / year

That last number, +2.2%/year, ignores inflation.  Investing in gold in 1980 until now actually lost money once you include inflation.  So whenever you see someone argue for gold, make sure you check what happens if you skip the 1970s (which was also the decade when the U.S. moved off the gold standard - good luck repeating that event!)
Title: Re: Precious Metals
Post by: JAYSLOL on March 21, 2019, 11:52:58 AM
Bang.  Bang.  Bang. 
Title: Re: Precious Metals
Post by: OurTown on March 21, 2019, 03:26:17 PM
Silver bullets?
Title: Re: Precious Metals
Post by: JAYSLOL on March 21, 2019, 05:26:54 PM
Silver bullets?

Apparently that's actually a thing

Title: Re: Precious Metals
Post by: MStangRacer on March 21, 2019, 05:55:07 PM
Regarding the foam on this thread regarding the value of gold as an investment. With such heated and passionate arguments from both sides, it kind of makes the case for me to buy a little. If things go well and gold becomes irrelevant then I'm only down a little. If our fiat currency does eventually do what all fiat currencies in history have done (inflate away) then I'll be glad I kept at least a small stash in the little yellow metal.

This is sort of why I have a small portion in precious metals as well, in an ETF and in physical metals.  Whether I think they are worth something in an extreme situation isn't the issue -- it's whether someone else does.  And based on my observations here and elsewhere, there will always be a buyer for gold.  I'll take US dollars, bitcoin, or beans & bullets, depending on the circumstances.

I fell the same way, Gold/Silver is like insurance dollar collapse/shtf
Title: Re: Precious Metals
Post by: waltworks on March 21, 2019, 06:04:47 PM
I fell the same way, Gold/Silver is like insurance dollar collapse/shtf

No, diversified stocks or real estate are dollar collapse insurance par excellence. SHTF insurance is bullets and beans, because basically nobody is going to be buying or selling stuff (with gold or otherwise) after the zombie apocalypse.

-W
Title: Re: Precious Metals
Post by: TomTX on March 21, 2019, 06:28:04 PM
Silver bullets?

Apparently that's actually a thing

PFFT. That's silver made to look like a cartridge.

You can actually get functional cartridges with a silver bullet.
Title: Re: Precious Metals
Post by: vand on August 05, 2019, 09:00:52 AM
Precious metals are doing their traditional job and going zig when other assets go zag.

For UK investors like myself gold has just set all time highs in the local currency and beaten the FTSE Acc over multiple significant timeframes... during one of the greatest stock bull markets in history.

Gold vs FTSE Acc over 5 yrs:
https://stockcharts.com/h-sc/ui?s=%24GOLD%3A%24GBPUSD&p=D&yr=5&mn=0&dy=0&id=p11467062996

Title: Re: Precious Metals
Post by: Radagast on August 05, 2019, 09:01:07 PM
Along those lines I unloaded rebalanced a big part of my 5% gold miner ETF allocation this morning as it blew past both my rebalance band and then the limit order I set after it crossed the rebalance band. Up about 68% from November lows, but maybe only 30% above my cost basis since I last rebalanced in 2016. In fact, checking Portfolio Visualizer, it looks like it was pretty much perfectly tied with Vanguard Total World Stock Index over the past 3 years, depending on exactly what assumptions are made for dates and cash flows (mine are hard to model because they are lumpy and increasing, and I don't care enough to track with any precision).

I would characterize gold and gold miners as "zig" over the past few months, but I would not characterize world stock markets as "zag". More like "vaguely flat-ish" over the last 3 or even 24 months.

So, I am "meh" as a result of this blip. I would have done similarly well with VT and not bothered with the extra slice, even though it was exciting selling the limit orders.
Title: Re: Precious Metals
Post by: Paul990 on August 09, 2019, 11:50:59 PM
For UK investors like myself gold has just set all time highs in the local currency
Not only for UK investors

Gold Hits Record Highs
British pound Ė £1,209.55
Indian rupee Ė Rs 103,837.75
Canadian dollar Ė CAD $1,938
Australian dollar Ė AUD $2,180
Japanese yen Ė •155,550
South African rand Ė ZAR R21,929

(https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_desktop/public/inline-images/bfm77EA.jpg?itok=PlEhQkie)

https://www.zerohedge.com/news/2019-08-06/gold-hits-record-highs
Title: Re: Precious Metals
Post by: vand on August 15, 2019, 02:24:19 AM
I think this is a very well-reasoned article makign the case for PMs in an investment portfolio:

https://seekingalpha.com/article/4242410-buying-gold-silver-reason-think

couple of snips:

"The U.S. broad money supply is growing quickly per capita, while the amount of gold per capita is relatively fixed. Thus, gold should gradually appreciate in price over time at a rate roughly equal to the growth of money supply per capita, which has averaged over 5% per year for nearly five decades now."


"Gold historically gives good risk-adjusted returns when bought at cheap or moderate prices during times when equities are highly valued.

Moreover, I view gold mostly as competing for a spot in a portfolio against cash and bonds, rather than necessarily competing against stocks. And, on that front, it has done quite well"
Title: Re: Precious Metals
Post by: robartsd on August 15, 2019, 09:40:51 AM
"The U.S. broad money supply is growing quickly per capita, while the amount of gold per capita is relatively fixed. Thus, gold should gradually appreciate in price over time at a rate roughly equal to the growth of money supply per capita, which has averaged over 5% per year for nearly five decades now."
I basically take this as gold should roughly match inflation (as most commodities should). I agree that gold is a great alternative to cash in a portfolio (money market and insured bank accounts usually lose real value to inflation).
Title: Re: Precious Metals
Post by: ChpBstrd on August 15, 2019, 12:21:31 PM

"The U.S. broad money supply is growing quickly per capita, while the amount of gold per capita is relatively fixed. Thus, gold should gradually appreciate in price over time at a rate roughly equal to the growth of money supply per capita, which has averaged over 5% per year for nearly five decades now."

In the snip above, replace ďgoldĒ with any of the following to see if the premises sill lead to the conclusion.

Confederate money
Working typewriters
Aspirin
Rain water
Land
Beanie babies (sorry if this one is just being spiteful)
Iron
Roads
Lead
The praline supply
1984 Chevrolet Citation hatchbacks in VG condition
Publicly traded companies
Shares outstanding in a company that does buybacks
Timber
Toilet paper
Title: Re: Precious Metals
Post by: vand on August 15, 2019, 12:48:40 PM
"The U.S. broad money supply is growing quickly per capita, while the amount of gold per capita is relatively fixed. Thus, gold should gradually appreciate in price over time at a rate roughly equal to the growth of money supply per capita, which has averaged over 5% per year for nearly five decades now."
I basically take this as gold should roughly match inflation (as most commodities should). I agree that gold is a great alternative to cash in a portfolio (money market and insured bank accounts usually lose real value to inflation).

Yes, Gold is a form of money, therefore its should match the classic definition of inflation which is growth of the money supply, not the modern definition of inflation which is changes in consumer prices.
Title: Re: Precious Metals
Post by: Telecaster on August 19, 2019, 05:48:28 AM
"The U.S. broad money supply is growing quickly per capita, while the amount of gold per capita is relatively fixed. Thus, gold should gradually appreciate in price over time at a rate roughly equal to the growth of money supply per capita, which has averaged over 5% per year for nearly five decades now."
I basically take this as gold should roughly match inflation (as most commodities should). I agree that gold is a great alternative to cash in a portfolio (money market and insured bank accounts usually lose real value to inflation).

That should be amended to "gold should roughly match inflation...over sufficiently long time periods and if one enters at a price close to the long term average gold price."

For example, if you bought gold at the peak price in 1980, you have lost to inflation.   And it is entirely possible that after accounting for inflation you will never have a chance to recoup your investment.   In other words, you may never see that price again.  You might, but you would still be under water 39 years later.  If you were buying bonds back then on the other hand, you made a bundle.   Rules of the thumb are great, but be very careful applying them. 

Gold is like any other commodity.   It is fine to trade it, if you like.  But it has no magical properties.  The entrance price determines your profit.   Buy low, sell high, right?   I wouldn't buy gold unless I thought the price was low.  It doesn't seem to be low at the moment.  I could be wrong. 
Title: Re: Precious Metals
Post by: ChpBstrd on August 19, 2019, 09:17:08 AM
What if instead of ďprecious metalsĒ we called them ďexpensive metalsĒ? Would element 79 have the same investor interest? How much of the hype is industry generated? When someone buys expensive metal, are they the investor or the customer?
Title: Re: Precious Metals
Post by: Car Jack on August 19, 2019, 09:25:50 AM
I think you all know that when the stock market takes a sudden downturn......even 0.1%.....some investors "escape to gold", raising the price of gold.  I see it when checking the market on marketwatch.  Right now would be an absolutely horrible time to buy gold as it's at "an all time high".  Boy, where have we heard that phrase.  With the market up as of now (1%), today, gold is down (0.8%).  So y'all missed the buying opportunity back when the market was up. 
Title: Re: Precious Metals
Post by: Paul990 on August 29, 2019, 10:13:59 AM
I basically take this as gold should roughly match inflation (as most commodities should). I agree that gold is a great alternative to cash in a portfolio (money market and insured bank accounts usually lose real value to inflation).
It's true, commodities too are an hedge against fiat money depreciation, but in general they are more volatile than gold.
Plus their price tend to be a function of the economic cycles.
Commodities are not monetary metals. That's why, unlike gold, they are not traded on the Forex Market.

Gold hedges against inflation
https://www.goldmoney.com/precious-metals-guide-for-new-investors

(https://www.goldmoney.com/site/images/chart-housing-priced-in-gold.png)

(https://www.goldmoney.com/site/images/chart-food-priced-in-gold.png)                                     (https://www.goldmoney.com/site/images/chart-oil-priced-in-gold.png)
Title: Re: Precious Metals
Post by: ChpBstrd on August 29, 2019, 10:43:57 AM
The bond market is betting everything on deflation.

The gold market is betting everything on inflation.

If the exponentially larger bond market is wrong and inflation rises, a massive global multi-trillion dollar bubble will burst, draining liquidity from all economies as banks fail and businesses sell everything in a struggle for liquidity, which is a deflationary event that will wipe out the earlier blip in inflation as this centuryís Great Depression starts. All assets will lose value as cash becomes king.

If the gold market is wrong and inflation does not rise, a volatile commodity will drop in price again, just another blip, and thatís about it.
Title: Re: Precious Metals
Post by: ChpBstrd on August 29, 2019, 10:52:05 AM
I basically take this as gold should roughly match inflation (as most commodities should). I agree that gold is a great alternative to cash in a portfolio (money market and insured bank accounts usually lose real value to inflation).
It's true, commodities too are an hedge against fiat money depreciation, but in general they are more volatile than gold.
Plus their price tend to be a function of the economic cycles.
Commodities are not monetary metals. That's why, unlike gold, they are not traded on the Forex Market.

Gold hedges against inflation
https://www.goldmoney.com/precious-metals-guide-for-new-investors

(https://www.goldmoney.com/site/images/chart-housing-priced-in-gold.png)

(https://www.goldmoney.com/site/images/chart-food-priced-in-gold.png)                                     (https://www.goldmoney.com/site/images/chart-oil-priced-in-gold.png)

So the moral of the story is if youíre going to stuff something under the mattress for a decade, make it gold.

I donít suppose a site like goldmoney.com factors in the risk-free interest that can be earned in treasuries, savings bonds, or even bank CDs - but only on cash. I really bet they donít model, say, a 70/30 portfolio over that time. I guarantee they donít factor in the sky-high bid-ask spread for physical metal at your local coin shop or the insurance and security measures required to safely keep physical PMs at home.
Title: Re: Precious Metals
Post by: EvenSteven on August 29, 2019, 11:18:15 AM
Quote
So the moral of the story is if youíre going to stuff something under the mattress for a decade, make it gold.

Probably more comfortable than cattle.
Title: Re: Precious Metals
Post by: Davnasty on August 29, 2019, 12:05:43 PM
Quote
So the moral of the story is if youíre going to stuff something under the mattress for a decade, make it gold.

Probably more comfortable than cattle.

Maybe beef jerky? Probably a hefty processing fee to turn cattle into jerky though...
Title: Re: Precious Metals
Post by: vand on August 30, 2019, 03:59:43 AM
Gold is a hedge against inflation of the supply of money and tends to do well when real interest rates go negative. That means it can do great if nominal rates are zero and inflation is 2%, or it can do terrible if nominal rates are 15% and inflation is 10%.

Bonds and gold are absolutely not in contradiction. They are both are flashing warnings about as clearly as they are able to to anyone who can pick their head out of their equity-overloaded ar$e for 30 seconds that the economic headwinds have changed and loser monetary policy is ahead.
Title: Re: Precious Metals
Post by: Car Jack on August 30, 2019, 09:13:45 AM
So as a warning....if you're buying physical gold from someone that's not a business like Apmex.....bring a magnet.  This is even more important for silver.  You don't want to be checking your stash in 10 years and find that you've got 18 micrograms of pure gold over a steel slug.  This has become a very big problem in the silver market for coin buyers.
Title: Re: Precious Metals
Post by: PDXTabs on August 30, 2019, 10:00:13 AM
So the moral of the story is if youíre going to stuff something under the mattress for a decade, make it gold.

I would add that farm land (another hard asset and inflation hedge) did much better: https://www.ers.usda.gov/topics/farm-economy/land-use-land-value-tenure/farmland-value/ (https://www.ers.usda.gov/topics/farm-economy/land-use-land-value-tenure/farmland-value/)

Of course buying farmland and renting it out to get enough money to cover the taxes is a pain in the rear, and it isn't very liquid.
Title: Re: Precious Metals
Post by: Telecaster on August 30, 2019, 10:22:27 AM
Gold is a hedge against inflation of the supply of money and tends to do well when real interest rates go negative. That means it can do great if nominal rates are zero and inflation is 2%, or it can do terrible if nominal rates are 15% and inflation is 10%.

Bonds and gold are absolutely not in contradiction. They are both are flashing warnings about as clearly as they are able to to anyone who can pick their head out of their equity-overloaded ar$e for 30 seconds that the economic headwinds have changed and loser monetary policy is ahead.

Could be, but a snip from your article up above (emphasis mine):

Gold historically gives good risk-adjusted returns when bought at cheap or moderate prices during times when equities are highly valued.

At the moment, equities are highly valued, but by no measure is the price of gold cheap or moderate.   Historically, when you buy gold at something like today's prices, you take it in the shorts.   
Title: Re: Precious Metals
Post by: flipboard on August 30, 2019, 11:33:23 PM
At the moment, equities are highly valued, but by no measure is the price of gold cheap or moderate.   Historically, when you buy gold at something like today's prices, you take it in the shorts.
What? Inflation Adjusted, Gold is cheap.
Title: Re: Precious Metals
Post by: Paul990 on September 01, 2019, 06:57:20 AM
So the moral of the story is if youíre going to stuff something under the mattress for a decade, make it gold.

I donít suppose a site like goldmoney.com factors in the risk-free interest that can be earned in treasuries, savings bonds, or even bank CDs - but only on cash. I really bet they donít model, say, a 70/30 portfolio over that time. I guarantee they donít factor in the sky-high bid-ask spread for physical metal at your local coin shop or the insurance and security measures required to safely keep physical PMs at home.
I donít share your conviction that treasuries, saving bonds and bank CDs are completely risk-free, but let's leave it for another day.
If Goldmoney had factored in the negative interest that was "earned" in 3-Months treasuries in the last years, they had made their point even better.

(https://specials-images.forbesimg.com/imageserve/5d6ac5ab673aa300083cade2/960x0.jpg?fit=scale)

https://www.forbes.com/sites/johntobey/2019/08/31/worried-about-negative-interest-rates-coming-they-are-already-here-and-that-is-a-serious-problem/#780f7d745cc1


If Goldmoney had considered the inflation rate calculated according to the criteria used pre-1980, they had scored a home run.

(http://www.shadowstats.com/imgs/sgs-cpi.gif?hl=ad&t=1565704714)

http://www.shadowstats.com/alternate_data/inflation-charts



With those charts, they (Goldmoney) didn't mean that a 100% gold portfolio offers the best performance. I think you misunderstood the meaning of those charts.
A 70/30 could have been better over that time, or could have been worse over that time. Itís doesnít matter because those charts weren't portfolio-advising.
All those charts are showing is just gold's efficacy in protecting against the depreciation of the US dollar (or of every other fiat currency).

(https://www.goldbroker.com/media/image/cms/media/images/gold-only-money%20that-tells-truth/major_currencies_vs_gold.png)

https://www.goldbroker.com/news/gold-is-the-only-money-that-tells-the-truth-1271


As gold investing, in your comment you consider only precious metals home keeping.
Keep in mind that this is only one way of investing in them.
You can buy and let them store through companies like Goldmoney, Bullionstar, Bullionvault etc.
Essential is allocated storage, regular third party audits of the metals, LMBA quality, ownership title of the metals, insurance etc.
(ETFs donít offer ownership title of the metals represented by the ETF shares, so I consider them gold derivatives.)
Another, new way to invest in precious metals is offered by blockchain, which offers some benefits, among others enhanced transparency and records manipulation prevention.
Ownership title and all other guarantees are there, low bid-ask spread, and insurance and security are taken care of for free.
Title: Re: Precious Metals
Post by: maizefolk on September 01, 2019, 08:01:34 AM
If Goldmoney had considered the inflation rate calculated according to the criteria used pre-1980, they had scored a home run.

(http://www.shadowstats.com/imgs/sgs-cpi.gif?hl=ad&t=1565704714)

http://www.shadowstats.com/alternate_data/inflation-charts

Be careful about using the ShadowStats #s shown in the graph you inserted here. Over a few years it can be hard to distinguish between 2-3% inflation and 5-7% inflation so it's easy to tell oneself that the reported numbers are way off. However over longer time periods, it's easy to sanity check. If the shadowstats inflation numbers from 1980-2010 are correct (prices increased 8.5x vs 2.5x for the reported CPI numbers), it means that a house in 2010 costs less than half as much as in 1980 in real (inflation adjusted) terms.

(http://4.bp.blogspot.com/-07uPKO21tvc/TYX4izgd1NI/AAAAAAAADqg/xX1L8xwM85s/s400/shadow%2Bstats%2Breal%2Bhousing%2Bprices.png)

People have done similar comparisons using grocery ads from the early 1980s and more recently, comparing how accurately the ShadowStats inflation numbers and government reported inflation numbers predict the change in prices over 30+ years.

(https://s3-us-west-2.amazonaws.com/maven-user-photos/economonitor/emerging-markets/2waTRiClfEK6xXAhSPc8Dg/8tYiL81jRk--pB3WrzC0Sg)

Here's a fascinating breakdown of the differences between government reported inflation and ShadowStats, including an explanation of some of the most controversial adjustments in the government inflation data and some sanity checks of the two inflation #s using price changes across multiple decades.

https://moneymaven.io/economonitor/emerging-markets/deconstructing-shadowstats-why-is-it-so-loved-by-its-followers-but-scorned-by-economists-DWhA0PwhhkOHkzTLLeCvpQ/
Title: Re: Precious Metals
Post by: PDXTabs on September 01, 2019, 10:30:58 AM
https://moneymaven.io/economonitor/emerging-markets/deconstructing-shadowstats-why-is-it-so-loved-by-its-followers-but-scorned-by-economists-DWhA0PwhhkOHkzTLLeCvpQ/

That is fascinating. Thanks for posting.
Title: Re: Precious Metals
Post by: Paul990 on September 02, 2019, 12:10:34 PM
@maizeman,
I lack the knowledge needed to check ShadowStats's figures, so maybe you are right.
As I don't live in the USA, I lack even an overall experience of what the real US dollar depreciation has been in the last 40 years.

I was just making the point that the classic argument Bonds give a yield, Gold doesn't, isn't that good during NIRP times.
That said, the main point of my message was actually the second part: bullion home storage isn't the only solution for investing in physical gold.

(Trying to understand how I can reduce the images' size when inserting them into a post)
Title: Re: Precious Metals
Post by: maizefolk on September 02, 2019, 12:22:12 PM
(Trying to understand how I can reduce the images' size when inserting them into a post)

This, at least, I can help with. You can add a "width" tag to images which limits the number of pixels the image will occupy in that dimension in your post. Here is an example:

Code: [Select]
[img width=600]https://img.freepik.com/free-photo/fluffy-sad-puppy-samoyed-dog_89378-171.jpg[/img]
Title: Re: Precious Metals
Post by: Telecaster on September 02, 2019, 09:17:03 PM
Here's easy way to debunk Shadowstats, the Billion Prices Project:

http://www.thebillionpricesproject.com/

The BPP tracks, as the name suggests, the prices of a billion items.  Unlike the CPI, BPP does not include substitutions, which is one of Shadowstats major beefs with CPI.

But the result is inflation as calculated by BPP is very similar to CPI.

Another easy way it just to use the common sense test.  If inflation had been raging along at 10% for the last 20 years as Shadowstats claims, then prices should be up by 600%.   That's clearly not the case. 
Title: Re: Precious Metals
Post by: Paul990 on September 03, 2019, 02:32:42 AM
So, does your daily experience confirm that since August 2018
food increased 1,8%,
energy decreased 2%
all items in general increased 1,8%
?

https://www.bls.gov/cpi/



CPI 12-months June 2019
(https://www.macrobusiness.com.au/wp-content/uploads/2019/07/Capture1-3.png)
You are a lovely man maizeman
Title: Re: Precious Metals
Post by: maizefolk on September 03, 2019, 06:15:50 AM
So, does your daily experience confirm that since August 2018
food increased 1,8%,
energy decreased 2%
all items in general increased 1,8%
?

It's hard to say. Different kinds of food and energy bounce around enough in price that I'm not sure I would notice the difference between an overall an 1.8% increase (or decrease) from a 5-6% increase year to year. But on a decadal scale it gets a lot easier to make the call. While what I pay for groceries has increased since 2009, it'd definitely increased much less than 70% (what 5.5% inflation compounded annually for a decade would predict).

On the energy side, the price I pay for gasoline today is about the same as what I paid in 2009 and significantly less than I paid in 2008. I pay a bit more for natural gas and a bit less for electricity than I did in 2009, but I moved to a new state and from an apartment to a house in that time frame so those comparisons are less informative.
Title: Re: Precious Metals
Post by: MilesTeg on September 03, 2019, 10:55:53 AM
Thanks to all those that answered my questions; it's appreciated!
Title: Re: Precious Metals
Post by: Paul990 on September 05, 2019, 04:17:06 AM
Another easy way it just to use the common sense test.  If inflation had been raging along at 10% for the last 20 years as Shadowstats claims, then prices should be up by 600%.   That's clearly not the case.

But on a decadal scale it gets a lot easier to make the call. While what I pay for groceries has increased since 2009, it'd definitely increased much less than 70% (what 5.5% inflation compounded annually for a decade would predict).

Yes, I understand that considering long term, Shadowstats' figures look exaggerated.
But let's not forget, Shadowstats doesn't make up their own criteria in order to criticise the official CPI (there are other critics who do just that).
Shadowstats applies what until 1980 were the official criteria to do that.

Nobody seems to put in question that Shadowstats applies the 1980 CPI criteria correctly, so, I assume that that's the case.
So, it seems that until 1980 those criteria delivered a reasonable picture of what was the effective US dollar depreciation rate, while applying the same criteria today doesn't.
I guess, maybe because behaviour and market conditions have changed, but that's a very general assertion, platitudelike, and is just guessing.
Title: Re: Precious Metals
Post by: waltworks on September 05, 2019, 06:59:09 AM
Yes, I understand that considering long term, Shadowstats' figures look exaggerated.

They just look/are hilariously wrong by any reasonable measure.

Did you read the two articles? There's nothing defensible about the way Shadowstats is producing these numbers. You can disagree with how the government reports inflation and unemployment while still recognizing that Shadowstats is just some guy's nutty ranting, basically. It's not even vaguely a useful substitute for the official numbers.

-W
Title: Re: Precious Metals
Post by: maizefolk on September 05, 2019, 01:42:28 PM
Quote from: Paul990 link=topic=92969.msg2453687#msg2453687
Nobody seems to put in question that Shadowstats applies the 1980 CPI criteria correctly, so, I assume that that's the case.

Yes, lots of people, myself included, are calling into question whether the numbers on shadowstats reflect that the 1980 inflation formula would measure today.

Keep in mind the author isnít calculating inflation using the old formula, nor does he claim to. He doesnít have the raw data he would need. He is taking the new numbers reported by the government and then adding in various amounts of additional inflation he says he thinks will correct for the changes made to the formula.

Very different from just continuing to calculate inflation from the same data using the old formula.
Title: Re: Precious Metals
Post by: Paul990 on September 07, 2019, 02:49:15 AM
When Blackrock speaks, you better listen...

What ammunition central banks have yet to deploy

There are two ways inflation is created: one is to actually raise the prices of goods and services organically, but the other is to debase the currency in which those goods and services are sold (think helicopter money). Because the former method relies on traditional aggregate demand stimulus (lower interest rates), which has not been working, since the natural rate of aggregate demand growth is now so low (and in some places is contracting) and the supply curve is so flat; the endgame may well be monetary debasement.

Under the gold standard this would not have been possible, as every new dollar would have to be backed by physical gold mined from the earth (a very slow and expensive process, and likely without the requisite volumes), but today money is created by printing presses, or even a few computer keystrokes.

In order to debase a currency, money needs to be created at a faster pace than goods and services are (essentially, liquidity growth needs to exceed world GDP growth).

How should one position for such an endgame?

As is probably evident, any nominal instrument will be devalued in real terms, so the solution is to hold an asset that maintains its real value Ė an asset that cannot be printed.
We would include stocks (dividend yields are set on payout ratios, companies have some degree of pricing power, and shares outstanding are limited in number), real estate (it is difficult and expensive to expand the stock of real estate), and even commodity currencies, like gold (again, limited supply and expensive to extract).

https://www.blackrockblog.com/2019/09/05/monetary-policy-endgame/?utm_source=BlackRock+Blog&utm_campaign=64d5638776-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_7beec13d69-64d5638776-305445649

Rick Rieder, Managing Director, is BlackRockís Chief Investment Officer of Global Fixed Income and Head of the Global Allocation Investment Team.
Russell Brownback, Managing Director, Head of Global Macro positioning for Fixed Income.
Navin Saigal, Vice President, analyst and portfolio manager on BlackRockís Global Macro Strategies Team.


I find interesting that they call gold a commodity currency.
Beside gold and silver, I can't think of other commodities that can be defined as currencies.
The implication here is that precious metals are not just a way, together with stocks and real estate, to hedge against fiat currency depreciation.
Unlike stocks and real estate, precious metals are also currencies. Money.

Stocks are not money. Real estate is not money. Precious metals are money.
I'm sure these three BlockRock's big calibers see the implication of what they write: when choosing which inflation hedge to invest in, the fact that gold is also money while stocks and real estate are not, could/should play a decisive role, as being money is no negligible advantage of gold vs. stocks and real estate.
Title: Re: Precious Metals
Post by: TomTX on September 07, 2019, 06:16:57 AM
MMkay. I'm thinking Paul here isn't really interested in being a community member, just pushing a really blatant agenda.

Judging by posts, there's no real interaction with the community, just shilling for gold and "stablecoins" backed by gold, etc.
Title: Re: Precious Metals
Post by: Radagast on September 07, 2019, 07:58:12 AM
Stocks are not money. Real estate is not money. Precious metals are money.
My longstanding definition of money is "payments which are accepted by Walmart." By my definition, precious metals are not money. <(large period for emphasis)
Title: Re: Precious Metals
Post by: flipboard on September 07, 2019, 09:00:11 AM
Stocks are not money. Real estate is not money. Precious metals are money.
My longstanding definition of money is "payments which are accepted by Walmart." By my definition, precious metals are not money. <(large period for emphasis)
So Euros, CHF, Renminbi, CAD, GBP all aren't money.
Title: Re: Precious Metals
Post by: Radagast on September 07, 2019, 09:12:33 AM
Stocks are not money. Real estate is not money. Precious metals are money.
My longstanding definition of money is "payments which are accepted by Walmart." By my definition, precious metals are not money. <(large period for emphasis)
So Euros, CHF, Renminbi, CAD, GBP all aren't money.
Well I can vouch that RMB at least is money. Not to me right now, but I have used them at Walmart in the past. Have not had experience with the others.

How does that feel to you? The People's Republic of China issues something that is money, but gold is not presently money anywhere on the entire planet.
Title: Re: Precious Metals
Post by: Buffaloski Boris on September 07, 2019, 09:30:07 AM
Gold is a hedge against inflation of the supply of money and tends to do well when real interest rates go negative. That means it can do great if nominal rates are zero and inflation is 2%, or it can do terrible if nominal rates are 15% and inflation is 10%.

Bonds and gold are absolutely not in contradiction. They are both are flashing warnings about as clearly as they are able to to anyone who can pick their head out of their equity-overloaded ar$e for 30 seconds that the economic headwinds have changed and loser monetary policy is ahead.

The choices in investing seem to be; you can be wealthier, or more popular. Pick one

Equity-overloading is the Achilles heel of the FI movement.       
Title: Re: Precious Metals
Post by: flipboard on September 08, 2019, 01:34:00 PM

"The U.S. broad money supply is growing quickly per capita, while the amount of gold per capita is relatively fixed. Thus, gold should gradually appreciate in price over time at a rate roughly equal to the growth of money supply per capita, which has averaged over 5% per year for nearly five decades now."

In the snip above, replace ďgoldĒ with any of the following to see if the premises sill lead to the conclusion.

Confederate money
Working typewriters
Aspirin
Rain water
Land
Beanie babies (sorry if this one is just being spiteful)
Iron
Roads
Lead
The praline supply
1984 Chevrolet Citation hatchbacks in VG condition
Publicly traded companies
Shares outstanding in a company that does buybacks
Timber
Toilet paper
I realise most people in this thread are firmly in their camp and never going to leave. Nevertheless, here we go.

Iron, Lead, Timber, and Land are the only ones in that list that have been used by humans for 5000 or more years. Land is an asset that is limited in supply, and is something that is often treated as an investment and important good - and in fact its record isn't terrible - and it doesn't have 1:1 correlation with stocks during the shorter timeframe in which stocks have existed (which is what you want when diversifying). Timber meanwhile literally grows in trees, and isn't particularly valuable - and can rot if you treat it wrong - no wonder that's no a good investment.

That leaves Iron and Lead. Also metals. Those two are in much more abundant supply than Gold, and have much less amazing properties (not shiny, not as useful for high-tech electronics, etc.). That explains why they weren't treated as anywhere near as valuable in societies thousands of years ago, and why they continue to not be treated as special today.

That's far from saying that you should only invest in Land and Gold. You shouldn't. And no one on this thread is suggesting that. But with a small allocation as a less-correlated diversifier in a portfolio? Could be something to consider. Apparently I'm not the only one to think so (http://www.efficientfrontier.com/ef/adhoc/gold.htm).
Title: Re: Precious Metals
Post by: Buffaloski Boris on September 08, 2019, 03:26:31 PM

I realise most people in this thread are firmly in their camp and never going to leave. Nevertheless, here we go.


 Weíre talking investment strategies, not religious dogma. That seems to be forgotten at times.

Speaking for myself, a barbaric relic or two in moderation isnít going to significantly hurt your portfolio. So why not have some to smooth out those results?
Title: Re: Precious Metals
Post by: Paul990 on September 14, 2019, 10:18:16 AM
My longstanding definition of money is "payments which are accepted by Walmart." By my definition, precious metals are not money. <(large period for emphasis)
I partly agree.
(There is this conceptual distinction floating around, particularly within the goldbugs sphere, between currency and money, but let's leave it aside.)

Money has two functions: medium of exchange and store of value.
Something which you canít be use to buy things, is not money. Agree.
American Eagles are not accepted at checkpoint at Walmart. That means, they are bad money.
But it's not that with them you cannot buy altogether.
As a rough medium of exchange (you can call it barter. It doesn't matter), precious metals are widespread accepted around the world.
So I wouldn't say that precious metals aren't money altogether. They are just bad money, at least in their physical form.

On the other hand, you donít consider the second function of money.
The more a currency loses purchasing power over time, the worse it is as money.
It is because precious metals accomplish this function better than fiat currencies that some people say, PM are better money than fiat currencies.

The People's Republic of China issues something that is money, but gold is not presently money anywhere on the entire planet.
I wouldn't say that.
The recognition of goldís value is much more widespread than that of any fiat currency.
If they should tell me, Iíll get lost somewhere around the world, without knowing where, and they give me the chance of choosing a currency to take with me, Iíll choose gold.

It's not a question of yes or no, it's a question of what is better and what is worse money (while considering both money's functions).

Title: Re: Precious Metals
Post by: Paul990 on September 14, 2019, 10:25:58 AM
MMkay. I'm thinking Paul here isn't really interested in being a community member, just pushing a really blatant agenda.

Judging by posts, there's no real interaction with the community, just shilling for gold and "stablecoins" backed by gold, etc.
Well, I'm sorry for not really interacting with the community TomTX.
From now on, I'll try to do my best.
And I'm going to start with you.
What do you think about what I just posted?
Title: Re: Precious Metals
Post by: TomTX on September 14, 2019, 10:32:24 AM
MMkay. I'm thinking Paul here isn't really interested in being a community member, just pushing a really blatant agenda.

Judging by posts, there's no real interaction with the community, just shilling for gold and "stablecoins" backed by gold, etc.
Well, I'm sorry for not really interacting with the community TomTX.
From now on, I'll try to do my best.
And I'm going to start with you.
What do you think about what I just posted?
LOL

I think you're sticking hard to your single-topic agenda pushing.
Title: Re: Precious Metals
Post by: maizefolk on September 14, 2019, 11:32:32 AM
Stocks are not money. Real estate is not money. Precious metals are money.
... when choosing which inflation hedge to invest in, the fact that gold is also money while stocks and real estate are not, could/should play a decisive role, as being money is no negligible advantage of gold vs. stocks and real estate.

One can argue back and forth about whether or not gold is money. The arguments have a lot more to do with how one defines money than the strengths or weaknesses of gold itself.* Depends about what different definitions of words should be both bore and tire me, particularly when people are trying to change the definitions to score points in an argument about actual concepts and facts.**

So let's set that aside. Paul, can you explain what the specific non-negligible advantages you see of hedging against inflation with gold rather than in real estate or stocks and how those fit in to gold being money? Also could you clarify whether you are talking about hedging with gold funds or tangible in-your-hands gold?

The former (gold ETFs) of course suffer from higher carrying costs that stock ETFs (0.4% vs 0.04% ER) and poorer tax treatment (28% of gains in dollar terms vs 20% for stocks***).

The latter (physical gold) incurs high transaction costs. I can sell $10,000 in stocks from my computer for $7 or 0.07%. To convert physical gold into money I'm either mailing it in, waiting days and hoping nothing goes wrong, or selling it to a local store and receiving 90-95% of spot prices (the equivalent of having to pay a $500-$1,000 fee to sell $10,000 in stocks).****

Now as Buffalo Chip points out, in small to moderate doses neither a bit of in-the-hand gold or a few percent of ones portfolio in GLD is going to do terrible things to ones overall portfolio. I'm not trying to convince anyone that it's a disaster to buy or own gold. I just genuinely don't see how how one ends up thinking it provides superior long term inflation edge relative to stocks and real estate.***** And that's before we've even touched on the wonderful inflation hedging properties of long term fixed rate mortgages.

* My own view is that gold is every bit as much and every bit as little a currency as bitcoin is. Bitcoin is better at the medium of exchange bit, gold is better at the store of value bit, and

** See also people's attempts to redefine the word "racism." Anyway that's extremely off-topic.

*** Both of these numbers can be lower if your income is lower, but the stock tax rate will always be the lower of the two at any income threshold. And in high inflation scenarios where hedging against it would pay off, a large proportion of the total value of any money you need to pull out of gold/stocks to support your day to day life is going to be "gains" in nominal dollar terms.

**** I also did the same calculation using current buy/sell prices for 1 oz gold bars online. Buying $10,000 in 1 oz gold bars would cost $171 (1.7%) in price paid over spot. And selling $10,000 would cost $92 in price paid under spot. So call it between 13-24x the transaction costs of stocks if you can tolerate much longer wait times to convert your inflation hedge into locally accepted currency.

***** For any level of inflation seen in the history of the dollar. In societal breakdown levels of inflation, gold is definitely going to be more useful to ensuring ones survival than a well funded stock portfolio and a rented out 4-plex. But in a societal breakdown a stash of food, antibiotics, and cigarettes is likely to outperform gold by those same metrics.

Fun comparison: Over my lifetime to date, a dollar invested in the stock market increased to $33.7 (10.9% CAGR), a dollar invested in gold grew to $4.88 (4.8% CAGR), and (in NYC), and a pack of cigarettes that cost $1.05 back then now goes for $13 (7.7% CAGR). Outside of NYC the CAGR of cigarettes is closer to 4.9%.
Title: Re: Precious Metals
Post by: SwordGuy on September 14, 2019, 12:20:16 PM
I've noted that when the economy sours, scores of businesses start advertising how wise it is to own gold "at times like this".

Seems plausible.

Then I realize they have voluntarily chosen to SPEND THEIR CASH to convince me to GIVE THEM MORE CASH as their way to UNLOAD THEIR GOLD.

If "times like these" are the best possible time to own gold, why are the people who own that gold going to so much trouble to sell it?

Title: Re: Precious Metals
Post by: TomTX on September 14, 2019, 01:23:55 PM
I've noted that when the economy sours, scores of businesses start advertising how wise it is to own gold "at times like this".

Seems plausible.

Then I realize they have voluntarily chosen to SPEND THEIR CASH to convince me to GIVE THEM MORE CASH as their way to UNLOAD THEIR GOLD.

If "times like these" are the best possible time to own gold, why are the people who own that gold going to so much trouble to sell it?

So that they can sell it to you at 5% above spot, while buying it from others at 5% below spot.
Title: Re: Precious Metals
Post by: SwordGuy on September 14, 2019, 01:28:16 PM
I've noted that when the economy sours, scores of businesses start advertising how wise it is to own gold "at times like this".

Seems plausible.

Then I realize they have voluntarily chosen to SPEND THEIR CASH to convince me to GIVE THEM MORE CASH as their way to UNLOAD THEIR GOLD.

If "times like these" are the best possible time to own gold, why are the people who own that gold going to so much trouble to sell it?

So that they can sell it to you at 5% above spot, while buying it from others at 5% below spot.

If it was such a good investment to hold, they would be advertising to BUY gold, not SELL gold.   That's my point.
Title: Re: Precious Metals
Post by: maizefolk on September 14, 2019, 01:36:07 PM
I've noted that when the economy sours, scores of businesses start advertising how wise it is to own gold "at times like this".

Seems plausible.

Then I realize they have voluntarily chosen to SPEND THEIR CASH to convince me to GIVE THEM MORE CASH as their way to UNLOAD THEIR GOLD.

If "times like these" are the best possible time to own gold, why are the people who own that gold going to so much trouble to sell it?

So that they can sell it to you at 5% above spot, while buying it from others at 5% below spot.

If it was such a good investment to hold, they would be advertising to BUY gold, not SELL gold.   That's my point.

Well there are all those cash-for-gold places spending money advertising to do exactly that (buy your gold).

They'll just offer people a lot less money to buy the gold than they'll charge when they turn around and sell that gold to someone else.
Title: Re: Precious Metals
Post by: JAYSLOL on September 14, 2019, 01:54:27 PM
I've noted that when the economy sours, scores of businesses start advertising how wise it is to own gold "at times like this".

Seems plausible.

Then I realize they have voluntarily chosen to SPEND THEIR CASH to convince me to GIVE THEM MORE CASH as their way to UNLOAD THEIR GOLD.

If "times like these" are the best possible time to own gold, why are the people who own that gold going to so much trouble to sell it?

So that they can sell it to you at 5% above spot, while buying it from others at 5% below spot.

If it was such a good investment to hold, they would be advertising to BUY gold, not SELL gold.   That's my point.

Well, youíre not wrong, but you could certainly say the same about anyone selling anything as an investment including exchanges and wealth management companies that sell stocks or funds full of stocks in a bull market.  The answer of course has nothing to do with a product being a good long term investment because as they say a fast nickel is better than a slow dime.  Or in the case of a fund manager, part of a penny/year in perpetuity off someoneís elseís dime.
Title: Re: Precious Metals
Post by: SwordGuy on September 14, 2019, 02:33:56 PM
I've noted that when the economy sours, scores of businesses start advertising how wise it is to own gold "at times like this".

Seems plausible.

Then I realize they have voluntarily chosen to SPEND THEIR CASH to convince me to GIVE THEM MORE CASH as their way to UNLOAD THEIR GOLD.

If "times like these" are the best possible time to own gold, why are the people who own that gold going to so much trouble to sell it?

So that they can sell it to you at 5% above spot, while buying it from others at 5% below spot.

If it was such a good investment to hold, they would be advertising to BUY gold, not SELL gold.   That's my point.

Well, youíre not wrong, but you could certainly say the same about anyone selling anything as an investment including exchanges and wealth management companies that sell stocks or funds full of stocks in a bull market.  The answer of course has nothing to do with a product being a good long term investment because as they say a fast nickel is better than a slow dime.  Or in the case of a fund manager, part of a penny/year in perpetuity off someoneís elseís dime.

No, not really. 

Exchanges don't own the product (i.e., stocks or other commodities).  They just provide a marketplace.   The companies selling the old own the gold.

As for wealth management companies, aren't they holding the underlying stocks you buy in trust for you?   If they get a bunch of new customers I think they are buying more stock to support those customers, not selling off the stock they own.
Title: Re: Precious Metals
Post by: JAYSLOL on September 14, 2019, 03:57:28 PM
I've noted that when the economy sours, scores of businesses start advertising how wise it is to own gold "at times like this".

Seems plausible.

Then I realize they have voluntarily chosen to SPEND THEIR CASH to convince me to GIVE THEM MORE CASH as their way to UNLOAD THEIR GOLD.

If "times like these" are the best possible time to own gold, why are the people who own that gold going to so much trouble to sell it?

So that they can sell it to you at 5% above spot, while buying it from others at 5% below spot.

If it was such a good investment to hold, they would be advertising to BUY gold, not SELL gold.   That's my point.

Well, youíre not wrong, but you could certainly say the same about anyone selling anything as an investment including exchanges and wealth management companies that sell stocks or funds full of stocks in a bull market.  The answer of course has nothing to do with a product being a good long term investment because as they say a fast nickel is better than a slow dime.  Or in the case of a fund manager, part of a penny/year in perpetuity off someoneís elseís dime.

No, not really. 

Exchanges don't own the product (i.e., stocks or other commodities).  They just provide a marketplace.   The companies selling the old own the gold.

As for wealth management companies, aren't they holding the underlying stocks you buy in trust for you?   If they get a bunch of new customers I think they are buying more stock to support those customers, not selling off the stock they own.

Well, an exchange may be a poor comparison, but a company selling gold doesnít typically have a massive stockpile.  Like a typical retail business they have just enough stock to supply an expected demand for a relatively short period and then order more stock from various mints/suppliers as needed, but they wouldnít just endlessly stockpile wether or not it was selling.  So I think the overall idea still stands wether or not they already own or just facilitate buying it for you, why sell it to you if they believe they could buy it instead and make more?  Because they arenít around to speculate, they just want the fast nickel. 
Title: Re: Precious Metals
Post by: Telecaster on September 14, 2019, 05:12:58 PM
I wouldn't say that.
The recognition of goldís value is much more widespread than that of any fiat currency.
If they should tell me, Iíll get lost somewhere around the world, without knowing where, and they give me the chance of choosing a currency to take with me, Iíll choose gold.

You have to admit that that possibility happening is sufficiently remote you can safely disregard that as a reason for owning gold. 

There is some logic to owning gold in case of some catastrophe like complete collapse of the banking system, meteor strike, zombie apocalypse, etc.  Beyond that, I can't think of many reason reasons. 

RE:  store of value.  Gold is a store of value!  Just not a very good one.   For example, if you bought gold in the last 1970s or early 1980s, the value of your gold declined for decades.  And adjusted for inflation, it still hasn't recovered its value. 

Title: Re: Precious Metals
Post by: Paul990 on September 21, 2019, 04:44:31 AM
There is some logic to owning gold in case of some catastrophe like complete collapse of the banking system, meteor strike, zombie apocalypse, etc.  Beyond that, I can't think of many reasons.
The value (the purchasing power) of the Central Bankís money depends on the Central Bank. They decide about the value of their money.
I feel comfortable owning some money whose value is not decided by some institution.


RE:  store of value.  Gold is a store of value!  Just not a very good one.   For example, if you bought gold in the last 1970s or early 1980s, the value of your gold declined for decades.  And adjusted for inflation, it still hasn't recovered its value.

(https://www.goldbroker.com/media/image/cms/media/images/gold-only-money%20that-tells-truth/major_currencies_vs_gold.png)
Title: Re: Precious Metals
Post by: Paul990 on September 21, 2019, 05:34:31 AM
One can argue back and forth about whether or not gold is money. The arguments have a lot more to do with how one defines money than the strengths or weaknesses of gold itself.
Depends about what different definitions of words should be both bore and tire me, particularly when people are trying to change the definitions to score points in an argument about actual concepts and facts.
I think Radagast's pragmatism is a good starting point: Money is what you can buy goods with.
His definition was in my view limited, as it didnít factor in time. Money is what you can buy goods with over time, i.e. money keeps its purchasing power.
Another limitation was spatial: Money is what you can buy goods with globally, not only in the USA.

In my view, there are grades of goodness in being money. The perfect form of money is an abstraction.
Probably the best way to formulate the question is not ĄIs x money or notď but ĄHow good/bad is x as money in such and such circumstancesď.
X can be better money than Y compared to criterion a), or under certain circumstances, and at the same time worse than Y compared to criterion b), or under other circumstances.

My point is, answering the question "Is gold money?" is not just a matter of definitory arbitrariness, as you seem to suggest. In defining the meaning of the word Money there is also some place for empirical evidence, so to speak.

Paul, can you explain what the specific non-negligible advantages you see of hedging against inflation with gold rather than in real estate or stocks and how those fit in to gold being money?
I donít know Maizeman. I'll rectify it and convert it into a supposition: "as being money should be no negligible advantage of gold vs. stocks and real estate."
Iím wondering, what are the specific, non-negligible reasons why the Central Banks buy/hold gold instead of real estate or stocks?*
And how does it fit in to gold being money?
I guess, it has something to do with liquidity and absence of counterparty risk.
One thing is certain: it has nothing to do with performance (transaction costs, tax treatment, bid-offer spreads etc.).

*I know CBs hold stocks too, but I it seems to me that their reason for holding stocks is at least partly different from the reasons for holding gold, "gold reserves" and "stocks reserves" answer, at least partly, different purposes.

Also could you clarify whether you are talking about hedging with gold funds or tangible in-your-hands gold?
Sure. Iím talking about title of ownership of gold bars.
It doesnít have to be in-hand. I donít belong to the ĄIf you donít touch it, you donít own itď camp.
In my view, BullionVault, GoldMoney, BullionStar (just examples) are as much gold as tangible in-my-hand gold.
ETF shares donít represent title of ownership of gold. They are IOUs.
When I talk about gold I don't mean gold derivatives like futures, ETFs, unallocated gold accounts etc.

* My own view is that gold is every bit as much and every bit as little a currency as bitcoin is. Bitcoin is better at the medium of exchange bit, gold is better at the store of value bit
I couldn't agree more Maizeman

In societal breakdown levels of inflation, gold is definitely going to be more useful to ensuring ones survival than a well funded stock portfolio and a rented out 4-plex.
How about currencies crises like those in Argentina, Russia, South-East Asia, Zimbabwe, Ecuador, Mexico, Venezuela Ö
Was gold in those countries more useful that stocks or real estate?
If you had lived in those countries at that time, what would you had converted your fiat into?
Title: Re: Precious Metals
Post by: maizefolk on September 21, 2019, 05:48:06 AM
RE:  store of value.  Gold is a store of value!  Just not a very good one.   For example, if you bought gold in the last 1970s or early 1980s, the value of your gold declined for decades.  And adjusted for inflation, it still hasn't recovered its value.

(https://www.goldbroker.com/media/image/cms/media/images/gold-only-money%20that-tells-truth/major_currencies_vs_gold.png)

Neither gold nor currency are particularly good stores of value over the long term. Fortunately they aren't our only options, as you yourself pointed out back when you were quoting blackrock people: stocks, bonds, real estate, other commodities.

And really, Paul? A graph of currencies over the last hundred years with the Mark (presumably the Papiermark 1914-1924, as the gold mark, for obvious reasons, did not experience any inflation when using gold as a reference), the Reichmark (1924-1948), and the Deutchmark (1948-2002) shown as three separate currencies?

And then the Euro (2002-Present) is shown starting out at only 15% of its value of in gold rather than starting at 100 like the Reichmark and Deutchmark. One could argue: well since the Euro isn't 100 years old we pegged it to the value of one of its predecessor currencies (D-mark). But if you did that you should apply the same rule consistently for the D-mark which replaced the Reichmark at (10 RM to 1 DM) and the Reichmark (which replaced the Papiermark at 1 trillion Papiermarks to the Reichmark) instead listed each as a completely separate currency.
Title: Re: Precious Metals
Post by: Paul990 on September 21, 2019, 06:51:17 AM
Fun comparison: Over my lifetime to date, a dollar invested in the stock market increased to $33.7 (10.9% CAGR), a dollar invested in gold grew to $4.88 (4.8% CAGR), and (in NYC), and a pack of cigarettes that cost $1.05 back then now goes for $13 (7.7% CAGR). Outside of NYC the CAGR of cigarettes is closer to 4.9%.
I donít know what do you mean with stock market.  The Dow Jones?
If thatís the case, you are comparing an index whose composition changes, with gold bars.
Iím not sure the performance of this index represents the performance of US stocks, as - roughly speaking - companies having trouble get out of the index and companies being successful get in.

Iím not criticising the composition changes per se.
Iím not suggesting some evil manipulation in order to make the index performance look good.
Iím just questioning the identification of the DJ performance with the overall US stock market performance.
At the beginning of your lifetime, which companies were represented in the DJ?
To be fair to gold, I think we should compare the performance of those companies with that of gold.

If, on the other hand, we consider the performance of an index whose composition changes, then letís consider some gold futures strategy. That should be allowed, as investing in gold futures is considered one form of investing in gold. The strategy must be followed consistently though.

Letís take for example the so-called Overnight Strategy.
ĄStarting in 1970 when the price of gold was $35 per ounce, if every day you bought at the price of the afternoon Gold Fixing and sold 19.5 hours later at the price of the next dayís morning Gold Fixing price, your $35 would now be worth $15,843.
Thatís the cumulative value of the Overnight strategy.ď

(https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/inline-images/LBMAcfixAMPMEOD00L.png?itok=IscYs_Iq)

https://www.zerohedge.com/commodities/rothschild-emerges-shadows-centenary-london-gold-fixing

So, over your lifetime to date, while a dollar invested in the stock market increased to $33, a dollar invested in gold futures following consistently the Overnight Strategy grew to ...
Title: Re: Precious Metals
Post by: waltworks on September 21, 2019, 11:20:30 AM
Companies washing out of (or into) the market is already accounted for in the results Maizeman describes.

-W
Title: Re: Precious Metals
Post by: vand on September 22, 2019, 02:31:23 AM
You can win any "X is a better investment than Y" position by selecting an appropriate timeframe to support your own argument.

It gets monotnous and tedious. Stock have beaten gold over 60 years. Gold has beaten stocks over 20 years. Stock have beaten gold over 5 years. Gold has beaten stocks over 5 months.

All of which goes to show that, above and beyond simply selecting "the best performing asset", holding a bit of everything and being able to understand the driving forces behind each macro cycle is much more important than simply putting all your eggs in a single basket.

As one of my favourite bloggers wrote, if everything in your portfolio is doing well then chances are you're not well-enough diversified.
Title: Re: Precious Metals
Post by: waltworks on September 22, 2019, 08:52:11 AM
If people who buy gold actually used gold the way it's described here (ie, as a hedge against a market crash) that would be one thing.

The problem is that every gold person I know *doubles down* on gold when stocks dive, instead of selling their gold to buy cheap stocks. I've watched it happen twice now, and known people who were big into gold, and those folks are WAY behind where they would be if they had (ideally) sold their gold when it was expensive to buy cheap stocks or (still pretty good) just invested in stocks, stayed invested through those downturns (maybe not possible for their mindset, though) and not had any gold at all.

-W
Title: Re: Precious Metals
Post by: maizefolk on September 22, 2019, 09:26:02 AM
Fun comparison: Over my lifetime to date, a dollar invested in the stock market increased to $33.7 (10.9% CAGR), a dollar invested in gold grew to $4.88 (4.8% CAGR), and (in NYC), and a pack of cigarettes that cost $1.05 back then now goes for $13 (7.7% CAGR). Outside of NYC the CAGR of cigarettes is closer to 4.9%.
I donít know what do you mean with stock market.  The Dow Jones?
If thatís the case, you are comparing an index whose composition changes, with gold bars.

No I don't mean the Dow Jones Industrial Average. That's a misleading index of a very small number of companies using price weighted math. To take a toy example, a small company with 1,000 shares each selling at $500/share ($500,000 market cap) in the DJIA would have a bigger effect on its overall movement then a big company with 1 million shares selling at $50/share ($50M market cap).

The numbers I used are from the S&P 500 with the dividends reinvested, but I'm happy to accept numbers for any basket of at least 200 companies, ideally one where it is possible to buy a single low cost index fund which invests in all of them at once. It is true that stocks drop out of the S&P 500 or are added from time to time, but I'm talking about the actual returns a person invested in an S&P 500 index fund would receive over my lifetime, including turn over of companies, a process that wouldn't require any effort on their part.

Quote
ĄStarting in 1970 when the price of gold was $35 per ounce, if every day you bought at the price of the afternoon Gold Fixing and sold 19.5 hours later at the price of the next dayís morning Gold Fixing price, your $35 would now be worth $15,843.
Thatís the cumulative value of the Overnight strategy.ď

(https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/inline-images/LBMAcfixAMPMEOD00L.png?itok=IscYs_Iq)

https://www.zerohedge.com/commodities/rothschild-emerges-shadows-centenary-london-gold-fixing

However, you posted above that your personal strategy is to buy and hold gold that is stored non-locally. If you feel the argument from this zerohedge article is accurate, why not adopt this strategy? If you won't want to adopt this strategy yourself, I don't see how it is connected to the conversation we were having.

Unfortunately, the logic is a little like having argument with ones sibling about whether dogs or cats are better pets and saying "unicorns are better pets than dogs, therefore a cat is the best pet."
1) There isn't compelling evidence that unicorns exist.
2) Of course it is possible that unicorns exist, and if they exist they would indeed make better pets than dogs.
3) However the relationship between dogs and unicorns as pets tells us nothing about the relative desirability of cats vs dogs as pets.
4) Different people will have different preferences and different needs in a pet, so it might be a more constructive discussion for us to focus on the specific relative strengths and weaknesses of dogs and cats rather than arguing that one is simply best for all people in all circumstances.
Title: Re: Precious Metals
Post by: TomTX on September 22, 2019, 10:42:23 AM
So, over your lifetime to date, while a dollar invested in the stock market increased to $33, a dollar invested in gold futures following consistently the Overnight Strategy grew to ...

Nothing, because you appear to have ignored transactional costs and spread. As an individual who isn't already super wealthy, when you buy you will be paying over spot, and when you sell you will be selling for less than spot.

Try running your calculation again with your buy costing 2% above spot and your sell netting 2% below spot.
Title: Re: Precious Metals
Post by: vand on September 23, 2019, 01:12:36 AM
If people who buy gold actually used gold the way it's described here (ie, as a hedge against a market crash) that would be one thing.

The problem is that every gold person I know *doubles down* on gold when stocks dive, instead of selling their gold to buy cheap stocks. I've watched it happen twice now, and known people who were big into gold, and those folks are WAY behind where they would be if they had (ideally) sold their gold when it was expensive to buy cheap stocks or (still pretty good) just invested in stocks, stayed invested through those downturns (maybe not possible for their mindset, though) and not had any gold at all.

-W

Gold is no different to anything else in this regard. People always double up on whatever has gone up, and quitely discard what has gone down. That's the psychology at play that moves the trends in those ways.

The dow/gold ratio has fluctuated between 40:1 and 7:1 over the last 20 years. That's a pretty wide range. How many people have had the discipline to take advantage of that volatility to mechanically rebalancing - or even actively position - their portfolio over that time? Very few, I would guess. They would rather just jump onboard what feels most comfortable and go along with the herd.

Title: Re: Precious Metals
Post by: Paul990 on October 05, 2019, 12:07:45 PM
(https://www.goldbroker.com/media/image/cms/media/images/gold-only-money%20that-tells-truth/major_currencies_vs_gold.png)

Neither gold nor currency are particularly good stores of value over the long term.
I disagree. I think, Paul investing $100 into gold while Peter keeping those $100 as a banknote in his pocket, over the long term Paul is better off.
Replace $ with any other fiat currency.



You can win any "X is a better investment than Y" position by selecting an appropriate timeframe to support your own argument.
It gets monotonous and tedious. Stock have beaten gold over 60 years. Gold has beaten stocks over 20 years. Stock have beaten gold over 5 years. Gold has beaten stocks over 5 months.
That's true vand.
The point is, comparing gold with, e.g., stocks, it is unfair to gold if we consider it just as an asset, so that we limit ourselves to compare its performance with that of other assets, e.g. stocks.
Gold is money. Stocks are not.
Gold is designated by Basel III as risk-free. Stocks are not.
Performance comparisons don't take these aspects of gold into consideration.



ĄStarting in 1970 when the price of gold was $35 per ounce, if every day you bought at the price of the afternoon Gold Fixing and sold 19.5 hours later at the price of the next dayís morning Gold Fixing price, your $35 would now be worth $15,843.
Thatís the cumulative value of the Overnight strategy.ď

(https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/inline-images/LBMAcfixAMPMEOD00L.png?itok=IscYs_Iq)

https://www.zerohedge.com/commodities/rothschild-emerges-shadows-centenary-london-gold-fixing

However, you posted above that your personal strategy is to buy and hold gold that is stored non-locally.
If you feel the argument from this zerohedge article is accurate, why not adopt this strategy?
If you won't want to adopt this strategy yourself, I don't see how it is connected to the conversation we were having.

It is connected to the conversation we were having because we were comparing the performance of US stocks with that of gold.

My point was, if as gold you mean a group of gold bars, without changing it, then it would be fair to compare its performance to a particular group of US stocks, without changing it.

If, on the other hand, the US stock basis of comparison changes (changing the composition of the Index. Roughly speaking, good performing stocks get in, bad performing stocks get out), than it would be fair allow changes of the gold basis of comparison too (replacing the gold bars with gold futures).

(Where did I post that my personal strategy is to buy and hold gold that is stored non-locally?)
Title: Re: Precious Metals
Post by: maizefolk on October 05, 2019, 12:45:09 PM
Neither gold nor currency are particularly good stores of value over the long term.
I disagree. I think, Paul investing $100 into gold while Peter keeping those $100 as a banknote in his pocket, over the long term Paul is better off.

Michael eats nothing but cheetos. Mitch eats nothing but pizza. Over the long term Mitch will probably be less unhealthy than Micheal, yet that comparison doesn't go anything to convince me that pizza is a healthy basis on which to construct a long term diet.

Quote
If you feel the argument from this zerohedge article is accurate, why not adopt this strategy?
If you won't want to adopt this strategy yourself, I don't see how it is connected to the conversation we were having.

It is connected to the conversation we were having because we were comparing the performance of US stocks with that of gold.

My point was, if as gold you mean a group of gold bars, without changing it, then it would be fair to compare its performance to a particular group of US stocks, without changing it.

I think we are having a fundamental disagreement about what we are in disagreement over. I'm trying to understand the investment strategy you are advocating, and how it compares to the one I currently follow (investing primarily in large baskets of stocks). See below for the quote from yourself in which you define the strategy you are talking about when you use the word "gold" as physical gold (local or nonlocal) and neither gold ETFs nor gold futures.

Iím talking about title of ownership of gold bars.
It doesnít have to be in-hand. I donít belong to the ĄIf you donít touch it, you donít own itď camp.
In my view, BullionVault, GoldMoney, BullionStar (just examples) are as much gold as tangible in-my-hand gold.
ETF shares donít represent title of ownership of gold. They are IOUs.
When I talk about gold I don't mean gold derivatives like futures, ETFs, unallocated gold accounts etc.

The fair comparison is the strategy I follow to the one you follow and/or advocate for, not my strategy to a hypothetical one that you neither follow nor advocate for.

Gold is designated by Basel III as risk-free. Stocks are not.

Under Basel III, Greek, Spanish, Portuguese, and Taiwanese government debt (among that of many other nations) is also designated at risk free.
Title: Re: Precious Metals
Post by: TomTX on October 05, 2019, 03:57:50 PM
Gold is designated by Basel III as risk-free. Stocks are not.
Performance comparisons don't take these aspects of gold into consideration.

That there are authoritative-sounding yet totally worthless claims about it being risk-free?

I do take it into consideration. Claims like this are a good notification that the investment claims being pushed are fundamentally irrational.
Title: Re: Precious Metals
Post by: Telecaster on October 05, 2019, 04:59:23 PM
Neither gold nor currency are particularly good stores of value over the long term.
I disagree. I think, Paul investing $100 into gold while Peter keeping those $100 as a banknote in his pocket, over the long term Paul is better off.
Replace $ with any other fiat currency.
[/quote]

I agree that is likely true over some very long time period.  Question: who keeps a $100 bill in their pocket for decades?  If you simply put the $100 bill in the bank and collect interest the calculus changes a lot. 

If you put the $100 in a diversified basket of stocks then there is no question who comes out ahead. 
Title: Re: Precious Metals
Post by: waltworks on October 05, 2019, 05:35:24 PM
It always ends up here - with the (correct) claim that hoarding physical currency is worse than hoarding gold.

But here's the thing - I have, at any given time, at most $1000 in physical cash, and no more than 5% of my NW in virtual/electronic cash in bank accounts. I really don't want or need cash except when I'm buying things, so I'm indifferent to what the cash is or it's long term value so long as I can rely on the price of the item staying stable over, say, 24 hour periods.

Cash is just a tool. It's not an investment, and it's not useful or interesting to talk about the value of gold vs the value of fiat currency unless you're literally stuffing your mattress with $5 bills.

-W
Title: Re: Precious Metals
Post by: TomTX on October 05, 2019, 05:37:29 PM
It always ends up here - with the (correct) claim that hoarding physical currency is worse than hoarding gold.

But here's the thing - I have, at any given time, at most $1000 in physical cash, and no more than 5% of my NW in virtual/electronic cash in bank accounts. I really don't want or need cash except when I'm buying things, so I'm indifferent to what the cash is or it's long term value so long as I can rely on the price of the item staying stable over, say, 24 hour periods.
My returns on electronic "cash" are pretty decent using it to fund bank account churning.
Title: Re: Precious Metals
Post by: Paul990 on October 09, 2019, 07:07:18 AM
I'm trying to understand the investment strategy you are advocating
Me too Maizeman, as I wasnít aware that I was advocating some investing strategy.

30% gold, 30% real estate, 30% stocks, 10% cash.
Is it compatible with the investing strategy I have advocated until now?

However, you posted above that your personal strategy is ...
I'd like so much to know my personal strategy Maizeman. Could you please formulate it?

See below for the quote from yourself in which you define the strategy you are talking about when you use the word "gold" as physical gold (local or nonlocal) and neither gold ETFs nor gold futures.
Yes Maizeman, when I use the word gold I donít mean derivatives but physical.
So, which is my personal strategy?




Neither gold nor currency are particularly good stores of value over the long term.
I disagree. I think, Paul investing $100 into gold while Peter keeping those $100 as a banknote in his pocket, over the long term Paul is better off.

Michael eats nothing but cheetos. Mitch eats nothing but pizza. Over the long term Mitch will probably be less unhealthy than Micheal, yet that comparison doesn't go anything to convince me that pizza is a healthy basis on which to construct a long term diet.

Maizeman, I think Michael investing $100 into gold while Mitch keeping those $100 as a banknote in his pocket, over the long term Michael is better off.

(https://cdn2.hubspot.net/hubfs/3453012/Imported_Blog_Media/currencies-depreciated-relative-to-gold.jpg)                                  (http://www.economicreason.com/wp-content/uploads/2013/01/global-reserve-currencies2.png)

In my view - feel free to disagree - gold is - by far - a better store of value than fiat currencies.
Found this quote of Thomas Jefferson (https://www.zerohedge.com/economics/founders-warned-us-about-central-banking) today: ĄPaper is poverty. It is only the ghost of money, and not money itselfĒ, and I wonder, which investing strategy was T. Jefferson advocating?
Title: Re: Precious Metals
Post by: maizefolk on October 09, 2019, 07:32:02 AM
Neither gold nor currency are particularly good stores of value over the long term.
I disagree. I think, Paul investing $100 into gold while Peter keeping those $100 as a banknote in his pocket, over the long term Paul is better off.

Michael eats nothing but cheetos. Mitch eats nothing but pizza. Over the long term Mitch will probably be less unhealthy than Micheal, yet that comparison doesn't go anything to convince me that pizza is a healthy basis on which to construct a long term diet.

Maizeman, I think Michael investing $100 into gold while Mitch keeping those $100 as a banknote in his pocket, over the long term Michael is better off.

You just changed the names and reposted the same comment. What is your end goal here?

In my view - feel free to disagree - gold is - by far - a better store of value than fiat currencies.

I think this may be why we're having so little progress here.

You seem to really want me to be advocating that people should be stuffing dollars under a mattress and I'm genuinely not doing that. I completely agree that over the long term "investing" in cash in the mattress (or in a bank) is a losing strategy due to inflation.

The fact that gold (or copper or two by fours or pork bellies or bushels of corn or cigarettes) is a better investment than cash over the long term is not the same as saying any of those are a good investment. Just like the fact that a pizza-only diet is a healthier diet than a cheetos-only diet isn't evidence that pizza a health food.
Title: Re: Precious Metals
Post by: Paul990 on October 09, 2019, 07:33:59 AM
The numbers I used are from the S&P 500 with the dividends reinvested, but I'm happy to accept numbers for any basket of at least 200 companies, ideally one where it is possible to buy a single low cost index fund which invests in all of them at once.

It is true that stocks drop out of the S&P 500 or are added from time to time, but I'm talking about the actual returns a person invested in an S&P 500 index fund would receive over my lifetime, including turn over of companies, a process that wouldn't require any effort on their part.
The Overnight Strategy doesnít require a lot of efforts either. You can write an app and let the computer to do the work.
But thatís not the point.

The question Iím addressing is what constitutes a fair comparison when we compare goldís with stockís performance.
Good performing/getting big gets in, bad performing/getting small gets out: as long as this mechanism is in place, it doesnít matter if we are talking about a 30, a 300 or a 3,000 stocks basket.
(The dividends aspect is also irrelevant.)

Letís consider the S&P 500.
Out of the 500 originals, only 60 companies are still in the Index.
So, in my view, if we are going to compare the performance of that gold bar with the performance of the S&P 500 since inception (1957), I would consider to be fair to compare the performance of that gold bar vs. the performance of those initial 500 stocks.
On the other hand, if - stocksside - the basis of comparison is allowed to change (good performing/getting big gets in, bad performing/getting small gets out), then - goldside - the basis of comparison should be allowed to change too.

I mentioned the so called Overnight Strategy not because I wanted to advise to invest according to it.
It was just an example of what, in my view, could constitute the goldside basis of comparison when comparing Ągoldď with Ąstocksď, if with Ąstocksď one means Indices whose composition changes more or less regularly according to the rule: good performing stocks come in, bad performing stocks get out.

If you feel the argument from this zerohedge article is accurate, why not adopt this strategy?
Maizeman, really?


Speaking about fairness: The USA has been the economic superpower for a century now.
I have seen that more than once when people compare goldís with stocksí performance, with Ąstocksď they mean US stocks.
That happens also in forums based outside of the USA.
So, now I'm wondering, is it fair to compare goldís performance with the performance of the stocks of the best performing economy worldwide?
After all, not everybody lives in the USA, isn't it.
In the last century, not everybody could buy US stocks, even if he wanted to.
Even today, in some countries there are hindrances at it.
So, for example, for Mexicans, wouldnít make more sense to compare gold's performance with Mexican stocks? For Russians, wouldnít be more interesting to compare gold's performance with Russian stocks? For Filipinos, wouldnít beÖ



Gold is designated by Basel III as risk-free. Stocks are not.

Under Basel III, Greek, Spanish, Portuguese, and Taiwanese government debt (among that of many other nations) is also designated at risk free.

That doesnít matter Maizeman.
My point is, gold is designated as risk free, stocks arenít.
My point is, comparing goldís with stockís performance, the fact that gold is less risky, or even risk free, doesnít get factored in.
Gold holders have a benefit which stocks holders donít have, but this benefit doesnít get factored in when comparing gold's vs. stocks' performance.
I find it unfair to gold.

Also, as I said, gold is money, a currency.
Stocks are not.
Gold holders have not only an asset. They have money too. Stocks holders donít.
This advantage of the gold holders doesnít get factored in when comparing goldís with stocksí performance.
This too, I find unfair.

My point is, comparing gold and (e.g.) stocks, shouldnít be reduced to comparing performances.
Comparing gold and stocks only under the point of view of their performance, is reductive, because it leaves out aspects which are important when assessing investment strategies.
If we consider the performance as the only, or the principal way to compare gold with stocks, in my view it's unfair to gold.
Title: Re: Precious Metals
Post by: maizefolk on October 09, 2019, 08:13:46 AM
Letís consider the S&P 500.
Out of the 500 originals, only 60 companies are still in the Index.
So, in my view, if we are going to compare the performance of that gold bar with the performance of the S&P 500 since inception (1957), I would consider to be fair to compare the performance of that gold bar vs. the performance of those initial 500 stocks.

It is certainly fair to compare conventional stock index funds to gold* since those both among the options folks are choosing between when deciding were to invest savings.

However, the comparison you describe above also sounds fascinating. Could you post this comparison (cap weighted investment in the S&P as of 1957 run forward to the present day) vs gold 1957 to present, please?

*As you defined gold which includes both gold bars under the mattress and off-site gold storage, but neither gold ETFs nor gold futures.
Quote
If you feel the argument from this zerohedge article is accurate, why not adopt this strategy?
Maizeman, really?

That's not actually an answer to the question.

Quote
Speaking about fairness: The USA has been the economic superpower for a century now.
I have seen that more than once when people compare goldís with stocksí performance, with Ąstocksď they mean US stocks.
That happens also in forums based outside of the USA.
So, now I'm wondering, is it fair to compare goldís performance with the performance of the stocks of the best performing economy worldwide?

Stock performance in the USA in the 20th and 21st centuries isn't all that exceptional (with one caveat). You still similar or modestly lower estimates of safe withdrawal rates in countries like Australia, Canada, Sweden, South Africa, and the UK.

The concept that US stock performance was exceptional comes mostly from people analyzing the Dimson, Marsh, Staunton dataset which includes about a century worth of stock market data from ~20 countries. More than half of those countries are European ones where a potential investor experienced World Wars I or II being fought right outside their door, killing millions of people and destroying decades if not centuries of built up infrastructure. And the bad years to get into those stock markets are clustered in the late 1910s and 1930s.

I will happily concede that if a world war or equivalent is fought on the ground in the USA (or whatever country an individual happens to be located in), savings in stocks (or bonds) are unlikely to be enough to allow them to continue on with their regular life uninterrupted. In that situation, assuming one could avoid having ones gold-physically-in-hand or gold-owned-but-off-site confiscated (as happened here in the USA in the 1930s) and tends to happen during invasions and occupations as well, I agree there would be value to having a portion of ones net worth in gold.

Is that the use case you are arguing for?

Quote
Gold is designated by Basel III as risk-free. Stocks are not.

Under Basel III, Greek, Spanish, Portuguese, and Taiwanese government debt (among that of many other nations) is also designated at risk free.

That doesnít matter Maizeman.
My point is, gold is designated as risk free, stocks arenít.

My point is that the risk free designation in Basel III doesn't agree with my own understanding of the word "risk." My guess is that it doesn't agree with yours either, but I could be wrong.

Do you feel greek government debt is a risk free investment?

If not, I think we can put aside the Basel III designations some information that is not informative for these discussions.

Quote
My point is, comparing goldís with stockís performance, the fact that gold is less risky, or even risk free, doesnít get factored in.
Gold holders have a benefit which stocks holders donít have, but this benefit doesnít get factored in when comparing gold's vs. stocks' performance.
I find it unfair to gold.

Okay, this is a fair point. I agree that the price of gold is less volatile that stocks (although it seems to be more volatile than bonds). How would you like to quantify this?

Quote
Also, as I said, gold is money, a currency.
Stocks are not.
Gold holders have not only an asset. They have money too. Stocks holders donít.
This advantage of the gold holders doesnít get factored in when comparing goldís with stocksí performance.
This too, I find unfair.

This is not a fair point, because while you have said repeatedly that "gold is money" it's not clear what this means to you or who this actually translates into a benefit for a person who owns a bar of gold.

Rai stones are money, but I don't think that's a good argument for me to put any of my savings into those.

Quote
My point is, comparing gold and (e.g.) stocks, shouldnít be reduced to comparing performances.
Comparing gold and stocks only under the point of view of their performance, is reductive, because it leaves out aspects which are important when assessing investment strategies.
If we consider the performance as the only, or the principal way to compare gold with stocks, in my view it's unfair to gold.

I completely agree that there are other aspects we could be discussing. However, I think we can establish with a great deal of confidence that stocks DO provide significantly better return over the long term than gold. It seemed you disagree with me about that? But if you agree gold under performs stocks as an investment we can certainly move on to discuss what other redeeming factors gold has that might or might not make up for that in some situations.
Title: Re: Precious Metals
Post by: maizefolk on October 09, 2019, 08:38:55 AM
However, the comparison you describe above also sounds fascinating. Could you post this comparison (cap weighted investment in the S&P as of 1957 run forward to the present day) vs gold 1957 to present, please?

So far I've only found data for 1957-2003, but over that time period it looks like a buy and hold strategy of the original S&P 500 companies significantly outperformed the S&P index itself except for right before the crash of the tech bubble. (With dividends reinvested in both cases.)

(https://imgpile.com/images/1S2rEk.png) (https://imgpile.com/i/1S2rEk)

By investing in 1957 S&P companies and their direct descendents/spinouts an investor ended up significantly more invested in energy and consumer staples than the S&P index of 2003 and significantly less invested in Tech and Finance than the S&P index as of 2003. Which makes sense when one thinks about it.

So buy and hold investing in the 500 companies included in the S&P 500 index in 1957 outperformed investing in the S&P 500 itself (the composition of which changes over time) (A > B). And since the S&P 500 outperformed gold (B > C), it looks like a simply buy and hold strategy of stocks does, in fact, outperform a simply buy and hold strategy of gold (A > C).

But that's just logical reasoning, let's run the numbers. An investment in the original 1957 S&P 500 companies had a CAGR of 11.4% from 1957 to 2003, an investment in the actual S&P 500 companies had a CAGR of 10.8% and gold was $35/oz in 1957 and $417/oz in 2003 for a CAGR of 5.5% (edit: to clarify, all three values not adjusted for inflation).

Thank you for that, Paul! Never would have thought to dig into this question if you hadn't brought it up and the paper was fascinating.

Source: Siegel, J. J., & Schwartz, J. D. (2006). Long-term returns on the original S&P 500 companies. Financial Analysts Journal, 62(1), 18-31.
Title: Re: Precious Metals
Post by: waltworks on October 09, 2019, 09:27:47 AM
Maizeman: "Holding onto cash is an even shittier strategy than holding onto gold but they're both shitty." (many charts/graphs)
Paul990: "<insert name here> is holding gold, <insert name here> is filling their mattress with $2 bills. Who's better off!?!111!?"

It's like watching a basketball game where one team is up by 50 points in the 4th quarter and you're only hanging around to see if they get the lead to 75, even though you feel embarrassed for the losing team.

-W
Title: Re: Precious Metals
Post by: Dago on October 10, 2019, 07:04:28 AM
In a Venezuela, Syria, or Nazi Germany situation, having a Swiss bank account with a few thousand in foreign currency and a passport would fly you out of the country over the heads of the people having their clothes patted down for coins or their homes ransacked by soldiers/rebels. The coin collector hobby shop will not be open. 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

I would like to offer a counter story to this. My father's family is jewish. During the war some lived in Germany, some in Switzerland.

Jews in Germany were only allowed to emigrate after a very long process during which  they had to forfeit all their wealth and goods (bank accounts, stocks, art pieces, house etc). This is true whether they could afford a first class ticket or not. Any money in a foreign bank account would be of no use as they could not reach it physically nor get a money transfer that would not be seized by the German bank.

On the other hand, having some valuables that could be hidden from the state (jewelry is a typical example, but gold coins would work as well) helped manage the emigration process (read: corruption of civil servants and citizens ). It might also be embarked secretly during the journey as to have something afterwards.
My family in Switzerland had bought per instance the most expensive diamond they could afford for the case Germany would finally invade Switzerland. This was the highest density of wealth they could think of and it could have been transported secretly pretty easily.

All in all, I believe that any situation is different and planning for it is complicated if not impossible and this is why having diversification (gold AND currencies in a safe AND stocks, ...) is the key.
Title: Re: Precious Metals
Post by: Car Jack on October 11, 2019, 12:03:12 PM
(https://www.goldbroker.com/media/image/cms/media/images/gold-only-money%20that-tells-truth/major_currencies_vs_gold.png)

What this says to me is 2 things.

1) How goes the US, so goes the world...

2) When gold bullion became LEGAL for US residents to own (January 1975), it's value dramatically rose, plateaued, then did nothing.
Title: Re: Precious Metals
Post by: TomTX on October 11, 2019, 05:50:55 PM
The Overnight Strategy doesnít require a lot of efforts either. You can write an app and let the computer to do the work.
But thatís not the point.

For how long have you been employing the Overnight Strategy, and how did you handle the losses from actual buy/sell spread on physical bullion vs theoretical spot price you used for the example?
Title: Re: Precious Metals
Post by: Paul990 on October 20, 2019, 11:50:03 AM
At the moment, equities are highly valued, but by no measure is the price of gold cheap or moderate.
@Telecaster,
the problem of measuring the gold price.
How can you measure a unit of measure.
It almost gets philosophical, isn't it.

Chartists will consider only past price movements.
Fundamentalists will look at demand and supply trends. Plus, considering that gold is not just a commodity but also a monetary metal, i.e. a currency, they will factor in monetary data.

Related to the US debt, gold is cheap

(https://www.ainsliebullion.com.au/Portals/0/contentimages/gold-too-low-1.jpg) (https://www.ainsliebullion.com.au/Portals/0/contentimages/gold-too-low-1.jpg)


Related to US stocks, gold is cheap

(http://www.gold-eagle.com/sites/default/files/images/obyrne012716-3.jpg) (http://www.gold-eagle.com/sites/default/files/images/obyrne012716-3.jpg)


Inflation adjusted gold is cheap

(https://www.bullionvault.com/gold-news/files/gold_inflation_adjusted_1.png) (https://www.bullionvault.com/gold-news/files/gold_inflation_adjusted_1.png)


Using 1980 CPI formula, gold is super cheap

(https://s3-us-west-2.amazonaws.com/gs-live/uploads%2F1498846969883-chart1.png) (https://s3-us-west-2.amazonaws.com/gs-live/uploads%2F1498846969883-chart1.png)


Related to US money supply, gold is cheap

(https://www.sunshineprofits.com/media/cms_page_media/2016/2/4/gold-money-supply.png) (https://www.sunshineprofits.com/media/cms_page_media/2016/2/4/gold-money-supply.png)

Title: Re: Precious Metals
Post by: maizefolk on October 20, 2019, 12:02:59 PM
Inflation adjusted gold is cheap

(https://www.bullionvault.com/gold-news/files/gold_inflation_adjusted_1.png) (https://www.bullionvault.com/gold-news/files/gold_inflation_adjusted_1.png)

This chart shows that gold is its most expensive (in inflation adjusted terms) it has been since the early 1980s. How is that cheap?

Although one should also note that the chart appears to be a decade old, since it only goes through 2009.

Quote
Using 1980 CPI formula, gold is super cheap

(https://s3-us-west-2.amazonaws.com/gs-live/uploads%2F1498846969883-chart1.png) (https://s3-us-west-2.amazonaws.com/gs-live/uploads%2F1498846969883-chart1.png)

This is a graph of the price of silver....
Title: Re: Precious Metals
Post by: TomTX on October 20, 2019, 12:13:43 PM
c'mon! You can't expect gold bugs to actually have proper documentation? Their schtick is all flim-flam anyway.
Title: Re: Precious Metals
Post by: Telecaster on October 20, 2019, 06:27:53 PM
At the moment, equities are highly valued, but by no measure is the price of gold cheap or moderate.
@Telecaster,
the problem of measuring the gold price.
How can you measure a unit of measure.
It almost gets philosophical, isn't it.

Inflation adjusted gold is cheap

(https://www.bullionvault.com/gold-news/files/gold_inflation_adjusted_1.png) (https://www.bullionvault.com/gold-news/files/gold_inflation_adjusted_1.png)

Maizeman beat me to it, but I'll expand on his thoughts.  CPI by definition the cost of a basket of a goods and services, right?    Your chart shows that it takes a LOT MORE goods and services right to buy an ounce of gold now than at almost any time in the past.   That means, by definition, gold is expensive.

Title: Re: Precious Metals
Post by: robartsd on October 21, 2019, 08:46:32 AM
Related to the US debt, gold is cheap

(https://www.ainsliebullion.com.au/Portals/0/contentimages/gold-too-low-1.jpg)
I do read this chart the way you do, national debt is high relative to the price of gold (though I think it says more about national debt than gold).

Also your wrapping the images in links is annoying when combined with the forum software's default handling of clicking on images. I do appreciate that you provided links to the images to view outside the forum, but next time link the text instead.
Title: Re: Precious Metals
Post by: js82 on October 21, 2019, 06:20:21 PM
Let's make this simple:

1. Gold works as an inflation hedge.  So do other commodities.  Over the long run, so does just about anything with intrinsic value.

2. That doesn't make gold a good long-term investment for a large chunk of your portfolio.  There are lots of things that do not only track well with inflation, but also yield a return on investment.  You don't want to own wood, you want to own timberland.  You don't want to own gold, you want to own gold mines.  You don't want to own tankers full of fossil fuel, you want to own the land on which that fuel resides.  Assets that track with inflation *AND* offer a return on investment independent of inflation are superior investments to vehicles merely designed to track inflation.

3. Although Stocks are high-risk over short time horizons, over longer time horizons(decades) a diversified stock portfolio is really not that risky.  Stocks and real estate also happen to track with inflation quite well over the long haul.  And you don't need a stock market with amazing performance to beat an asset that more or less tracks inflation - something that tracks with inflation over the long run and pays dividends will be more than enough to beat gold.
Title: Re: Precious Metals
Post by: TomTX on October 23, 2019, 07:28:35 PM
Well, I'd rather own the land with wind turbine leases than oil wells. Not gonna run out of wind, or have it pollute my land.
Title: Re: Precious Metals
Post by: Orthodox Investor on October 27, 2019, 10:16:29 PM
I've owned plenty of stocks, bonds, and real estate in my life, but I never owned precious metals until recently. A significant factor that finally changed my mind about the topic was Bitcoin. It was just astonishing to see people chase after an endless number of alternative cryptocurrencies when there is a finite number of alternative elements in the periodic table they could be chasing after instead.

While central bankers are trying to maintain trust in fiat currencies by limiting CPI to no more than 2-3% annually, we are long past the point where it makes sense to trust anyone or anything in our society.

The market cap of the cryptocurrency space is in the hundreds of billions. The combined value of all silver bullion and coins is not even a hundred billion.

Similarly each of the major tech stocks has a market cap approaching a trillion, including Amazon, Google, and Microsoft. These companies are powerful because have quasi-monopolies and are making money by making consumers pay a kind of tax. I'm not sure about the probability that these companies will continue to be nearly as influential in another 20 years.

Then there's the trillions worth of corporate bonds and real estate. You can potentially create unlimited amounts of both.

Excluding gold, the market cap of precious metals is essentially nothing compared to the market cap of other asset classes.
Title: Re: Precious Metals
Post by: ChpBstrd on October 28, 2019, 07:58:55 AM
I've owned plenty of stocks, bonds, and real estate in my life, but I never owned precious metals until recently. A significant factor that finally changed my mind about the topic was Bitcoin. It was just astonishing to see people chase after an endless number of alternative cryptocurrencies when there is a finite number of alternative elements in the periodic table they could be chasing after instead.

While central bankers are trying to maintain trust in fiat currencies by limiting CPI to no more than 2-3% annually, we are long past the point where it makes sense to trust anyone or anything in our society.

The market cap of the cryptocurrency space is in the hundreds of billions. The combined value of all silver bullion and coins is not even a hundred billion.

Similarly each of the major tech stocks has a market cap approaching a trillion, including Amazon, Google, and Microsoft. These companies are powerful because have quasi-monopolies and are making money by making consumers pay a kind of tax. I'm not sure about the probability that these companies will continue to be nearly as influential in another 20 years.

Then there's the trillions worth of corporate bonds and real estate. You can potentially create unlimited amounts of both.

Excluding gold, the market cap of precious metals is essentially nothing compared to the market cap of other asset classes.

If scarcity = value, then we should assume antiques, fossils, and meteorites also deserve a place in our asset allocations.
Title: Re: Precious Metals
Post by: Orthodox Investor on October 28, 2019, 11:53:02 AM
If scarcity = value, then we should assume antiques, fossils, and meteorites also deserve a place in our asset allocations.

It cannot be emphasized enough how crucial scarcity is to creating value. Every investor should think long and hard about scarcity of every investment they make. The key reason cryptos have been so successful compared to pet rocks and beanie babies is that within a single currency, the supply is strictly limited. The fatal flaws lie in the numerous forks that are created and the potentially infinite number of alternative currencies that can be created.

The key reason stocks have done so well is that buybacks have reduced the number of shares outstanding year after year. Real estate in California is so expensive because it's hard to bring new supply on the market and despite emigration, the overall population is not yet declining. These are two of the most important things to keep an eye on when investing in California real estate.

There is an equally important trait of a good investment that has to do with the ability to distinguish between something valuable and a fake item. This is an area that cryptos address using cryptography. It seems to be extremely effective in preventing counterfeits. With stocks and bonds, we have trusted brokerages that are known to sell you the real deal and you can look up financial information online that has been audited (not foolproof as we saw with Enron, but much better than having no audits).

With precious metals, you can scan items in seconds with X-ray spectrometers to determine what metals are really contained in an item. For individuals who don't want to spend thousands, Sigma Metalytics sells a scanner that compares the electrical conductivity of metals compared to what's expected for a given type of metal. As a result, it's fairly easy even for a novice to become good at detecting counterfeits.  There is a much much steeper learning curve involved in valuing antiques and fossils and there is the open question of why replicas should be valued any less. If I can create excellent replicas at a low price, and the replicas look and feel just like the original and are made up of the same kind of mix of atoms and molecules, the idea that the "original" should be valued highly while the rest are worthless fakes is an entirely subjective one.

To summarize, precious metals are truly rare and it's truly expensive to obtain more of them. The same cannot be said for other rare items in the universe.
Title: Re: Precious Metals
Post by: js82 on October 28, 2019, 05:38:15 PM
If scarcity = value, then we should assume antiques, fossils, and meteorites also deserve a place in our asset allocations.

It cannot be emphasized enough how crucial scarcity is to creating value. Every investor should think long and hard about scarcity of every investment they make. The key reason cryptos have been so successful compared to pet rocks and beanie babies is that within a single currency, the supply is strictly limited. The fatal flaws lie in the numerous forks that are created and the potentially infinite number of alternative currencies that can be created.

The key reason stocks have done so well is that buybacks have reduced the number of shares outstanding year after year. Real estate in California is so expensive because it's hard to bring new supply on the market and despite emigration, the overall population is not yet declining. These are two of the most important things to keep an eye on when investing in California real estate.

There is an equally important trait of a good investment that has to do with the ability to distinguish between something valuable and a fake item. This is an area that cryptos address using cryptography. It seems to be extremely effective in preventing counterfeits. With stocks and bonds, we have trusted brokerages that are known to sell you the real deal and you can look up financial information online that has been audited (not foolproof as we saw with Enron, but much better than having no audits).

With precious metals, you can scan items in seconds with X-ray spectrometers to determine what metals are really contained in an item. For individuals who don't want to spend thousands, Sigma Metalytics sells a scanner that compares the electrical conductivity of metals compared to what's expected for a given type of metal. As a result, it's fairly easy even for a novice to become good at detecting counterfeits.  There is a much much steeper learning curve involved in valuing antiques and fossils and there is the open question of why replicas should be valued any less. If I can create excellent replicas at a low price, and the replicas look and feel just like the original and are made up of the same kind of mix of atoms and molecules, the idea that the "original" should be valued highly while the rest are worthless fakes is an entirely subjective one.

To summarize, precious metals are truly rare and it's truly expensive to obtain more of them. The same cannot be said for other rare items in the universe.

The problem is that scarcity alone isn't not enough to create reliably sustainable value without some form of intrinsic value/usefulness.  This value has to be of a sort that it can't just be replaced.  (incidentally, this is as much a problem with fiat currencies as cryptos).    While there's a finite amount of bitcoin itself, there's nothing that prevents another cryptocurrency from being used to conduct transactions.  Without some form of intrinsic usefulness or irreplacability there's nothing to create a floor on the value of a currency.  Bitcoin could become worthless at the drop of a hat if someone creates a scarce cryptocurrency architecture that is capable of higher transaction speeds and doesn't consume an obscene amount of energy per transaction.

Precious metals do have a leg up on cryptocurrencies in this regard - consider the usefulness(and not just as jewelry) of silver or platinum, for example - they have industrial uses that provide demand and a basis for their price, unless/until alternatives are discovered(and even then, the relative price of the alternative will mean that these metals will still have some value).

That said, metals are still essentially an inflation hedge.  And I still maintain that there are better long-term guards against inflation out there.
Title: Re: Precious Metals
Post by: Orthodox Investor on October 29, 2019, 08:39:22 AM
Bitcoin could become worthless at the drop of a hat if someone creates a scarce cryptocurrency architecture that is capable of higher transaction speeds and doesn't consume an obscene amount of energy per transaction.
This point seems so obvious to me that I find it hard to understand how Bitcoin became as popular as it has.

The problem is that scarcity alone isn't not enough to create reliably sustainable value without some form of intrinsic value/usefulness. 

A few days ago, I never would have thought of proposing that scarcity equals value, and I believe that in my previous two posts I said nothing that suggests that scarcity alone is sufficient to create value, only that scarcity is an extremely important thing to consider. But when confronted by two other posters explicitly denying that it is true, stating that scarcity is not equal to value, it forces me to consider to what extent it's true or false.

Look, I understand that on an abstract, theoretical level, the idea that scarcity alone creates value seems silly. But come to think of it, I can't really think of any specific examples of scarce things that aren't valuable. The more scarce, the more valuable, it's that simple. Why introduce an unnecessary concept of intrinsic value (it's all ultimately based on fickle human preferences anyways), when you can explain everything using the concept of scarcity alone?

I've commented on why I think fossils, antiques, and meteorites aren't really rare. Now you suggest that fiat currencies and cryptos have no sustainable value because they lack truly intrinsic value. Correct, but everything kinda lacks true intrinsic value if you dig deep enough. Yeah, there's massive industrial demand for palladium and platinum because of their use in catalytic converters, but if the internal combustion engine gets superseded by some other technology, 90% of the industrial demand could disappear. Value created by a government using its police force to impose its will is not necessarily any less reliable or sustainable than any form of intrinsic value.

If you look at the prices at the Rare World Metals Mint (https://www.rwmmint.com), the value of a metal correlates pretty well to how rare it is in the universe.
Title: Re: Precious Metals
Post by: freya on October 29, 2019, 10:06:41 AM
Just had to post in this thread, as an investor in the Golden Butterfly (a variant of the Permanent Portfolio).  Those of you who are rabidly anti-gold, please don't bother to read this.  I'm posting for the benefit of anyone with an open mind interested in gold investing.

There is one very, very simple reason to invest in gold, and you can find it in the site www.portfoliocharts.com.  The top performing portfolios for returns and stability/high perpetual withdrawal rates in retirement all hold gold.  These are exactly the portfolios that people interested in long retirements should be most interested in.  Pinwheel and Golden Butterfly top the list, but there are others worth investigating. 

Gold is not just an inflation hedge; for example during the recent market correction, the price shot up providing a nice rebalancing opportunity.  Its magic comes from functioning as part of an overall multi-asset portfolio, NOT an asset held in isolation.

The mechanics of holding gold are more complicated than buying an index fund, but very doable.  I hold a combination of 1 oz American gold Eagles in a safe deposit box, gold ETFs (current favorite is AAAU) but ONLY in tax-advantaged accounts, and Perth Mint depository online (which is subject to FATCA reporting, but it also gives me some international diversity).

If you do decide to invest in gold, don't fall into the trap of buying gold mining stocks or substituting TIPS.  These do NOT perform like gold.  Also be aware of the collectibles tax, which is different from capital gains.  That's why holding some gold in tax-advantaged accounts is a good idea, for rebalancing purposes. 

You can visit https://www.gyroscopicinvesting.com/forum/index.php for more info on gold investing.
Title: Re: Precious Metals
Post by: maizefolk on October 29, 2019, 10:12:22 AM
If you look at the prices at the Rare World Metals Mint (https://www.rwmmint.com), the value of a metal correlates pretty well to how rare it is in the universe.

The link appears to be dead (at least for me).

However, Osmium (1000x rarer than gold yet 1/4 the price) would have to have a word about the risks of extrapolating price from rarity.
Title: Re: Precious Metals
Post by: markbike528CBX on October 29, 2019, 10:21:17 AM
A vacuum similar to the interstellar medium https://en.m.wikipedia.org/wiki/Interstellar_medium would be extremely rare on earth and quite valuable even if it was possible to replicate it.
While it is a poor choice of value storage or exchange, its value is greatly diminished by the fact that it can be substituted in most cases by ordinary vacuums. 
You don't need an interstellar vacuum to siphon gas.

Diamonds "jewelry quality" are artificially scarce and therefore valuable, but easily substituted by fakes or simply having diamond-free jewelry. 
Title: Re: Precious Metals
Post by: waltworks on October 29, 2019, 10:59:32 AM
but everything kinda lacks true intrinsic value if you dig deep enough.

If you truly believe this, then we just can't have a conversation at all. I'm not even sure how to interpret such a statement. Economic nihilism?

If you can use it for something (eat it, make a tool with it, use it for shelter, etc) then it has intrinsic value. If anything, you can make a pretty strong argument that *everything* has some kind of intrinsic value (ie, I can use Pokemon cards to shim up the short leg on my chair).

-W
Title: Re: Precious Metals
Post by: robartsd on October 29, 2019, 01:54:21 PM
Just had to post in this thread, as an investor in the Golden Butterfly (a variant of the Permanent Portfolio).  Those of you who are rabidly anti-gold, please don't bother to read this.  I'm posting for the benefit of anyone with an open mind interested in gold investing.

There is one very, very simple reason to invest in gold, and you can find it in the site www.portfoliocharts.com.  The top performing portfolios for returns and stability/high perpetual withdrawal rates in retirement all hold gold.  These are exactly the portfolios that people interested in long retirements should be most interested in.  Pinwheel and Golden Butterfly top the list, but there are others worth investigating. 
The primary reason gold is so vital to these portfolios is because the back testing period includes the end of Bretton Woods System. This is a very unique event in the gold vs. dollar history that will never happen again and is a big part of gold's overall performance in that data set. Of course the Bretton Woods System could also be considered to be a big part of the dollar's economic environment that made the late 60's a very difficult time to start living off a portfolio. Holding gold (illegal for American investors between 1933 and 1964) at the end of the Bretton Woods System rescues a lot of portfolios. If you exclude the data prior to 1975, gold is mostly just a drag more or less tracks inflation.
Title: Re: Precious Metals
Post by: TomTX on October 29, 2019, 05:59:23 PM

There is one very, very simple reason to invest in gold, and you can find it in the site www.portfoliocharts.com.  The top performing portfolios for returns and stability/high perpetual withdrawal rates in retirement all hold gold.  These are exactly the portfolios that people interested in long retirements should be most interested in.  Pinwheel and Golden Butterfly top the list, but there are others worth investigating. 

Chop off the first few years after private gold ownership was re-legalized and the numbers shift noticeably.
Title: Re: Precious Metals
Post by: Orthodox Investor on October 29, 2019, 11:38:23 PM
The link appears to be dead (at least for me).

However, Osmium (1000x rarer than gold yet 1/4 the price) would have to have a word about the risks of extrapolating price from rarity.
Try a google search on "Rare Metals World Mint" and it should be the first result if the search is done in the United States (or using a proxy server located in the US).

At rwmmint.com, the price quoted for Osmium is $965. Where can you buy it for a quarter the price of gold?

According to the chart on https://en.wikipedia.org/wiki/Abundance_of_elements_in_Earth%27s_crust, where Gold and Osmium are listed next to each other, there is no great difference in how rare these metals are. Of course, gold is extremely abundant in the sense that around 150,000 tons have been mined and are being hoarded somewhere.. If there was greater demand for osmium, I believe a lot more could be mined and hoarded. The same is not the case for gold, as most of the low hanging fruit has already been picked in the realm of gold mining.
 
you can make a pretty strong argument that *everything* has some kind of intrinsic value (ie, I can use Pokemon cards to shim up the short leg on my chair).

That's what I meant. I think it's clear when reading the entire conversation rather than just the one sentence where I expressed myself inaccurately.

If you exclude the data prior to 1975, gold is mostly just a drag more or less tracks inflation.

Are there significant numbers of people who are actually trying to beat inflation in their investments in this day and age? Interest rates are about to get stuck at zero in all major economies. Your savings will be guaranteed to erode over time. The question now is how do we lose as little money as possible. Maybe if we invest intelligently we can manage to preserve a greater percentage of our savings, but to think you can get a return over and above inflation seems a bit brazen to put it mildly.

I like to think of today's economy and financial system as a gigantic poker table. We are each forced to take a seat and put up the ante in every round. Zero interest rates mean there is no risk-free alternative. We all have to play. Some smart players are going to walk away rich. Think you're one of them? I don't. I know I'm pretty stupid. I know my limitations. If I manage to keep up with inflation, it will be an almost unbelievable achievement for me.
Title: Re: Precious Metals
Post by: Radagast on October 30, 2019, 12:38:27 AM
Are there significant numbers of people who are actually trying to beat inflation in their investments in this day and age? Interest rates are about to get stuck at zero in all major economies. Your savings will be guaranteed to erode over time. The question now is how do we lose as little money as possible. Maybe if we invest intelligently we can manage to preserve a greater percentage of our savings, but to think you can get a return over and above inflation seems a bit brazen to put it mildly.

I like to think of today's economy and financial system as a gigantic poker table. We are each forced to take a seat and put up the ante in every round. Zero interest rates mean there is no risk-free alternative. We all have to play. Some smart players are going to walk away rich. Think you're one of them? I don't. I know I'm pretty stupid. I know my limitations. If I manage to keep up with inflation, it will be an almost unbelievable achievement for me.
I think this explains why you are big proponent of gold and also why you will struggle to make your money grow. Real numbers: my house is a duplex for which the monthly rent is 1700, the mortgage is 810, and my share of the utilities and maintenance is 190, for $700/mo profit. I paid $42,000 for this. You do the math, feel free to neglect growth of principal. Well it turns out the entire economy is based on this type of thing. As a bonus, the house is a real and productive asset and as its owner I am not required to exchange its space for dollars. I could barter it for services, or chickens, or silver coins, or Euros, or yoghurts, or whatever I and the tenants agree on. Ownership of publicly traded companies is very similar to my situation, and I can and (outside retirement accounts) do reference actual real estate opportunities to what I think is available in the stock market. Yes the numbers beat inflation! You should not accept and do not need to accept bad returns.
Title: Re: Precious Metals
Post by: maizefolk on October 30, 2019, 07:28:44 AM
The link appears to be dead (at least for me).

However, Osmium (1000x rarer than gold yet 1/4 the price) would have to have a word about the risks of extrapolating price from rarity.
Try a google search on "Rare Metals World Mint" and it should be the first result if the search is done in the United States (or using a proxy server located in the US).

At rwmmint.com, the price quoted for Osmium is $965. Where can you buy it for a quarter the price of gold?

According to the chart on https://en.wikipedia.org/wiki/Abundance_of_elements_in_Earth%27s_crust, where Gold and Osmium are listed next to each other, there is no great difference in how rare these metals are. Of course, gold is extremely abundant in the sense that around 150,000 tons have been mined and are being hoarded somewhere.. If there was greater demand for osmium, I believe a lot more could be mined and hoarded. The same is not the case for gold, as most of the low hanging fruit has already been picked in the realm of gold mining.

Hmm.

Well so here's a source for the $400/oz price: https://www.metalsdaily.com/live-prices/pgms/ I'm certainly open to learning the value reported there is incorrect but I'm not pulling it out of thin air.

The abundance data, yes there I have to confess to trusting the google, which pulled text from this site (https://blogs.unimelb.edu.au/sciencecommunication/2017/08/11/osmium-76os-a-noble-metal-in-character-but-with-beastly-properties-and-a-heart-of-gold/) in response to the search query "rarity of osmium relative to gold". After doing further research I agree that a more realistic estimate is that osmium is perhaps 2x as rare as gold rather than 1,000x.

Thanks for calling me out!
Title: Re: Precious Metals
Post by: RWD on October 30, 2019, 07:34:28 AM
Are there significant numbers of people who are actually trying to beat inflation in their investments in this day and age?
Yes, almost every active user on this forum. The 4% rule is designed around the concept of your investments keeping pace with inflation so you don't run out of money during the withdrawal phase. If you assume your investments will only match inflation you will need ~60x your annual expenses invested instead of 25x to retire early (without pensions/social security/etc.). For Mustachians saving 70% of their income that investment decision is the difference between working 26 years versus 8.5 years. For a mildly financially ambitious person saving 20% that is the difference between working 240 years versus 37 years.

I like to think of today's economy and financial system as a gigantic poker table.
If you are stock picking then yes it is gambling. If you are investing in broad market index funds and not trying to time the market then long term you will beat inflation. Have you read the stock series by JL Collins? It's a series of blog posts that do a very good job of demystifying the stock market.
https://jlcollinsnh.com/stock-series/
Title: Re: Precious Metals
Post by: waltworks on October 30, 2019, 09:05:01 AM
Are there significant numbers of people who are actually trying to beat inflation in their investments in this day and age? Interest rates are about to get stuck at zero in all major economies. Your savings will be guaranteed to erode over time. The question now is how do we lose as little money as possible. Maybe if we invest intelligently we can manage to preserve a greater percentage of our savings, but to think you can get a return over and above inflation seems a bit brazen to put it mildly.

This entire site is premised on the idea of saving money, investing it, and then living off the proceeds. It inherently assumes you can and will beat inflation by investing, which in fact basically anyone can with pretty minimal effort.

-W
Title: Re: Precious Metals
Post by: freya on October 30, 2019, 09:07:27 AM

There is one very, very simple reason to invest in gold, and you can find it in the site www.portfoliocharts.com.  The top performing portfolios for returns and stability/high perpetual withdrawal rates in retirement all hold gold.  These are exactly the portfolios that people interested in long retirements should be most interested in.  Pinwheel and Golden Butterfly top the list, but there are others worth investigating. 

Chop off the first few years after private gold ownership was re-legalized and the numbers shift noticeably.

Yes, I've heard that one a lot.  It might apply to 1973-1974 to a degree, but there were genuine macroeconomic reasons for gold to shoot up at that time.  It is also a bit harder to trot that argument out for 1981 and 2008-2009, not to mention last December.  If you actually look at the data on real, year by year returns, you will see that these portfolios are almost unique in that it is extremely rare for them to post real losses (i.e. after inflation) for more than 2 years in a row.  That's not the case for portfolios without gold.  Since they also hold cash, you are highly unlikely to have to sell assets in a down market during the withdrawal phase (and no need to keep a separate emergency fund, which is a way of artificially boosting returns).  This leads to their supporting higher safe withdrawal rates than standard stock/bond portfolios - despite a technically lower CAGR.

The CAGR numbers by themselves are also kinda misleading.  If you take a 100 dollar investment and it loses 30% in year 1, you'll need a 43% gain in Year 2 to get you back to where you started.  This obviously leads you to think you're doing better than you really are if you simply average the two.  I always laugh when I hear headlines about the S&P 500 being at a "record high", because that simply translates to "finally it's recovered from the recent losses."  Portfolio stability counts for a lot.  If you don't believe that, try running some firecalc simulations with random portfolios sized just under what you think you would need, fixing overall return to the same value but varying the standard deviation.  Makes a huge difference in success rates.
Title: Re: Precious Metals
Post by: maizefolk on October 30, 2019, 09:41:24 AM
The CAGR numbers by themselves are also kinda misleading.  If you take a 100 dollar investment and it loses 30% in year 1, you'll need a 43% gain in Year 2 to get you back to where you started.  This obviously leads you to think you're doing better than you really are if you simply average the two. 

This effect is, in fact, the exact reason average returns are misleading but CAGRs are not.

Average returns make a 50% loss followed by a 100% gain look like you're making 25% per year. CAGR correctly calculates that your annual return over two years in that 0%.
Title: Re: Precious Metals
Post by: Telecaster on October 30, 2019, 02:07:56 PM
Are there significant numbers of people who are actually trying to beat inflation in their investments in this day and age? Interest rates are about to get stuck at zero in all major economies. Your savings will be guaranteed to erode over time. The question now is how do we lose as little money as possible. Maybe if we invest intelligently we can manage to preserve a greater percentage of our savings, but to think you can get a return over and above inflation seems a bit brazen to put it mildly.

I think pretty much everyone is.  In nutshell, the way the economy works is that somebody (somebody could be an individual or a business) borrows money, invests it in something, like real estate, a restaurant, a tech idea, etc. in the hopes of making more money than the loan costs them.  Interest rates are set mostly by inflation, so pretty much by definition most economic activity occurs with the expectation of beating inflation.   
Title: Re: Precious Metals
Post by: Telecaster on October 30, 2019, 02:48:18 PM

There is one very, very simple reason to invest in gold, and you can find it in the site www.portfoliocharts.com.  The top performing portfolios for returns and stability/high perpetual withdrawal rates in retirement all hold gold.  These are exactly the portfolios that people interested in long retirements should be most interested in.  Pinwheel and Golden Butterfly top the list, but there are others worth investigating. 

Chop off the first few years after private gold ownership was re-legalized and the numbers shift noticeably.

What is the best way to backtest this? 
Title: Re: Precious Metals
Post by: Orthodox Investor on November 01, 2019, 12:54:31 AM
I think this explains why you are big proponent of gold and also why you will struggle to make your money grow. Real numbers: my house is a duplex for which the monthly rent is 1700, the mortgage is 810, and my share of the utilities and maintenance is 190, for $700/mo profit. I paid $42,000 for this. You do the math, feel free to neglect growth of principal. Well it turns out the entire economy is based on this type of thing.
As I stated a few days ago (in this thread), I only recently started buying precious metals (as in months ago), and I have years (over two decades by now) of experience with stocks and real estate.

You mention a 810 mortgage payment on a 42000 purchase. That would seem to correspond to a 5 or 6 year mortgage. Do they even have those (15 or 30 year is all I hear about)?

I remember hearing a local real estate professional speak to an investor audience saying that an investment property will cash flow if the monthly rent is at least 2% of the purchase price. People who listened to his advice generally missed the bottom in US housing around 2011 and 2012 because prices didn't go that low. His advice may have been applicable in a high interest era, but times change. In your example, the yearly rent is about half the purchase price of the property. Given that the mortgage number didn't make any sense, either, maybe you mistyped something?

Well so here's a source for the $400/oz price: https://www.metalsdaily.com/live-prices/pgms/ I'm certainly open to learning the value reported there is incorrect but I'm not pulling it out of thin air.
Looking at the link, I'm inclined to believe that $400/oz is correct, and that the Rare World Metals Mint is simply charging a $500 premium because there is no competitor around to push the price lower.

If you assume your investments will only match inflation you will need ~60x your annual expenses invested instead of 25x to retire early (without pensions/social security/etc.). For Mustachians saving 70% of their income that investment decision is the difference between working 26 years versus 8.5 years. For a mildly financially ambitious person saving 20% that is the difference between working 240 years versus 37 years.
The older generation has screwed the younger generation.  They have succeeded in pricing assets so high that future returns will be much lower.

There are alternatives. If you're a female, marry a rich guy. If you're a guy, go to some poor country where you're the rich guy. Or adopt an anti-consumer ideology to minimize the savings requirement. The morally sound choice would be to bank on universal basic income. 40 million Americans are already on food stamps and I'm not sure how long we can hold off on automating many simple jobs such as driving and cashiering.

This entire site is premised on the idea of saving money, investing it, and then living off the proceeds. It inherently assumes you can and will beat inflation by investing, which in fact basically anyone can with pretty minimal effort.
Since there have been many comments in these pages on long-term investment returns spanning multiple decades, I assume many readers here are familiar with the work of John Hussman (see hussmanfunds.com). He publishes a free monthly commentary (they are fairly repetitive, so once you read a few it's like having read them all). He's considered by many in the investment community to be the "smart money".  Based on historical evidence, he is currently projecting negative returns on a 10 year investment horizon, and that's in nominal terms, not real terms.

I tend to think that history won't repeat itself nearly as much as people think, but given how much discussion there has been in this thread about the historical performance of stocks versus gold, I don't understand how to reconcile a historically informed approach to investing with the view that it's feasible to beat inflation when nearly all financial assets are trading at high valuations, most likely limiting further upside.

Title: Re: Precious Metals
Post by: vand on November 01, 2019, 03:35:00 AM
Gold has a very long history of increasing purchasing power, roughly in line with economic expansion.  If you understand the nature of gold as money this makes complete sense; one of the definitions of good money is as a store of wealth. As real productivity and overall wealth increases then money itself becomes more valuable. That is to say for the same amout of real money you can now exchange it for more goods and services.  What other vehicle has there been, historically, to enable to the common man to save and transfer his wealth down through generations in, say feudal times, if not in real money?


Good Money Appreciates:

https://www.youtube.com/watch?v=GnCHmLsV6Ro
https://www.youtube.com/watch?v=l8_wqmsjrsY
https://www.youtube.com/watch?v=Lwnowt6p5O0


However, the fly in the ointment is its long cyclical nature and its volatility. Even the value of real money relative to other assets can change by a factor of multiples over the medium and longer terms.
Title: Re: Precious Metals
Post by: RWD on November 01, 2019, 07:06:18 AM
Are there significant numbers of people who are actually trying to beat inflation in their investments in this day and age?
If you assume your investments will only match inflation you will need ~60x your annual expenses invested instead of 25x to retire early (without pensions/social security/etc.). For Mustachians saving 70% of their income that investment decision is the difference between working 26 years versus 8.5 years. For a mildly financially ambitious person saving 20% that is the difference between working 240 years versus 37 years.
The older generation has screwed the younger generation.  They have succeeded in pricing assets so high that future returns will be much lower.
The current PE ratio is 22.61. That corresponds to a 4.4% return. Or if you want to use the Shiller PE it's 30 which corresponds to 3.3%. Even if it isn't as good as the past (6-7%) it's still going to beat inflation which is the whole point we were discussing here. Saying "Are there significant numbers of people who are actually trying to beat inflation in their investments in this day and age?" is very different than "future returns will be much lower." Don't move the goalposts.
Title: Re: Precious Metals
Post by: waltworks on November 01, 2019, 08:20:30 AM
For crap's sake, stop reading Hussman. The prophets of doom have predicted 15 of the last 2 recessions...

In fact, if you're going to read anything, read this:
https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

Here's the money quote if you don't want to bother: "If you are going to make investment mistakes, make sure you are biased towards optimism and not pessimism. Long-term thinking has been rewarded in the past and unless you think the world or innovation is coming to an end it should be rewarded in the future. As Winston Churchill once said, ďI am an optimist.  It does not seem too much use being anything else.Ē

-W
Title: Re: Precious Metals
Post by: ChpBstrd on November 01, 2019, 09:50:43 AM
Everyoneís doing their ďresearchĒ in social media bubbles. In the Boglehead / MMM forums, one is advised to buy an aggressive allocation of index funds. Then you have YouTubers and bloggers promoting gold. Seeking Alpha promotes stock picking / timing. And in the margins of these sites/apps you see people selling annuities.

I wonder if oneís investment allocation is a factor of which forms of social media, and which influencers in particular, one finds entertaining?

Itís a terrifying thought.
Title: Re: Precious Metals
Post by: Classical_Liberal on November 01, 2019, 01:06:02 PM
I wonder if oneís investment allocation is a factor of which forms of social media, and which influencers in particular, one finds entertaining?

Chicken or egg. People look for confirmation bias.
Title: Re: Precious Metals
Post by: waltworks on November 01, 2019, 01:51:28 PM
IMO the bogleheads folks, in general, are just not entertained by money stuff (except by arguing about minutia of tax optimization and such).

In terms of your regular 'merican, assuming they invest at all, it's definitely tied to their age/social status/political leanings and what they are entertained by. Old and grouchy? The Fox anchors are on all those gold commercials! Young and hip? The e-trade baby is hilarious and my co-workers all like bitcoin and tesla! Unsure new parent? An Edward Jones door to door jackoff in a cheap suit will hold your hand and take your money.

Here in UT our preference is for faith and/or nutrition-based ponzi schemes. My blessed essential oils business has really taken off but I need a new round of funding - you and your friends and family can get in now and make a guaranteed 20%!

-W
Title: Re: Precious Metals
Post by: nancyfrank232 on November 01, 2019, 02:42:11 PM
IMO the bogleheads folks, in general, are just not entertained by money stuff (except by arguing about minutia of tax optimization and such).

Soooo true

When I canít sleep, I visit bogleheads
Title: Re: Precious Metals
Post by: TomTX on November 01, 2019, 07:19:19 PM
I think this explains why you are big proponent of gold and also why you will struggle to make your money grow. Real numbers: my house is a duplex for which the monthly rent is 1700, the mortgage is 810, and my share of the utilities and maintenance is 190, for $700/mo profit. I paid $42,000 for this. You do the math, feel free to neglect growth of principal. Well it turns out the entire economy is based on this type of thing.
As I stated a few days ago (in this thread), I only recently started buying precious metals (as in months ago), and I have years (over two decades by now) of experience with stocks and real estate.

You mention a 810 mortgage payment on a 42000 purchase. That would seem to correspond to a 5 or 6 year mortgage. Do they even have those (15 or 30 year is all I hear about)?

I remember hearing a local real estate professional speak to an investor audience saying that an investment property will cash flow if the monthly rent is at least 2% of the purchase price. People who listened to his advice generally missed the bottom in US housing around 2011 and 2012 because prices didn't go that low. His advice may have been applicable in a high interest era, but times change. In your example, the yearly rent is about half the purchase price of the property. Given that the mortgage number didn't make any sense, either, maybe you mistyped something?

You may have two decades of real estate experience, but it appears to be quite shallow.

Escrow is very common. Rolled into the mortgage payment. Thus the $810 monthly mortgage payment is probably PITI, not just PI. Your calculation appears to be just based on PI.

Monthly @ 2% of purchase price is darn high. Obviously very profitable if you can find it - Old school rule of thumb for likely cash flowing a property was just 1% - in a much higher interest rate time.
Title: Re: Precious Metals
Post by: Radagast on November 01, 2019, 09:42:15 PM
I think this explains why you are big proponent of gold and also why you will struggle to make your money grow. Real numbers: my house is a duplex for which the monthly rent is 1700, the mortgage is 810, and my share of the utilities and maintenance is 190, for $700/mo profit. I paid $42,000 for this. You do the math, feel free to neglect growth of principal. Well it turns out the entire economy is based on this type of thing.
As I stated a few days ago (in this thread), I only recently started buying precious metals (as in months ago), and I have years (over two decades by now) of experience with stocks and real estate.

You mention a 810 mortgage payment on a 42000 purchase. That would seem to correspond to a 5 or 6 year mortgage. Do they even have those (15 or 30 year is all I hear about)?

I remember hearing a local real estate professional speak to an investor audience saying that an investment property will cash flow if the monthly rent is at least 2% of the purchase price. People who listened to his advice generally missed the bottom in US housing around 2011 and 2012 because prices didn't go that low. His advice may have been applicable in a high interest era, but times change. In your example, the yearly rent is about half the purchase price of the property. Given that the mortgage number didn't make any sense, either, maybe you mistyped something?
PITI is $810. $42,000 was the down payment. It is cashflow positive and yet does not meet the 1% rule. However $8400 per year on a $42,000 initial investment is still a decent return that is far ahead of inflation. Although I tend to use $6,000 per year to account for my own time, still way ahead of inflation.

The 1% rule is what is commonly used around here. 2% has at best been rare and only in questionable places, and likely impossible now. You don't need a real estate professional to tell you what cash flow will be. You can use any online real estate site to get your estimated mortgage payment, add some maintenance and management fees, and then look at comparable rents.
Title: Re: Precious Metals
Post by: Telecaster on November 02, 2019, 10:32:39 AM
Since there have been many comments in these pages on long-term investment returns spanning multiple decades, I assume many readers here are familiar with the work of John Hussman (see hussmanfunds.com). He publishes a free monthly commentary (they are fairly repetitive, so once you read a few it's like having read them all). He's considered by many in the investment community to be the "smart money".  Based on historical evidence, he is currently projecting negative returns on a 10 year investment horizon, and that's in nominal terms, not real terms.

If you read Hussman, he certainly sounds like a smart guy.  He doesn't come across as a kook or conspiracy theorist or anything.  That said, he started his flagship
Strategic Growth Fund (HSGFX) right in the dot com melt down, so perfect time to start a bear/defensive portfolio.  We've been through a couple economic cycles since then, and the fund has a CAGR of -0.91% since Jan 2001.

You can play all the defense you want, but you've gotta score some point a long the way.  Had you invested in a nice index fund back then, your investment would have more than tripled.  Had you gone with Hussman, you'd be down 20%. 

Title: Re: Precious Metals
Post by: Orthodox Investor on November 03, 2019, 06:52:32 PM
PITI is $810. $42,000 was the down payment. It is cashflow positive and yet does not meet the 1% rule. However $8400 per year on a $42,000 initial investment is still a decent return that is far ahead of inflation. Although I tend to use $6,000 per year to account for my own time, still way ahead of inflation.
I didn't understand you in my previous reply, thinking the $42,000 was a purchase price. Generally, people who want to buy using a mortgage are forced to live near their job location, which is likely to be in an overpriced big city. If they already own a house with little or no debt, many of these individuals and families could sell their crappy house for a million and buy a large number of rental properties in a cheaper place. There are only very few who could actually pull this off before the  price differential disappears. Arguably, it's already happening, given that home prices have doubled or tripled in many places in a few short years. On the other hand, if you look at Hong Kong, you wonder why people are still hanging on to their million dollar apartments given that China will be able to legally turn the city into an Orweillian nightmare in 2047.

If you live near an Albertson's you can buy a dozen eggs for twelve cents this week and there are numerous other deals where you can buy groceries at extreme discounts. This happens as a result of a variety of factors, including price-insensitive buyers who use your tax money to purchase overpriced food items with their EBT (food stamps) cards (thereby giving supermarkets the flexibility to pursue a high-low pricing strategy, meaning they sell both overpriced and underpriced items). This type of thing has been going on for decades and for frugal shoppers makes it seem like we live in a deflationary world.

What the penny eggs at Albertson's and the $42,000 real estate opportunity have in common is that they seem too good to be true, yet they are real and pop up with enough regularity that it seems like one can rely on it. We get to buy stuff cheap thanks to an abundance of suckers who overpay and are subsidizing us. This takes us right back to the poker table because you only make money if there are enough suckers at the table who keep making dumb mistakes.

Mathematically, it is obvious that the only way you get richer is by making others get poorer. Given that the wealth in the world is mostly controlled by the top 1%, every time the value of conventional asset portfolios goes up for the bottom 95%, they are actually getting poorer. This is because the wealth gap keeps widening as asset values rise. I think the actual inflation rate in the world is the rate by which the combined value of all investment assets in the world increases. Since the ECB, SNB, and the Japanese Central Bank are already in the process of monetizing corporate bonds and stocks, and Yellen has already hinted at the possibility that the Fed may do so in the future, it's not unreasonable to consider all investment assets (other than derivative instruments) to be money good.
Title: Re: Precious Metals
Post by: Radagast on November 03, 2019, 08:48:31 PM
I didn't understand you in my previous reply, thinking the $42,000 was a purchase price.
Sorry I did phrase that poorly.

Quote
Generally, people who want to buy using a mortgage are forced to live near their job location, which is likely to be in an overpriced big city. If they already own a house with little or no debt, many of these individuals and families could sell their crappy house for a million and buy a large number of rental properties in a cheaper place. There are only very few who could actually pull this off before the  price differential disappears.
I do not understand. Nearly no people are both willing and able to do that. What price differential?

Quote
What the penny eggs at Albertson's and the $42,000 real estate opportunity have in common is that they seem too good to be true, yet they are real and pop up with enough regularity that it seems like one can rely on it. We get to buy stuff cheap thanks to an abundance of suckers who overpay and are subsidizing us. This takes us right back to the poker table because you only make money if there are enough suckers at the table who keep making dumb mistakes.
I just checked and that area has several multi family homes which if anything seem to be getting better rates of return than I get (I went by gut when I bought the house, having not discovered personal finance yet). It was not a one off opportunity and those types of deals exist in many parts of the US.

Different people have different objectives and time frames. I'm not a sucker if I pay $100 for a hotel or an Air BnB, I'm just a person who wants a decent place to crash and shower for a night. Now I am renting again, while still owning the house. I observe based on the high rent and overall cheapness that the owner is almost certainly making bank, but I'm not a sucker for choosing to rent here for a year or two. On my time frame it makes the most sense, and I joyously call someone else to fix the dishwasher. My tenants are not getting screwed by paying me, in fact they were pretty happy to be there instead of their previous digs. Eventually (I presume, probably with cause as I noticed one gets Vanguard statements) they will move onto bigger and better things.

Quote
Mathematically, it is obvious that the only way you get richer is by making others get poorer.
False. This is the mistake in your thinking which causes all the others. If this was true then there would be no doubt that precious metals would be as reliable as anything else. But it is wrong. New wealth can be generated without making anybody poorer. As an example, I have done consulting work for the gold mining industry, who produce previously worthless microscopic gold from the ground and turn it into what you call wealth. Well, it turns out things beside gold have value too, in fact collectively the other things have a lot more value. Any time a new thing is created that people find more valuable than before, new wealth is created, and nobody needs to be harmed in the process (although I agree there are often externalities). That is the entire point of this forum.
Title: Re: Precious Metals
Post by: RWD on November 03, 2019, 08:54:20 PM
Mathematically, it is obvious that the only way you get richer is by making others get poorer.

Not only is this not obvious, it is actually wrong. Wealth is not a zero sum game.
Title: Re: Precious Metals
Post by: maizefolk on November 03, 2019, 08:54:46 PM
Mathematically, it is obvious that the only way you get richer is by making others get poorer.
False. This is the mistake in your thinking which causes all the others. If this was true then there would be no doubt that precious metals would be as reliable as anything else. But it is wrong. New wealth can be generated without making anybody poorer. As an example, I have done consulting work for the gold mining industry, who produce previously worthless microscopic gold from the ground and turn it into what you call wealth. Well, it turns out things beside gold have value too, in fact collectively the other things have a lot more value. Any time a new thing is created that people find more valuable than before, new wealth is created, and nobody needs to be harmed in the process (although I agree there are often externalities). That is the entire point of this forum.

+1 to this point by Radagast. It's possible to grow the total pie of wealth, not only to take from someone else to give to yourself.

If wealth was constant, people would have have a much higher standard of living 400 years ago than today, as the same amount of wealth would be spread much more thinly across a much larger population.
Title: Re: Precious Metals
Post by: js82 on November 04, 2019, 07:28:29 PM
Mathematically, it is obvious that the only way you get richer is by making others get poorer.

On paper, perhaps.  In practice, nonsense.

Most of the energy we use on our planet comes from the sun, either directly(solar energy) or indirectly(growing plants, hydroelectric power, technically even fossil fuels).  In the end, harnessing that energy to do work, be it by growing crops or generating electricity to do/make useful things, makes someone richer.  If done in the right way, it makes that person richer without generating negative externalities for others.

Furthermore, productivity/efficiency gains are a direct refutation of your assertion.
Title: Re: Precious Metals
Post by: Paul990 on November 28, 2019, 01:01:02 AM
I agree that is likely true over some very long time period.  Question: who keeps a $100 bill in their pocket for decades?  If you simply put the $100 bill in the bank and collect interest the calculus changes a lot. 
What interest Telecaster?
Not everybody lives in the USA

If you put the $100 in a diversified basket of stocks then there is no question who comes out ahead.
... unless you choose the wrong timing and/or the wrong basket of stocks...


As we constantly compare gold's and stock's performance, let's expand for a moment on the subject Why stocks have performed so good.
What will happen to the stock markets when the central banks stop pumping trillions in the financial markets?
Because this is the dilemma the central banks are in: It's not weather lowering or not interest rates but weather keeping pushing up the financial markets or not.
Well, actually it's no dilemma. They will keep sustaining the financial markets, but the result of that is not only currency debasement but also increasing wealth inequality: those inside the financial markets profit from it, those outside of it don't.

This is Peter Shiff (https://www.zerohedge.com/markets/peter-schiff-fed-policies-enabled-wealth-inequality-while-eviscerating-savers):
Quote
When you buy an asset and you incur debt, inflation makes you rich because it wipes out the value of the money you borrowed and now youíre left with the real asset that you purchased. But who gets wiped out? The savers. Who are the savers? The average guy whoís got a 401K or a pension. Heís got an annuity. Heís got cash value in life insurance. Heís got bonds. Heís got some savings ó heís getting wiped out.
And so the people who levered up to buy assets, which are generally richer people, have gotten richer, and the people who havenít done that, who arenít as sophisticated, donít have the incomes or the assets to do that, you know, theyíre just trying to save their money. Well, theyíre getting eviscerated.


Two pages ago I already quoted Blackrock mentioning that a Gold Standard would prevent the Central Banks from producing currency at will.
It's no coincidence that this increase of wealth inequality has been boosted after the GS was abandoned by the USA.

(https://www.zerohedge.com/s3/files/inline-images/gold%20standard%20inequality_1.jpg?itok=0NGIaFNg) (https://www.zerohedge.com/economics/its-official-united-states-now-banana-republic)
Title: Re: Precious Metals
Post by: Paul990 on November 28, 2019, 01:27:51 AM
Cash is just a tool. It's not an investment, and it's not useful or interesting to talk about the value of gold vs the value of fiat currency unless you're literally stuffing your mattress with $5 bills.
@Walt, you are right in that talking about gold here doesn't distinguish between its currency and its investment side.
Gold is both. (Silver too)
Gold is the only thing being at the same time currency (money, means of payment) and asset (investment, commodity).

As you say, there is no point in comparing a currency with an asset, but in this case, we were comparing gold as currency and fiat.
In general, gold-currency stores value (purchasing power) better than fiat-currency.
Don't forget that unlike many here, for me fiat-currency is not a synonym for $


All in all, I believe that any situation is different and planning for it is complicated if not impossible and this is why having diversification (gold AND currencies in a safe AND stocks, ...) is the key.
I agree.
Thanks for your testimony.


What this says to me is 2 things.
1) How goes the US, so goes the world...
... as long as the $ is the world reserve currency.
A role that it's quickly losing


2. Assets that track with inflation *AND* offer a return on investment independent of inflation are superior investments to vehicles merely designed to track inflation.
Yes but they are riskier.
"You don't want to own gold, you want to own gold mines".
Why either or? How about both?

3. Although Stocks are high-risk over short time horizons, over longer time horizons(decades) a diversified stock portfolio is really not that risky.
I agree, particularly when you have central banks pumping trillions into the financial markets.
The BOJ is one of the 10 biggest stockholders I think.
Title: Re: Precious Metals
Post by: TomTX on November 28, 2019, 05:41:05 AM

@Walt, you are right in that talking about gold here doesn't distinguish between its currency and its investment side.
Gold is both. (Silver too)
Gold is the only thing being at the same time currency (money, means of payment) and asset (investment, commodity).


It's pretty telling that you contradict yourself so quickly, and are unaware of prior examples of something being both currency and asset. In addition, I'm not aware of any country where raw gold is legal tender. Precious metals enthusiasts don't tend to do critical analysis and research.

Gold is in no way unique the way you claim (even leaving aside your contradiction with silver, which also works for platinum, etc)

I think my favorite counterexample would be rice. In feudal Japan, rice was currency, asset and (obviously) food source. The standard unit was the koku - enough to feed one peasant for a year. Value of land was measured in expected koku of taxes to be collected. Samurai were paid in koku. In another use, the koku was the standard for measuring the cargo capacity of ships.

So: Currency, asset, food source, measure of taxable value of land, measure of ship capacity.
Title: Re: Precious Metals
Post by: maizefolk on November 28, 2019, 07:37:50 PM
I think my favorite counterexample would be rice. In feudal Japan, rice was currency, asset and (obviously) food source. The standard unit was the koku - enough to feed one peasant for a year. Value of land was measured in expected koku of taxes to be collected. Samurai were paid in koku. In another use, the koku was the standard for measuring the cargo capacity of ships.

So: Currency, asset, food source, measure of taxable value of land, measure of ship capacity.

Today I Learned.

Very cool, thank you TomTX.
Title: Re: Precious Metals
Post by: TomTX on November 29, 2019, 08:27:34 AM
I think my favorite counterexample would be rice. In feudal Japan, rice was currency, asset and (obviously) food source. The standard unit was the koku - enough to feed one peasant for a year. Value of land was measured in expected koku of taxes to be collected. Samurai were paid in koku. In another use, the koku was the standard for measuring the cargo capacity of ships.

So: Currency, asset, food source, measure of taxable value of land, measure of ship capacity.

Today I Learned.

Very cool, thank you TomTX.

Happy to help!

Amusingly, while gold was also used in Feudal Japan in the higher levels of society it was basically in the role of fiat currency - gold's value was defined by koku.
Title: Re: Precious Metals
Post by: bacchi on November 29, 2019, 11:46:05 AM
Salt was also used as currency, especially in Africa.
Title: Re: Precious Metals
Post by: Paul990 on November 30, 2019, 01:27:35 AM
Real numbers: my house is a duplex for which the monthly rent is 1700, the mortgage is 810, and my share of the utilities and maintenance is 190, for $700/mo profit. I paid $42,000 for this. You do the math, feel free to neglect growth of principal. Well it turns out the entire economy is based on this type of thing. As a bonus, the house is a real and productive asset and as its owner I am not required to exchange its space for dollars. I could barter it for services, or chickens, or silver coins, or Euros, or yoghurts, or whatever I and the tenants agree on. Ownership of publicly traded companies is very similar to my situation, and I can and (outside retirement accounts) do reference actual real estate opportunities to what I think is available in the stock market. Yes the numbers beat inflation! You should not accept and do not need to accept bad returns.

How would another house market crash affect your situation?


             (https://niskanencenter.org/wp-content/uploads/old_uploads/2017/08/chart-1.png)
Title: Re: Precious Metals
Post by: waltworks on November 30, 2019, 03:00:53 PM
How would another house market crash affect your situation?         

Every economic downturn is different, but rents did not really fall during the 2007 housing crash. In many markets they actually increased. In that situation (rents stable, prices crash) Radagast would most likely be able to buy several more such units - many RE investors made their fortunes in the housing crash, and can't wait for another one.

-W
Title: Re: Precious Metals
Post by: MoneyQuirk on December 01, 2019, 11:52:40 PM
5% isn't unreasonable to put into metals.

I wouldn't, though.

That's simply missing on extra earning potentials of being in stocks/bonds. Warren Buffet noted the main problem with gold - if you bought a ton of gold back in 1700, today you would have... a ton of gold. If you bought companies back then, they have been consistently making items (and in turn paying dividends) and you have an absolutely huge sum that is available to you.

That said, with such a small sum of your money, I'd say feel free to do whatever you like with it :)

Cheers!
Title: Re: Precious Metals
Post by: robartsd on December 02, 2019, 10:39:44 AM
It's no coincidence that this increase of wealth inequality has been boosted after the GS was abandoned by the USA.

(https://www.zerohedge.com/s3/files/inline-images/gold%20standard%20inequality_1.jpg?itok=0NGIaFNg)
It's a bit disingenuous to label 1971 as the end of the gold standard. The US departure from the gold standard started decades earlier. I find the graph interesting in that it indicates that middle and low incomes grew steadily under Bretton-Woods, but were relatively flat both before and after. I am a bit curious what caused high incomes to start growing rapidly in the mid 80's.
Title: Re: Precious Metals
Post by: bwall on December 02, 2019, 10:47:17 AM

Two pages ago I already quoted Blackrock mentioning that a Gold Standard would prevent the Central Banks from producing currency at will.
It's no coincidence that this increase of wealth inequality has been boosted after the GS was abandoned by the USA.

(https://www.zerohedge.com/s3/files/inline-images/gold%20standard%20inequality_1.jpg?itok=0NGIaFNg) (https://www.zerohedge.com/economics/its-official-united-states-now-banana-republic)

We should all be very thankful that the central banks can (and do!) produce currency at will. It has lead to increased standards of living for just about everyone on the planet, including everyone reading this post. Economic growth should not depend on a country's ability to dig shiny metals out of the ground, which is what the gold standard requires.

The chart that you provide does not show how abandoning the gold standard leads to wealth inequality. Correlation is not causation.

Title: Re: Precious Metals
Post by: bwall on December 02, 2019, 10:53:29 AM
Can someone please explain to me:

If the gold standard is the ideal economic underpinning then why did all countries eventually leave the gold standard?

Were they tired of ideal economic fundamentals?
Were they annoyed at all the prosperity they enjoyed as a result of the gold standard, so they sought to set their entire nation back a few pegs?
Could they just not handle the moral weight and responsibility of owning all that gold?

I'm always shocked about people who want a return to the gold standard who have absolutely no idea what that would imply. Fortunately today, one need not be informed to have an opinion.
Title: Re: Precious Metals
Post by: ChpBstrd on December 02, 2019, 11:35:26 AM
Can someone please explain to me:

If the gold standard is the ideal economic underpinning then why did all countries eventually leave the gold standard?

Were they tired of ideal economic fundamentals?
Were they annoyed at all the prosperity they enjoyed as a result of the gold standard, so they sought to set their entire nation back a few pegs?
Could they just not handle the moral weight and responsibility of owning all that gold?

I'm always shocked about people who want a return to the gold standard who have absolutely no idea what that would imply. Fortunately today, one need not be informed to have an opinion.

I am reminded of the cartoon where one table is selling difficult truths and the other, with a long line of customers, is selling comforting lies.

The ďmoral weight and responsibilityĒ that we canít handle is how we manage to waste and squander during these unprecedentedly wonderful times of low unemployment, stable currencies, long lives, steady economic growth, plentiful food, booming investment markets, and general prosperity. We live in a world where everyone has a car but almost half of retirement-age people have zero saved for retirement, and a tiny minority have ever run the numbers on retirement.

Those who, through lack of self-discipline, managed to miss the greatest wealth-building opportunity the human species has ever had the luck to experience may be tempted to declare the game was rigged and that their jewelry and collectible coins will someday make them rich. Meanwhile the economic winners in the modern economy will eventually be stripped of their trophies, because fiat money was a scam all along and they just werenít smart enough (that is, smart as me) to realize it. Saying ďjust wait, youíll seeĒ provides satisfaction year after year for those whose financial numbers are unsatisfying.

https://www.marketwatch.com/story/baby-boomers-commit-the-7-deadly-sins-of-retirement-planning-2019-04-09?mod=home-page (https://www.marketwatch.com/story/baby-boomers-commit-the-7-deadly-sins-of-retirement-planning-2019-04-09?mod=home-page)
Title: Re: Precious Metals
Post by: vand on December 02, 2019, 01:16:17 PM
Can someone please explain to me:

If the gold standard is the ideal economic underpinning then why did all countries eventually leave the gold standard?

Were they tired of ideal economic fundamentals?
Were they annoyed at all the prosperity they enjoyed as a result of the gold standard, so they sought to set their entire nation back a few pegs?
Could they just not handle the moral weight and responsibility of owning all that gold?

I'm always shocked about people who want a return to the gold standard who have absolutely no idea what that would imply. Fortunately today, one need not be informed to have an opinion.

Governments were keen to abandon the GS because it acts as a constraint on government spending. With fiat money they can just print however much currency they require to fulfill whatever promises have been made, and socialise the cost via the inflation tax which robs existing holders of the currency of its purchasing power.
Title: Re: Precious Metals
Post by: bwall on December 02, 2019, 02:09:07 PM
Can someone please explain to me:

If the gold standard is the ideal economic underpinning then why did all countries eventually leave the gold standard?

Were they tired of ideal economic fundamentals?
Were they annoyed at all the prosperity they enjoyed as a result of the gold standard, so they sought to set their entire nation back a few pegs?
Could they just not handle the moral weight and responsibility of owning all that gold?

I'm always shocked about people who want a return to the gold standard who have absolutely no idea what that would imply. Fortunately today, one need not be informed to have an opinion.

Governments were keen to abandon the GS because it acts as a constraint on government spending. With fiat money they can just print however much currency they require to fulfill whatever promises have been made, and socialise the cost via the inflation tax which robs existing holders of the currency of its purchasing power.

hmmm..... It's not just a constraint on government spending, it's also a constraint on economic growth, living standards and trade for the sole benefit of the wealthy at the expense of the people. Right? Existing holders of the currency = wealthy, doesn't it?

So, by constraining every economic metric possible, you achieve the 'goal' of low government spending. Lower living standards, less trade, less economic growth, but the scourge of reckless spending on roads, bridges, police and universities is seen off!

But, you still didn't answer the original question of 'why all countries eventually left the gold standard if it was the ideal economic underpinning?'. My premise being that the gold standard isn't the ideal underpinning (fiat is) since no country has been on the gold standard in ages. Since leaving the gold standard living standards across the world have increased greatly, so clearly leaving the gold standard didn't result in lower living standards. Perhaps fiat actually precipitated unrivaled living standards worldwide?
Title: Re: Precious Metals
Post by: Telecaster on December 02, 2019, 02:51:53 PM
There was plenty of inflation back when we were on the gold standard.  There was plenty of deflation too.   Unstable pricing under the gold standard meant recessions occurred every one to three years.  No thanks. 
Title: Re: Precious Metals
Post by: bwall on December 02, 2019, 03:50:59 PM
There was plenty of inflation back when we were on the gold standard.  There was plenty of deflation too.   Unstable pricing under the gold standard meant recessions occurred every one to three years.  No thanks.

Very good point.

Just think about if we'd been on the gold standard during WWII. Roosevelt would've been giving speeches like 'we've got to help Europe ward off aggression. So we're going to resume prospecting for gold. Then after we've pulled a few tons of gold out of the ground, we'll have the monetary base to begin building warships and airplanes. There isn't a moment to lose!'

Or a phone call with Churchill; 'love to help you, Chap, but we can't seem to find any gold and if we don't have more gold we can't increase spending on weapons and such. Keep holding out, we're bound to get some soon!'
Title: Re: Precious Metals
Post by: Telecaster on December 02, 2019, 05:25:04 PM
Just think about if we'd been on the gold standard during WWII. Roosevelt would've been giving speeches like 'we've got to help Europe ward off aggression. So we're going to resume prospecting for gold. Then after we've pulled a few tons of gold out of the ground, we'll have the monetary base to begin building warships and airplanes. There isn't a moment to lose!'

Or a phone call with Churchill; 'love to help you, Chap, but we can't seem to find any gold and if we don't have more gold we can't increase spending on weapons and such. Keep holding out, we're bound to get some soon!'

I'm dyin'!  Those are great observations. 

Title: Re: Precious Metals
Post by: ChpBstrd on December 02, 2019, 07:35:19 PM
Can someone please explain to me:

If the gold standard is the ideal economic underpinning then why did all countries eventually leave the gold standard?

Were they tired of ideal economic fundamentals?
Were they annoyed at all the prosperity they enjoyed as a result of the gold standard, so they sought to set their entire nation back a few pegs?
Could they just not handle the moral weight and responsibility of owning all that gold?

I'm always shocked about people who want a return to the gold standard who have absolutely no idea what that would imply. Fortunately today, one need not be informed to have an opinion.

Governments were keen to abandon the GS because it acts as a constraint on government spending. With fiat money they can just print however much currency they require to fulfill whatever promises have been made, and socialise the cost via the inflation tax which robs existing holders of the currency of its purchasing power.

If that were true, wouldn't the US have been mired in hyperinflation for the past several years? Why did inflationary pressures actually drop over the past decade or so, and why was inflation a problem during the 1970s, an era of relatively low deficits? Is this theory consistent with observation?
Title: Re: Precious Metals
Post by: Radagast on December 02, 2019, 07:36:25 PM
Real numbers: my house is a duplex for which the monthly rent is 1700, the mortgage is 810, and my share of the utilities and maintenance is 190, for $700/mo profit. I paid $42,000 for this. You do the math, feel free to neglect growth of principal. Well it turns out the entire economy is based on this type of thing. As a bonus, the house is a real and productive asset and as its owner I am not required to exchange its space for dollars. I could barter it for services, or chickens, or silver coins, or Euros, or yoghurts, or whatever I and the tenants agree on. Ownership of publicly traded companies is very similar to my situation, and I can and (outside retirement accounts) do reference actual real estate opportunities to what I think is available in the stock market. Yes the numbers beat inflation! You should not accept and do not need to accept bad returns.

How would another house market crash affect your situation?


             (https://niskanencenter.org/wp-content/uploads/old_uploads/2017/08/chart-1.png)
As waltworks says, that is a graph of nationwide home prices, not of rents. Rents were minimally impacted and in many cases rose as people were foreclosed on and had to go back to renting. Also, note the quoted text made no mention of price, so that graph is not relevant to my numbers in any case. This does seem to be the mentality that would lead an investor to gold though: income doesn't matter, only price matters. I'm more the "total return matters" type.

My particular house is in an area you might say is not well correlated with the national economy, and 2011-2013 were actually very strong years, in fact real home prices there have essentially plateaued since then. So that graph is even less relevant in my case than the general case.
Title: Re: Precious Metals
Post by: Radagast on December 02, 2019, 07:42:45 PM
Just think about if we'd been on the gold standard during WWII. Roosevelt would've been giving speeches like 'we've got to help Europe ward off aggression. So we're going to resume prospecting for gold. Then after we've pulled a few tons of gold out of the ground, we'll have the monetary base to begin building warships and airplanes. There isn't a moment to lose!'

Or a phone call with Churchill; 'love to help you, Chap, but we can't seem to find any gold and if we don't have more gold we can't increase spending on weapons and such. Keep holding out, we're bound to get some soon!'

I'm dyin'!  Those are great observations.
You're killin me bwalls.

Heck, the Roman empire was on the gold standard and they had no problem introducing some lesser metals into their coins in time of need, as long as the coin had the emperor's face on it, it was law. Abraham Lincoln was on the gold standard, that's how greenbacks came about. Governments obviously never cared much for the standard anyway.
Title: Re: Precious Metals
Post by: vand on December 03, 2019, 03:43:58 AM
Can someone please explain to me:

If the gold standard is the ideal economic underpinning then why did all countries eventually leave the gold standard?

Were they tired of ideal economic fundamentals?
Were they annoyed at all the prosperity they enjoyed as a result of the gold standard, so they sought to set their entire nation back a few pegs?
Could they just not handle the moral weight and responsibility of owning all that gold?

I'm always shocked about people who want a return to the gold standard who have absolutely no idea what that would imply. Fortunately today, one need not be informed to have an opinion.

Governments were keen to abandon the GS because it acts as a constraint on government spending. With fiat money they can just print however much currency they require to fulfill whatever promises have been made, and socialise the cost via the inflation tax which robs existing holders of the currency of its purchasing power.

hmmm..... It's not just a constraint on government spending, it's also a constraint on economic growth, living standards and trade for the sole benefit of the wealthy at the expense of the people. Right? Existing holders of the currency = wealthy, doesn't it?

So, by constraining every economic metric possible, you achieve the 'goal' of low government spending. Lower living standards, less trade, less economic growth, but the scourge of reckless spending on roads, bridges, police and universities is seen off!


No, you're getting it the wrong way around. More currency doesn't change anything except the purchasing power of a unit of that currency. Why is Zimbabwe or Venezuela not prosperous nations despite the enourmous expansion of their money supply? Because there are no real resources behind those currency units. Government spending cannot create wealth - all it does it redistribute resources, creating hand-picked winners and losers rather than market-determined winners and losers. This is how socialism destroys economies.

With an inelastic supply of money all that happens in an expanding economy is that the purchasing power of the currency goes up. This is what happened in many periods before the current paradigm, including the industrial revolution. Ordinary people benefit from increased purchasing power of their money instead of being forced to fling it into risk-on assets classes.



Title: Re: Precious Metals
Post by: bwall on December 03, 2019, 04:57:46 AM
No, you're getting it the wrong way around. More currency doesn't change anything except the purchasing power of a unit of that currency. Why is Zimbabwe or Venezuela not prosperous nations despite the enourmous expansion of their money supply? Because there are no real resources behind those currency units. Government spending cannot create wealth - all it does it redistribute resources, creating hand-picked winners and losers rather than market-determined winners and losers. This is how socialism destroys economies.

With an inelastic supply of money all that happens in an expanding economy is that the purchasing power of the currency goes up. This is what happened in many periods before the current paradigm, including the industrial revolution. Ordinary people benefit from increased purchasing power of their money instead of being forced to fling it into risk-on assets classes.

Do you live in Zimbabwe? Venezuela? Neither do I. So, let's not use these basket cases as examples of 'fiat gone wrong' when everyone knows it should be 'dictators in the dock'. They don't have socialism, btw, they have kleptocracies. Zimbabwe hasn't had responsible rule since Ian Smith.

How can an economy expand if the money supply is inelastic? Are you seriously suggesting that if China still had the same money supply today as in 1990, they would still be in the same place economically as they are today?

And do I really read this right; you are suggesting that the pre-industrial revolution monetary policy is better than what we have today? An era of extreme poverty, no middle class, when ordinary people would die of hunger and malnutrition was also one where these same 'ordinary people' had money to put into asset classes?
Title: Re: Precious Metals
Post by: bwall on December 03, 2019, 05:43:31 AM
The ďmoral weight and responsibilityĒ that we canít handle is how we manage to waste and squander during these unprecedentedly wonderful times of low unemployment, stable currencies, long lives, steady economic growth, plentiful food, booming investment markets, and general prosperity. We live in a world where everyone has a car but almost half of retirement-age people have zero saved for retirement, and a tiny minority have ever run the numbers on retirement.

Those who, through lack of self-discipline, managed to miss the greatest wealth-building opportunity the human species has ever had the luck to experience may be tempted to declare the game was rigged and that their jewelry and collectible coins will someday make them rich. Meanwhile the economic winners in the modern economy will eventually be stripped of their trophies, because fiat money was a scam all along and they just werenít smart enough (that is, smart as me) to realize it. Saying ďjust wait, youíll seeĒ provides satisfaction year after year for those whose financial numbers are unsatisfying.

https://www.marketwatch.com/story/baby-boomers-commit-the-7-deadly-sins-of-retirement-planning-2019-04-09?mod=home-page (https://www.marketwatch.com/story/baby-boomers-commit-the-7-deadly-sins-of-retirement-planning-2019-04-09?mod=home-page)

Great point. We live in amazing times. The best that the world has seen. Ever.

Modern society gives us access the best products, unavailable to kings in the 19th Century, or even the worlds richest men in the first half of the 20th Century. And available to the masses.

But, somehow, it would all be even better if our forefathers hadn't had the moral failure of printing money not backed by a shiny metal stored in a vault somewhere.
Title: Re: Precious Metals
Post by: Telecaster on December 03, 2019, 08:47:33 AM
With an inelastic supply of money all that happens in an expanding economy is that the purchasing power of the currency goes up. This is what happened in many periods before the current paradigm, including the industrial revolution. Ordinary people benefit from increased purchasing power of their money instead of being forced to fling it into risk-on assets classes.

Another name for increasing purchasing power of money is deflation.  One of the most recent examples of deflation was called the Great Depression.  Another example was the Long Depression.   When the value of money increases, prices fall. Which might seem like a good thing, but it isn't.  Deflation discourages spending because prices will be cheaper in the future.   Lack of spending causes prices to fall further.   Falling demand means job cuts, which reduces demand further, which in turn means more job cuts.  Deflation also discourages borrowing because you must pay back the loan in more expensive dollars.  Lack of borrowing means lack of capital investment.  This cycle is extremely difficult to break once it gets started.  The Long Depression for example lasted about 13 years.   The Great Depression lasted about 10 years (depending on how you count).  Deflation is Not Good. 

Don't confuse falling prices with deflation.  If I can find a way to manufacture and sell widgets cheaper than my competitors, then consumers can afford to buy more widgets.  That's a good thing.  But that's not the same as my dollars become more valuable. 
Title: Re: Precious Metals
Post by: vand on December 03, 2019, 09:08:09 AM
With an inelastic supply of money all that happens in an expanding economy is that the purchasing power of the currency goes up. This is what happened in many periods before the current paradigm, including the industrial revolution. Ordinary people benefit from increased purchasing power of their money instead of being forced to fling it into risk-on assets classes.

Another name for increasing purchasing power of money is deflation.  One of the most recent examples of deflation was called the Great Depression.  Another example was the Long Depression.   When the value of money increases, prices fall. Which might seem like a good thing, but it isn't.  Deflation discourages spending because prices will be cheaper in the future.   Lack of spending causes prices to fall further.   Falling demand means job cuts, which reduces demand further, which in turn means more job cuts.  Deflation also discourages borrowing because you must pay back the loan in more expensive dollars.  Lack of borrowing means lack of capital investment.  This cycle is extremely difficult to break once it gets started.  The Long Depression for example lasted about 13 years.   The Great Depression lasted about 10 years (depending on how you count).  Deflation is Not Good. 

Don't confuse falling prices with deflation.  If I can find a way to manufacture and sell widgets cheaper than my competitors, then consumers can afford to buy more widgets.  That's a good thing.  But that's not the same as my dollars become more valuable.

A debate about the depression could fill an entire forum by itself. 
Mistakes were made by both the Fed (contracting the money supply) and by the Government (New Deal) which together prevented market to be able to clear.

The reason why I subscribe to the Austrian economics model which is sympathetic to sound money principles is because to me it makes the most consistent logical sense and is therefore the most intellectually honest of all the arguments. Excess eventually leads to bust. The solution to debt is repayment. Supply and demand determine market price... basic economic truisms. By contrast the Keynesian and other models seem to obfuscate these behind all these macro aggregates to conclude polar opposite solutions; the way to deal with debt is with more & cheaper debt... if markets are going down then it is a failure of the market and therefore its the moral obligation of the goverment to intervene; all this nonsense that if you try them on an individual level you know instinctively that it's wrong. The USSR had great macro aggregates, y'know. right up until it fell apart. Just saying.
Title: Re: Precious Metals
Post by: waltworks on December 03, 2019, 09:26:30 AM
Look, you still gotta explain why the US economy would have done better if we'd been on the gold standard for the last ~50 years. When we were on the gold standard, we have lots of evidence that the business cycle was much more disruptive/exaggerated. That's bad. Central banking and fiat currency might not be perfect but that doesn't mean gold is better.

-W
Title: Re: Precious Metals
Post by: bwall on December 03, 2019, 09:31:43 AM
@Telecaster ; you are correct in your example of deflation. This is exactly what China would have had if they hadn't greatly expanded their money supply since 1990 in tandem with economic growth.

The gold standard would have prevented economic China's growth (and subsequent rise since 1990), as it would have pushed up the value of money, making debts incurred in 1990 more difficult to repay each year, asking workers to accept annual pay cuts for the same work and decreasing price levels. The only reason someone would subscribe to the Austrian school is if they saw debt as a moral failing, something to be avoided at all costs. By making debt very onerous and restrictive, this moral failing would be limited and saving rewarded. Never mind that it also limits growth, living standards, quality of life, innovation, etc.
Title: Re: Precious Metals
Post by: vand on December 03, 2019, 10:22:37 AM
Look, you still gotta explain why the US economy would have done better if we'd been on the gold standard for the last ~50 years. When we were on the gold standard, we have lots of evidence that the business cycle was much more disruptive/exaggerated. That's bad. Central banking and fiat currency might not be perfect but that doesn't mean gold is better.

-W

Firstly, I am not US based, so it matters much less to me than if I were.

Economics is a social science. I cannot "prove" that an economy would have done better under different principles, that is not how social sciences work. All I can do is to present a coherent argument explaining with logic and reason what the relative strengths and weaknesses of other systems.

As I say, if you want the answer to your question then look into history, and you will find many examples of economies that flourish under sound money principles.

Instead of a country of 350 million people, imagine an island of 35 people and instead of USA let's call it USB. Each islander has their own specific trade; one fishes, one builds shelter, one farms, one produces garments etc.  They use sea shells or some other naturally occuring commodity to trade, and they trade with each other to exploit the law of comparative advantage in order to reach the maximum point on the production frontier.  How does the economy grow? It doesn't grow because one day a storm brings in a flood of new sea shells which doubles the money supply. The supply of real resources is still fixed.

The only way the islanders can increase their individual prosperity is first by underconsumption of what they produce; this allows them to accumulate capital to become available for plant and machinery to be built which ultimately boosts productivity.


Then this allows one of the islanders to then recognise that he can improve his level of output if he can coordinate all the accumulated capital that other islanders have been storing away. We'll call him Mr Entrepreneur. Mr Entrepreneur's used to be a fisherman but he's also got a good business brain. He borrows all the bits and bobs from other islanders, promising to pay them an agreed rate of return to access their capital. He then incorporates all the widgets and creates a machine that can produce 5 times the amount of fish daily that he used to be able to catch. One of the side effects of this that he puts his neighbouring fisherman out of business, or more precisely his labor is now freed up in order to go and do something else that wasn't being done before. ex-Fisherman B becomes Mr Social Media Manager. Or something. Mr fisherman has grown his business 5-folder, all the investors get the promised return on their money - everyone's happy. Society as a whole in the Great Republic of USB is better off on the whole because of Mr Fisherman-cum-entrepreneur.
Title: Re: Precious Metals
Post by: maizefolk on December 03, 2019, 10:40:39 AM
Economics is a social science. I cannot "prove" that an economy would have done better under different principles, that is not how social sciences work. All I can do is to present a coherent argument explaining with logic and reason what the relative strengths and weaknesses of other systems.

This is a very dangerous view as one can tell lots of stories that, at first glance, make a lot of logical sense, but have some underlying flaw.

In order to have confidence in an idea, it is important to be able to make testable predictions from that model and see how well they match reality. This is why we need experimental physicists, not just theoretical physicists.

It is also why it's so exciting to see the shift in economics from pure math models based around utility optimizing agents to both behavioral and experimental economic approaches that embrace the fact that humans are irrational actors and use both experiments created the economists (for microeconomic questions) and natural experiments (for macroeconomic questions) to test which theories and models do a good job of predicting outcomes in the real world and which do not.

I wish more of the social sciences were on the same exciting trajectory we see in economics today.
Title: Re: Precious Metals
Post by: waltworks on December 03, 2019, 11:13:32 AM
I don't think that example is relevant. In a situation, just as you described, where there's more money available, there are no harmful consequences at all - things are just repriced as needed and the islanders continue on doing what they do and improving their productivity.

In other words, what does your example have to do with fiat currency?

I think the thing that fundamentally is hard to understand here is why some people want *money* (a tool) to also be a store of value. The last thing I want is a pile of cash. That's not productive at all. I only want enough cash to transact. Furthermore, I don't want my friends and neighbors just sitting on cash - I want that stuff flowing around through the economy. It's just a medium of exchange.

-W
Title: Re: Precious Metals
Post by: bwall on December 03, 2019, 12:37:05 PM
@vand: everyone knows (or should know) that it takes capital, in the form of savings, in order to invest and boost productivity. The gold (or seashell) standard doesn't encourage that any more (or less) than fiat does.

What your example has failed to explain is how the process of capital accumulation is not possible in a fiat system but is possible on a gold standard system. I'd love to learn more about this if you would be so kind.

However, I've already given two examples (WWII and China's post-1990 rise) of why the gold standard would have hindered progress and I've yet to hear a rebuttal.

Don't get me wrong: I miss horse drawn carriages, non-unionized sweatshops and colonialism just as much as the next guy, but I don't see how reverting to the monetary system that was in place during those times is an improvement on fiat.

Title: Re: Precious Metals
Post by: ChpBstrd on December 03, 2019, 08:47:31 PM
How does the economy grow? It doesn't grow because one day a storm brings in a flood of new sea shells which doubles the money supply. The supply of real resources is still fixed.

The supply of natural resources also stays the same in an economy where money is created by fiat rather than supplied by accidents. The difference is if the population of 35 people expands to 70, or if the amount of economic activity doubles, the islanders will have to hope a storm comes along to double the money supply or else there will be a shortage of money (deflation) which will result in hoarding and desperate price-cutting (depression). It may sound like fun to live in an economy with falling prices, where one gets relatively richer than one's neighbors just by hoarding money, but people who lived through such episodes will disagree. When everyone is hoarding during a money shortage, there's no way to make a living. It's a game of chicken with starvation, where people get to decide how long they can hold out before they spend their last dollar / gold chain link on food.

In the U.S. in 1960, MI (cash, traveller's checks, etc.) was about $140 billion. We are now at $3,930 billion. This is like the storm hit the island and multiplied the number of trading shells 28x. Also in that timeframe, real (inflation-adjusted) GDP per capita increased from about $18k to about $58k. Meanwhile, the population increased from about 178M to about 330M.

https://fred.stlouisfed.org/series/M1NS (https://fred.stlouisfed.org/series/M1NS)
https://fred.stlouisfed.org/series/A939RX0Q048SBEA (https://fred.stlouisfed.org/series/A939RX0Q048SBEA)
https://fred.stlouisfed.org/series/POPTHM (https://fred.stlouisfed.org/series/POPTHM)

So, more people producing more economic output with more money. What would have happened if a law was passed in 1960 saying the US had to maintain M1 at $140 billion forever, and could never expand the amount of cash in circulation? I'm guessing something similar as would have happen if the food supply were arbitrarily frozen at a 1960 quota - disaster!

Here's a second point. The supply of gold is expanding too. Thousands of tons of the stuff are produced every year, and production has accelerated over time. The price of gold in fiat money would crater due to oversupply if it were not for an expanding world population and GDP - i.e. more people with fiat money buying engagement rings, computer processors, and whatnot. The supply is highly cyclical because mining investment lags and attempts to predict demand by many years (see chart below). But my question is, how is it more "sound" to constrict money supply based on these fluctuations in industrial commodity supply, rather than the more data-responsive approach that is possible with fiat currencies?

(https://upload.wikimedia.org/wikipedia/commons/6/6d/World_Gold_Production_1900-2014.png)

That is, how would the economy be more stable and prosperous if the expansion of the money supply looked like the gold production chart instead of the smooth line chart for M1?

Third question. In a gold based economy. What is the ideal percentage of economic activity devoted to digging up gold? 0.5%? 1%? 20%? 68%? I suspect it would be much higher than we have today, which raises the question: If a large percentage of the population had to labor in mines just to maintain the growth of a monetary system, wouldn't a competing economy that could expand the monetary base effortlessly and employ all those miners in more productive pursuits experience higher growth and living standards? This is a play on Keynes' question about whether paying people to dig holes and fill them back in should be considered economic growth. A gold-based economy would have to occupy lots of people and resources doing exactly that.
Title: Re: Precious Metals
Post by: Telecaster on December 03, 2019, 10:34:40 PM
A debate about the depression could fill an entire forum by itself. 
Mistakes were made by both the Fed (contracting the money supply) and by the Government (New Deal) which together prevented market to be able to clear.

The reason why I subscribe to the Austrian economics model which is sympathetic to sound money principles is because to me it makes the most consistent logical sense and is therefore the most intellectually honest of all the arguments. Excess eventually leads to bust. The solution to debt is repayment. Supply and demand determine market price... basic economic truisms. By contrast the Keynesian and other models seem to obfuscate these behind all these macro aggregates to conclude polar opposite solutions; the way to deal with debt is with more & cheaper debt... if markets are going down then it is a failure of the market and therefore its the moral obligation of the goverment to intervene; all this nonsense that if you try them on an individual level you know instinctively that it's wrong. The USSR had great macro aggregates, y'know. right up until it fell apart. Just saying.

I don't want to rehash the Great Depression either,  just pointing out that the notion that deflation is good because you get richer by hording cash is nonsense.   Deflation is a symptom of disastrous economic conditions.    Since the Federal Reserve system was founded, inflation has been very slightly higher than previous, but price volatility has been much, much lower.  In other words, the gold standard does not provide price stability.  The opposite, in fact.  That's simply the historical record. 

The part in bold has me scratching my head a little bit.  I've never, ever heard anyone say that.  But even if someone had said that, it has nothing to do with the gold standard vs fiat currency.  Markets could still be bailed out under the gold standard, and have been many times in the past. 
Title: Re: Precious Metals
Post by: Paul990 on December 04, 2019, 08:11:27 AM
How would another house market crash affect your situation?         

Every economic downturn is different, but rents did not really fall during the 2007 housing crash. In many markets they actually increased. In that situation (rents stable, prices crash) Radagast would most likely be able to buy several more such units - many RE investors made their fortunes in the housing crash, and can't wait for another one.

-W
@W, @ Radagast, I thought if someone buys a house with a loan, if the house's value sinks the bank will ask for more security, with eventual foreclose.
As Radagast was stressing the upwards of his investment vs. gold, in particular the fact that renting gives some form of yield ("Yes the numbers beat inflation!"), I was wandering about the possible downwards.
"Rents were minimally impacted and in many cases rose as people were foreclosed on and had to go back to renting."
Ok, during a house market crash, rents don't sink. But how about the principal?

This line of your post stroke me "You do the math, feel free to neglect growth of principal."
It seemed to me that your post was neglecting the other direction.
I'm not saying that you should had invested in gold instead of RE.
Title: Re: Precious Metals
Post by: Paul990 on December 04, 2019, 08:19:45 AM
It's no coincidence that this increase of wealth inequality has been boosted after the GS was abandoned by the USA.

(https://www.zerohedge.com/s3/files/inline-images/gold%20standard%20inequality_1.jpg?itok=0NGIaFNg)
I am a bit curious what caused high incomes to start growing rapidly in the mid 80's.

In the same post I quoted Peter Shiff
Quote
When you buy an asset and you incur debt, inflation makes you rich because it wipes out the value of the money you borrowed and now youíre left with the real asset that you purchased.
But who gets wiped out? The savers.
Who are the savers? The average guy whoís got a 401K or a pension. Heís got an annuity. Heís got cash value in life insurance. Heís got bonds. Heís got some savings ó heís getting wiped out.

And so the people who levered up to buy assets, which are generally richer people, have gotten richer, and the people who havenít done that, who arenít as sophisticated, donít have the incomes or the assets to do that, you know, theyíre just trying to save their money.
Well, theyíre getting eviscerated.

This was his explanation.
This is mine: the amounts of new money created by the central banks have gone into the financial markets.
The participants to the financial markets have profited from it.
Those who weren't into the financial markets didn't.

The chart that you provide does not show how abandoning the gold standard leads to wealth inequality.
That's why I quoted Peter Shiff
Title: Re: Precious Metals
Post by: Paul990 on December 04, 2019, 08:30:48 AM
There was plenty of inflation back when we were on the gold standard.  There was plenty of deflation too.   Unstable pricing under the gold standard meant recessions occurred every one to three years.  No thanks.
Under the gold standard there was never a currency crises.
Under the gold standard there was never hyperinflation.

You think always only USA telecaster.
The USA is not the whole world.
Let's compare the average inflation in ALL fiat-led-countries worldwide with the average inflation under the gold standard?
Title: Re: Precious Metals
Post by: Paul990 on December 04, 2019, 08:35:36 AM
Can someone please explain to me:

If the gold standard is the ideal economic underpinning then why did all countries eventually leave the gold standard?

Were they tired of ideal economic fundamentals?
Were they annoyed at all the prosperity they enjoyed as a result of the gold standard, so they sought to set their entire nation back a few pegs?
Could they just not handle the moral weight and responsibility of owning all that gold?

I'm always shocked about people who want a return to the gold standard who have absolutely no idea what that would imply. Fortunately today, one need not be informed to have an opinion.

Governments were keen to abandon the GS because it acts as a constraint on government spending. With fiat money they can just print however much currency they require to fulfill whatever promises have been made, and socialise the cost via the inflation tax which robs existing holders of the currency of its purchasing power.

If that were true, wouldn't the US have been mired in hyperinflation for the past several years? Is this theory consistent with observation?
Yes it is.
"wouldn't the US have been mired in hyperinflation for the past several years?" Yes, if the trillions had poured in the economy.
Instead they have mostly remained within the financial markets, inflating those assets (bonds, stocks, every kind of derivatives etc.), making rich those who participate in them, who are the rich, i.e. making the rich richer, creating wealth inequality (see my posts above)
Title: Re: Precious Metals
Post by: Paul990 on December 04, 2019, 08:40:05 AM
Can someone please explain to me:

If the gold standard is the ideal economic underpinning then why did all countries eventually leave the gold standard?
It wasn't all countries.
It was the USA who left unilaterally the Bretton Woods agreements after De Gaulle asked to exchange US dollars with gold
Title: Re: Precious Metals
Post by: Paul990 on December 04, 2019, 09:10:51 AM
Look, you still gotta explain why the US economy would have done better if we'd been on the gold standard for the last ~50 years.
@ W, when you compare fiat standard with gold standard, I don't think that it's reasonable to consider only one country (and incidentally, the economic superpower) instead of talking about the world economy.

But my point was another one.
You and bwall keep pointing to the well-being caused by currency production.
What you both don't mention is the fact that this well-being increase is debt-based.
It seems to me that you consider this fact a minor one. Well-being is well-being, it doesn't matter if debt-based or not.

I admit that I don't fully understand the relation between currency supply expansion and overall debt increase, but my point is that increasing your well-being through debt is never a good idea.
Every debt spiral like the one that the world (and the USA) are experiencing has a day of reckoning.
It seems to me that when you repeatedly mention the wealth increase experienced after 1971, you are blocking out this fact from the discussion.


@vand, you are the specialist for the Austrian economics model: is there any explaination about the relation between fiat currency expansion and public and/or overall debt level increase?
Title: Re: Precious Metals
Post by: waltworks on December 04, 2019, 09:35:31 AM
I admit that I don't fully understand the relation between currency supply expansion and overall debt increase, but my point is that increasing your well-being through debt is never a good idea.

You don't like capitalism? Seriously? No mortgages, no business loans, no buying or selling of bonds? Because debt is just bad?

Oh, man, where to start with that one...

I'm starting to think this is just a troll account. I'm too lazy to look, but are you the same guy who thought investments couldn't beat inflation?

-W
Title: Re: Precious Metals
Post by: bwall on December 04, 2019, 09:48:16 AM
Look, you still gotta explain why the US economy would have done better if we'd been on the gold standard for the last ~50 years.
@ W, when you compare fiat standard with gold standard, I don't think that it's reasonable to consider only one country (and incidentally, the economic superpower) instead of talking about the world economy.

But my point was another one.
You and bwall keep pointing to the well-being caused by currency production.
What you both don't mention is the fact that this well-being increase is debt-based.
It seems to me that you consider this fact a minor one. Well-being is well-being, it doesn't matter if debt-based or not.

I admit that I don't fully understand the relation between currency supply expansion and overall debt increase, but my point is that increasing your well-being through debt is never a good idea.
Every debt spiral like the one that the world (and the USA) are experiencing has a day of reckoning.
It seems to me that when you repeatedly mention the wealth increase experienced after 1971, you are blocking out this fact from the discussion.

If you do not understand the relationship between monetary (or as you say, 'currency supply') expansion and overall debt increase, then I'm not sure that it's possible to have a meaningful conversation.

You are welcome to have an opinion on gold standard, debt and the like, lots of people have opinions on lots of things, like taste in music, food, cars, partners, etc. But, it's harder to have opinions on facts like what constitutes a fixed money supply, gold standard (Bretton Woods wasn't a gold standard, btw), inflation, debt, etc.

Have you ever considered taking some classes on economics? It seems that you're very interested in the subject and you'd probably do very well.
Title: Re: Precious Metals
Post by: bwall on December 04, 2019, 10:47:17 AM

The supply of natural resources also stays the same in an economy where money is created by fiat rather than supplied by accidents. The difference is if the population of 35 people expands to 70, or if the amount of economic activity doubles, the islanders will have to hope a storm comes along to double the money supply or else there will be a shortage of money (deflation) which will result in hoarding and desperate price-cutting (depression). It may sound like fun to live in an economy with falling prices, where one gets relatively richer than one's neighbors just by hoarding money, but people who lived through such episodes will disagree. When everyone is hoarding during a money shortage, there's no way to make a living. It's a game of chicken with starvation, where people get to decide how long they can hold out before they spend their last dollar / gold chain link on food.

In the U.S. in 1960, MI (cash, traveller's checks, etc.) was about $140 billion. We are now at $3,930 billion. This is like the storm hit the island and multiplied the number of trading shells 28x. Also in that timeframe, real (inflation-adjusted) GDP per capita increased from about $18k to about $58k. Meanwhile, the population increased from about 178M to about 330M.

https://fred.stlouisfed.org/series/M1NS (https://fred.stlouisfed.org/series/M1NS)
https://fred.stlouisfed.org/series/A939RX0Q048SBEA (https://fred.stlouisfed.org/series/A939RX0Q048SBEA)
https://fred.stlouisfed.org/series/POPTHM (https://fred.stlouisfed.org/series/POPTHM)

So, more people producing more economic output with more money. What would have happened if a law was passed in 1960 saying the US had to maintain M1 at $140 billion forever, and could never expand the amount of cash in circulation? I'm guessing something similar as would have happen if the food supply were arbitrarily frozen at a 1960 quota - disaster!

Here's a second point. The supply of gold is expanding too. Thousands of tons of the stuff are produced every year, and production has accelerated over time. The price of gold in fiat money would crater due to oversupply if it were not for an expanding world population and GDP - i.e. more people with fiat money buying engagement rings, computer processors, and whatnot. The supply is highly cyclical because mining investment lags and attempts to predict demand by many years (see chart below). But my question is, how is it more "sound" to constrict money supply based on these fluctuations in industrial commodity supply, rather than the more data-responsive approach that is possible with fiat currencies?

That is, how would the economy be more stable and prosperous if the expansion of the money supply looked like the gold production chart instead of the smooth line chart for M1?

Third question. In a gold based economy. What is the ideal percentage of economic activity devoted to digging up gold? 0.5%? 1%? 20%? 68%? I suspect it would be much higher than we have today, which raises the question: If a large percentage of the population had to labor in mines just to maintain the growth of a monetary system, wouldn't a competing economy that could expand the monetary base effortlessly and employ all those miners in more productive pursuits experience higher growth and living standards? This is a play on Keynes' question about whether paying people to dig holes and fill them back in should be considered economic growth. A gold-based economy would have to occupy lots of people and resources doing exactly that.

Fabulous post, @ChpBstrd. Very well explained and in plain English.

I suspect that many people have nostalgia for the gold standard like they have nostalgia for anything--based more on emotions than on any sound reasoning or logic. Nostalgia/emotions are a great way to pick a sports team, or your favorite vacation spot, or favorite drink, but no way to run an economy.
Title: Re: Precious Metals
Post by: maizefolk on December 04, 2019, 10:57:05 AM
@W, @ Radagast, I thought if someone buys a house with a loan, if the house's value sinks the bank will ask for more security, with eventual foreclose.

No, this is not correct. That's part of what makes long term fixed rate mortgages such a good deal for individuals. They are long term uncallable leverage.
Title: Re: Precious Metals
Post by: Radagast on December 04, 2019, 08:17:29 PM
This line of your post stroke me "You do the math, feel free to neglect growth of principal."
It seemed to me that your post was neglecting the other direction.
I'm not saying that you should had invested in gold instead of RE.
Sorry, that was poorly worded. What I meant was "neglect repayment of principal (and also growth of house price)." Since I took a loan for 80% of the value, that means I was assuming my house would never be worth more than 20% of its price when I bought it. I was baking in an 80% loss. At that point you could just go ahead and neglect principal entirely, which is often done by real estate investors, it is called cash-on-cash return. Assume you will sell the property for scrap, with the value of the land paying for the value of demolishing the structure(s). Cash flow is all that matters for this analysis.

With this property there are two ways I can earn money: 1) I can rent it for gain, 2) I can hope to sell it in the future for more than 20% of its price when I bought it. Contrast with gold, which only has 3) hope to sell it in the future for more than its price you bought it. The house is by far the more conservative investment. Some real estate investors are flippers who only rely on price, but like I said, I am more the "total return" type.

@W, @ Radagast, I thought if someone buys a house with a loan, if the house's value sinks the bank will ask for more security, with eventual foreclose.
No, this is not correct. That's part of what makes long term fixed rate mortgages such a good deal for individuals. They are long term uncallable leverage.
As maizeman says, once the loan has been issued, the bank can do nothing except sit back and expect payments for the next 30 years. As long as they are receiving those they are essentially powerless. They can demand that I have insurance and pay taxes, but those are only to be sure I will always pay. In fact, in recent times the bank which issues the mortgage will rarely keep it, and will instead bundle it up and sell the mortgage to other investors via the markets. All the other cards are in my hands. I can hold, fold, refinance, remodel, sell, rent, whatever. That is why US-based mustachians are generally big proponents of long term home mortgages: they are one of the financial instruments which most strongly favors little people.
Title: Re: Precious Metals
Post by: Paul990 on December 10, 2019, 10:04:37 AM
@Radagast : )
the time you spent writing that post won't be wasted.
I'm going to delve into it.


That is, how would the economy be more stable and prosperous if the expansion of the money supply looked like the gold production chart instead of the smooth line chart for M1?

(https://www.ceicdata.com/datapage/charts/o_united-states_us-money-supply-m1/?type=area&period=max&lang=en) (https://www.ceicdata.com/en/united-states/money-supply-annual)

... the smoothly exponentially ascending line chart...

As the economy is not increasing at that pace, where is ending up all the M1 money?


Change of subject.
We talked about inflation, whether the official CPI is trustable or not.
I found this food for thought

Quote
Gordon Haskett Research Advisors conducted a study by purchasing a basket of 76 typical items consumers buy at Walmart and Target.  The study showed that from June 2018 to June 2019, prices increased about 5%.
Walmart and Target are good proxies for consumer buying experiences. Walmart is the largest retailer in the U.S. with over 3,000 locations marketing to price-conscious consumers. Target has 1,800 locations in the U.S. and is focused on a similar consumer buyer profile, though a bit less price sensitive. Importantly, both Walmart and Target have discount food sections in their stories.

(https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_desktop/public/inline-images/2-1_3.png?itok=9US2u47O)


Quote
Housing has been rapidly increasing in cost as well.  Rental costs have soared in 2019 as the following chart shows a month over month shift to .45%, which is an annualized rate of 5.4%.

(https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_desktop/public/inline-images/4-1_1.png?itok=DoIIZgiX) (https://www.zerohedge.com/personal-finance/inflation-really-under-control)

It concludes this way
Quote
John Williams calculation using the earlier basket formula sets the present inflation rate at nearly 10%.  Based on our research on various price reporting services, we think the real consumer inflation rate is probably about 5 to 6%.
Title: Re: Precious Metals
Post by: waltworks on December 10, 2019, 12:41:07 PM
US GDP in 1960 was around $500 billion. It's now around $20 trillion. So roughly 40x larger.

Money supply (squinting at the chart) was around 150k in 1960 and 3500k today, so 23x larger.

So the economy is actually growing, in general, faster than the money supply over that period you are looking at.

You want to look at inflation over longer terms, IMO, since political issues (think tariffs affect the cost of goods at Walmart?) can have a big effect if you're just looking at one year.

Here's a good article on consumer inflation, including some data on inflation on basic consumer goods since the early 1980s, using old newspaper ads:
https://moneymaven.io/economonitor/emerging-markets/deconstructing-shadowstats-why-is-it-so-loved-by-its-followers-but-scorned-by-economists-DWhA0PwhhkOHkzTLLeCvpQ/

I'll agree that housing, education, and healthcare have all increased in cost much more rapidly than core CPI or wages. That, however, is a separate problem from going back to the gold standard vs fiat.

-W

Title: Re: Precious Metals
Post by: maizefolk on December 10, 2019, 02:06:24 PM
Change of subject.
We talked about inflation, whether the official CPI is trustable or not.
I found this food for thought

Quote
Gordon Haskett Research Advisors conducted a study by purchasing a basket of 76 typical items consumers buy at Walmart and Target.  The study showed that from June 2018 to June 2019, prices increased about 5%.
Walmart and Target are good proxies for consumer buying experiences. Walmart is the largest retailer in the U.S. with over 3,000 locations marketing to price-conscious consumers. Target has 1,800 locations in the U.S. and is focused on a similar consumer buyer profile, though a bit less price sensitive. Importantly, both Walmart and Target have discount food sections in their stories.

(https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_desktop/public/inline-images/2-1_3.png?itok=9US2u47O)

Something really major has happened in the last year that has absolutely nothing to do with the currency supply. The US entered a major trade war with China, with a 10% tariff on Chinese imports. I suspect an awful lot of the goods sold in Walmart and Target are made in China, so a 5% across the board increase based on a 10% tariff sounds pretty reasonable.
Title: Re: Precious Metals
Post by: Telecaster on December 10, 2019, 03:24:10 PM
More food for thought:  MIT's Billion Prices Project which compares daily prices among thousands of retailers in dozens of countries.

When you boil it down, actual price movements in the US are about the same as the CPI:

http://www.thebillionpricesproject.com/usa/

Re:  Shadowstats.  John Williams comes up a lot, but IMO he's obviously a crackpot.  If inflation was cooking along at 10%/year as he claims, then we'd see prices double every seven years.  Unless wages were also doubling at that rate (and I'm quite certain they are not), then our standard of living would be rapidly deceasing. 
Title: Re: Precious Metals
Post by: maizefolk on December 10, 2019, 03:35:09 PM
You can hide or miss inflation for a couple of years and it's possible no one will notice, or will think their particular situation is an outlier. Much harder to hide it over the long term.

If inflation is 7% higher than reported for a decade prices will be twice as high the official numbers would predict. That's really really hard to miss.
Title: Re: Precious Metals
Post by: robartsd on December 10, 2019, 05:21:03 PM
(https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_desktop/public/inline-images/4-1_1.png?itok=DoIIZgiX) (https://www.zerohedge.com/personal-finance/inflation-really-under-control)

CPI is the low line here. Contrary to the headline of the chart, I see the housing as fairly reassuring: overall housing is slightly more affordable than it was 20 years ago. Yes, housing costs are currently going up faster than wages, but it appears to mostly be recovering from the dip in housing costs after the great recession. Plenty to be concerned about for health care and education costs, but I don't really think those are primarily driven by monetary expansion which would be controlled with a gold standard.
Title: Re: Precious Metals
Post by: ChpBstrd on December 11, 2019, 07:29:30 PM
(https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_desktop/public/inline-images/4-1_1.png?itok=DoIIZgiX) (https://www.zerohedge.com/personal-finance/inflation-really-under-control)

CPI is the low line here. Contrary to the headline of the chart, I see the housing as fairly reassuring: overall housing is slightly more affordable than it was 20 years ago. Yes, housing costs are currently going up faster than wages, but it appears to mostly be recovering from the dip in housing costs after the great recession. Plenty to be concerned about for health care and education costs, but I don't really think those are primarily driven by monetary expansion which would be controlled with a gold standard.

Incidental note: Education, housing, and healthcare are the 3 most government subsidized industries in the US. Powerful stakeholders would intervene with fat campaign donations if these subsidies or their duopolies were ever threatened. Government policy is driving the inflation.

Makes one wonder what would CPI be if not for these 3 industries?
Title: Re: Precious Metals
Post by: Paul990 on December 12, 2019, 02:16:07 AM
Incidental note: Education, housing, and healthcare are the 3 most government subsidized industries in the US. Powerful stakeholders would intervene with fat campaign donations if these subsidies or their duopolies were ever threatened. Government policy is driving the inflation.

Makes one wonder what would CPI be if not for these 3 industries?
5%, according to the Gordon Haskett Research Advisors study mentioned above
Title: Re: Precious Metals
Post by: pecunia on December 14, 2019, 10:28:35 AM
What is driving the cost of education up?
Title: Re: Precious Metals
Post by: Telecaster on December 14, 2019, 11:08:22 AM
Education costs are mostly labor, and wage inflation is faster than regular inflation (which is good because it means standard of living is increasing).  As long as that remains true education costs will always increase faster than inflation. 



Title: Re: Precious Metals
Post by: maizefolk on December 14, 2019, 12:37:02 PM
What telecaster said but specifically the issue is that Education (and Healthcare) suffer from Baumol's cost disease.

Our productivity per worker really hasn't increased at all. One professor probably teaches about the same number of students per class. A city with 100,000 people probably still needs about 200-300 doctors.

Yet at the same time workers in a lot of other parts of the economy have been getting much more productive (overall productivity per worker is something like 5x was it was in the 1950s), which means salaries go up in those fields. More people want to work in high paying fields and labor is ultimately fungible. That means even in fields with flat per worker productivity, wages (and hence prices) have to go up or the size of the field has to shrink as it recruits fewer people to work at the same wages.

Healthcare and education tend to be fields people will pay whatever it takes as long as they have the money, so costs and prices have had to go up to keep enough workers to provide those services.

In other fields where productivity hasn't increased, Baumol's cost disease means the number of people working in the field has declined dramatically. Live performing classical musicians and shoeshiners would be examples of other professions where productivity didn't grow but Baumol's cost disease resulted in the decline of that type of work more than a big increase in wages.
Title: Re: Precious Metals
Post by: ice_beard on December 14, 2019, 04:49:00 PM
I asked for some silver for Chirstmas this year. 
Title: Re: Precious Metals
Post by: robartsd on December 17, 2019, 08:34:32 AM
What telecaster said but specifically the issue is that Education (and Healthcare) suffer from Baumol's cost disease.

Our productivity per worker really hasn't increased at all. One professor probably teaches about the same number of students per class. A city with 100,000 people probably still needs about 200-300 doctors.

Yet at the same time workers in a lot of other parts of the economy have been getting much more productive (overall productivity per worker is something like 5x was it was in the 1950s), which means salaries go up in those fields. More people want to work in high paying fields and labor is ultimately fungible. That means even in fields with flat per worker productivity, wages (and hence prices) have to go up or the size of the field has to shrink as it recruits fewer people to work at the same wages.

Healthcare and education tend to be fields people will pay whatever it takes as long as they have the money, so costs and prices have had to go up to keep enough workers to provide those services.

In other fields where productivity hasn't increased, Baumol's cost disease means the number of people working in the field has declined dramatically. Live performing classical musicians and shoeshiners would be examples of other professions where productivity didn't grow but Baumol's cost disease resulted in the decline of that type of work more than a big increase in wages.
This explanation makes sense to a point, but cost inflation in these fields is much higher than overall wage increases (overall wages up 65%, healthcare up 95%, education up 230% in the chart shared earlier). I can imagine that education is even more sensitive to labor than health care, but education costs have grown 3.5x more than wages have.
Title: Re: Precious Metals
Post by: maizefolk on December 17, 2019, 11:39:28 AM
Yes in education and healthcare there are two additional issues, one shared and one unique to each:

-In both fields there has been a growth in the ratio of administrators (broadly defined) relative to the folks directly providing the product/service (medical care or education). There's a lot of speculation about why this is happening, but would be great to reverse if possible.

-For professors in in demand STEM fields universities really are competing with private industry and often losing out and they're competing in fields where salaries have grown a lot faster than the national average wage. For fields in the humanities where there is a lot less private sector demand salaries do get tugged up to some extent just by comparison, although their salaries haven't grown as much.

-For MDs, production of new MDs has been constrained by other the number of seats in accredited med schools and number of residencies available to med school graduates (you need the residency in order to actually practice medicine, the degree by itself doesn't cut it). From 1985 to 2010 the number of med school graduates was flat at about 16k/year even as the US population grew from 240M then to 330M today. Since then, the number of med school graduates has finally started to climb again but this, combined with the cap on residency positions created an artificial shortfall of MDs, driving up salaries and costs.
Title: Re: Precious Metals
Post by: forestj on December 21, 2019, 12:37:14 PM
I think accreditation, regulation, and the monopolies / cartels that precipitate from that are the real reason medical care and education have become so expensive.  Its like this because because no one can participate in the market.  You can't just open a school and start teaching or buy an industrial site and start manufacturing asthma medications.  These things are not too hard for the average person to do because of some natural phenomenon, they are simply prohibited by law. If you try to start an organization, whether for profit or not, in education or medicine, usually either you or your customers/students will be arrested, assaulted, or denied access to the market (Job market, Bachelors Degree market, Pharma market, walk-in-clinic market, etc)  by the incumbent system / government / law / mafia. 

Either that or you have to play by their rules, which puts you at an inherent dis-advantage and forces you to over-charge for everything because you have to pay the mafia dues, and they are really REALLY expensive.

Personally I think whats gonna happen, eventually these things (education, healthcare, etc) will be only available to top 20 - top 10% of people in terms of wealth, and at that point as long as the internet still exists and functions similarly to how it does today,  illegal clinics and illegal universities will start popping up and a new generation of businesses will spring up which cost 100x Less while providing better care and products.
Title: Re: Precious Metals
Post by: ChpBstrd on December 22, 2019, 04:03:32 PM
I think accreditation, regulation, and the monopolies / cartels that precipitate from that are the real reason medical care and education have become so expensive.  Its like this because because no one can participate in the market.  You can't just open a school and start teaching or buy an industrial site and start manufacturing asthma medications.  These things are not too hard for the average person to do because of some natural phenomenon, they are simply prohibited by law. If you try to start an organization, whether for profit or not, in education or medicine, usually either you or your customers/students will be arrested, assaulted, or denied access to the market (Job market, Bachelors Degree market, Pharma market, walk-in-clinic market, etc)  by the incumbent system / government / law / mafia. 

Either that or you have to play by their rules, which puts you at an inherent dis-advantage and forces you to over-charge for everything because you have to pay the mafia dues, and they are really REALLY expensive.

Personally I think whats gonna happen, eventually these things (education, healthcare, etc) will be only available to top 20 - top 10% of people in terms of wealth, and at that point as long as the internet still exists and functions similarly to how it does today,  illegal clinics and illegal universities will start popping up and a new generation of businesses will spring up which cost 100x Less while providing better care and products.

I agree. Regulations that ostensibly are to protect consumers have been used to entrench monopolists and raise the barriers to entry in those industries.

I thought about starting a medical tourism business. It would basically be a travel agency putting people in touch with Caribbean, Canadian, European, or Asian hospitals where folks could get their knees or hips redone, get liposuction, get heart surgery, go through chemo, or just get a ton of diagnostic work done without destroying the family wealth they worked a lifetime for. By the time you need one of these procedures, you're not in a good position to explore the world looking for escape the med-mafia.

I bet the regulators would come for me eventually. 
Title: Re: Precious Metals
Post by: maizefolk on December 22, 2019, 04:18:36 PM
There was a story earlier this fall about an insurance company in Colorado that will pay their customers $5,000 to fly down to mexico to have various necessary-but-non-emergency surgeries done in a Mexican hospital by an american doctor that they also fly from the states.

The example they followed along with in the story was a woman who was getting a knee replacement.

https://www.nytimes.com/2019/08/09/business/medical-tourism-mexico.html

The doctor makes 3x what he would doing the same surgery at home, plus gets a nice evening on a beach in mexico, the patient gets the new knee, all travel expenses paid, and a $5,000 check, and the insurance company still comes out ahead.
Title: Re: Precious Metals
Post by: Paul990 on January 06, 2020, 03:17:35 AM
So, more people producing more economic output with more money

... and more debt

(https://www.isabelnet.com/wp-content/uploads/2019/05/US-Debt-to-GDP-ratios.png)       (http://goldsilverworlds.com/wp-content/uploads/2015/06/Debt-US-Beats-GDP-Growth-1952-20151.gif)


I don't understand why in the picture you describe, you leave the debt factor aside, as if it were irrelevant
Title: Re: Precious Metals
Post by: Paul990 on January 06, 2020, 03:28:05 AM
In the U.S. in 1960, MI (cash, traveller's checks, etc.) was about ...

What would have happened if a law was passed in 1960 saying the US had to maintain M1 at...

... if the expansion of the money supply looked like the gold production chart instead of the smooth line chart for M1?

While I don't understand also why you talk only about M1, and not MZM, M0, or M2...


(https://www.ceicdata.com/datapage/charts/o_united-states_us-money-supply-m1/?type=area&period=max&lang=en)

... I wonder, as the US GDP is not growing at that pace, where is ending up all that M1 money?
Title: Re: Precious Metals
Post by: vand on January 06, 2020, 04:13:46 AM
Gold is now very clearly in a bull market.

I think we are still in the early adoption stage. Stage 2 doesn't really get going until we take out the old USD high at $1920, which could easily come this year. A 5-fold trough to peak move is my conservative forecast, playing out over most of the 2020s.. still supremely confident in my 10-year bet (https://forum.mrmoneymustache.com/investor-alley/precious-metals/msg2286168/#msg2286168).

If you don't hold any PMs then I would seriously advise to reconsider this. There will come a time when every dumb money stock market indexer on these forums who never read past JL Collins' "investing for dummies" had wished they had weighted more heavily in the PMs sector.
Title: Re: Precious Metals
Post by: markbike528CBX on January 06, 2020, 09:18:42 AM
Gold is now very clearly in a bull market.

I think we are still in the early adoption stage. Stage 2 doesn't really get going until we take out the old USD high at $1920, which could easily come this year. A 5-fold trough to peak move is my conservative forecast, playing out over most of the 2020s.. still supremely confident in my 10-year bet (https://forum.mrmoneymustache.com/investor-alley/precious-metals/msg2286168/#msg2286168).

If you don't hold any PMs then I would seriously advise to reconsider this. There will come a time when every dumb money stock market indexer on these forums who never read past JL Collins' "investing for dummies" had wished they had weighted more heavily in the PMs sector.

Quoted to avoid future deletion on the appearance of contradictory data.

Gold bull market? Based on a weeks worth of upswing?
Title: Re: Precious Metals
Post by: dougules on January 06, 2020, 09:52:54 AM
So, more people producing more economic output with more money

... and more debt

(https://www.isabelnet.com/wp-content/uploads/2019/05/US-Debt-to-GDP-ratios.png)       (http://goldsilverworlds.com/wp-content/uploads/2015/06/Debt-US-Beats-GDP-Growth-1952-20151.gif)


I don't understand why in the picture you describe, you leave the debt factor aside, as if it were irrelevant

Your second chart would be much more readable on a logarithmic scale.  Linear charts like that distort the comparison between old and new for anything that grows by percentage instead of linearly. 
Title: Re: Precious Metals
Post by: dougules on January 06, 2020, 10:04:53 AM
Gold is now very clearly in a bull market.

I think we are still in the early adoption stage. Stage 2 doesn't really get going until we take out the old USD high at $1920, which could easily come this year. A 5-fold trough to peak move is my conservative forecast, playing out over most of the 2020s.. still supremely confident in my 10-year bet (https://forum.mrmoneymustache.com/investor-alley/precious-metals/msg2286168/#msg2286168).

If you don't hold any PMs then I would seriously advise to reconsider this. There will come a time when every dumb money stock market indexer on these forums who never read past JL Collins' "investing for dummies" had wished they had weighted more heavily in the PMs sector.

What are you expecting to drive gold higher?  You may be right, but you're just expecting some other person down the line to pay more for the exact same lump of metal you bought.  There's no actual return, only speculation. 
Title: Re: Precious Metals
Post by: Davnasty on January 06, 2020, 10:09:16 AM
So, more people producing more economic output with more money

... and more debt

I don't understand why in the picture you describe, you leave the debt factor aside, as if it were irrelevant

Your second chart would be much more readable on a logarithmic scale.  Linear charts like that distort the comparison between old and new for anything that grows by percentage instead of linearly.

This has been explained to Paul990 at least once before:

https://forum.mrmoneymustache.com/investor-alley/capitalism-mercantilism-and-the-gold-standard/msg2515226/#msg2515226

I don't think this person actually has any interest in discussing or gaining knowledge on the topic, only pushing their current opinion. Motive unclear. Lots of thoughtful responses to their posts have been completely ignored.
Title: Re: Precious Metals
Post by: JAYSLOL on January 06, 2020, 10:20:41 AM
Gold is now very clearly in a bull market.

I think we are still in the early adoption stage. Stage 2 doesn't really get going until we take out the old USD high at $1920, which could easily come this year. A 5-fold trough to peak move is my conservative forecast, playing out over most of the 2020s.. still supremely confident in my 10-year bet (https://forum.mrmoneymustache.com/investor-alley/precious-metals/msg2286168/#msg2286168).

If you don't hold any PMs then I would seriously advise to reconsider this. There will come a time when every dumb money stock market indexer on these forums who never read past JL Collins' "investing for dummies" had wished they had weighted more heavily in the PMs sector.

No sure if you mentioned before but just wondering, what percentage of your invested net worth do you have in gold?  Just gold or a combination of gold and silver?  Is it all physical, all etf, or a combination? 
Title: Re: Precious Metals
Post by: RWD on January 06, 2020, 10:26:03 AM
I don't think this person actually has any interest in discussing or gaining knowledge on the topic, only pushing their current opinion. Motive unclear. Lots of thoughtful responses to their posts have been completely ignored.

It was an easy decision to put Paul on my ignore list almost immediately.
Title: Re: Precious Metals
Post by: BobTheBuilder on January 06, 2020, 11:17:20 AM

... I wonder, as the US GDP is not growing at that pace, where is ending up all that M1 money?

Well, some things are build to last. If an economy e.g. build significantly more houses starting after WW2 (since less war goods produced which have a tendency to just blow up at some point), most of these houses are still usable. Meaning in a society of increasing and preserved wealth, money increases too. You don't need more houses each year if the previously build houses don't disintegrate at the same rate.

Not a scientific explanation, but maybe... money and credit represent (to some degree) wealth instead of productivity.
Title: Re: Precious Metals
Post by: vand on January 07, 2020, 06:07:23 PM
Gold is now very clearly in a bull market.

I think we are still in the early adoption stage. Stage 2 doesn't really get going until we take out the old USD high at $1920, which could easily come this year. A 5-fold trough to peak move is my conservative forecast, playing out over most of the 2020s.. still supremely confident in my 10-year bet (https://forum.mrmoneymustache.com/investor-alley/precious-metals/msg2286168/#msg2286168).

If you don't hold any PMs then I would seriously advise to reconsider this. There will come a time when every dumb money stock market indexer on these forums who never read past JL Collins' "investing for dummies" had wished they had weighted more heavily in the PMs sector.

Quoted to avoid future deletion on the appearance of contradictory data.

Gold bull market? Based on a weeks worth of upswing?

Based on the definition of a bull market. Duh.
Title: Re: Precious Metals
Post by: vand on January 07, 2020, 06:13:51 PM
Gold is now very clearly in a bull market.

I think we are still in the early adoption stage. Stage 2 doesn't really get going until we take out the old USD high at $1920, which could easily come this year. A 5-fold trough to peak move is my conservative forecast, playing out over most of the 2020s.. still supremely confident in my 10-year bet (https://forum.mrmoneymustache.com/investor-alley/precious-metals/msg2286168/#msg2286168).

If you don't hold any PMs then I would seriously advise to reconsider this. There will come a time when every dumb money stock market indexer on these forums who never read past JL Collins' "investing for dummies" had wished they had weighted more heavily in the PMs sector.

No sure if you mentioned before but just wondering, what percentage of your invested net worth do you have in gold?  Just gold or a combination of gold and silver?  Is it all physical, all etf, or a combination?

About 25% in the metals; gold silver, platinum, mix of physical and etfs. About a further 4% in the miners. This has actually come down in the last year as Iíve diversified by accumulating more financial assets.
Title: Re: Precious Metals
Post by: markbike528CBX on January 07, 2020, 07:38:32 PM
Gold is now very clearly in a bull market.

I think we are still in the early adoption stage. Stage 2 doesn't really get going until we take out the old USD high at $1920, which could easily come this year. A 5-fold trough to peak move is my conservative forecast, playing out over most of the 2020s.. still supremely confident in my 10-year bet (https://forum.mrmoneymustache.com/investor-alley/precious-metals/msg2286168/#msg2286168).

If you don't hold any PMs then I would seriously advise to reconsider this. There will come a time when every dumb money stock market indexer on these forums who never read past JL Collins' "investing for dummies" had wished they had weighted more heavily in the PMs sector.

Quoted to avoid future deletion on the appearance of contradictory data.

Gold bull market? Based on a weeks worth of upswing?

Based on the definition of a bull market. Duh.

Please define.  Please define in such a way that it the bull market is known before the top (sorry, top is always IN :-).  but still....
Title: Re: Precious Metals
Post by: vand on January 08, 2020, 01:09:29 AM
Gold is now very clearly in a bull market.

I think we are still in the early adoption stage. Stage 2 doesn't really get going until we take out the old USD high at $1920, which could easily come this year. A 5-fold trough to peak move is my conservative forecast, playing out over most of the 2020s.. still supremely confident in my 10-year bet (https://forum.mrmoneymustache.com/investor-alley/precious-metals/msg2286168/#msg2286168).

If you don't hold any PMs then I would seriously advise to reconsider this. There will come a time when every dumb money stock market indexer on these forums who never read past JL Collins' "investing for dummies" had wished they had weighted more heavily in the PMs sector.

Quoted to avoid future deletion on the appearance of contradictory data.

Gold bull market? Based on a weeks worth of upswing?

Based on the definition of a bull market. Duh.

Please define.  Please define in such a way that it the bull market is known before the top (sorry, top is always IN :-).  but still....

A bull market is one where you can buy a male cow. I mean, itís OBVIOUS. DUH.
Title: Re: Precious Metals
Post by: TomTX on January 09, 2020, 04:46:10 PM
I should dig out my old class ring and sell it off to a gold scrap place. I never wear the thing.

Hm, Can't seem to remember the company I used last time - been years.
Title: Re: Precious Metals
Post by: markbike528CBX on January 09, 2020, 10:48:27 PM
Gold is now very clearly in a bull market.

I think we are still in the early adoption stage. Stage 2 doesn't really get going until we take out the old USD high at $1920, which could easily come this year. A 5-fold trough to peak move is my conservative forecast, playing out over most of the 2020s.. still supremely confident in my 10-year bet (https://forum.mrmoneymustache.com/investor-alley/precious-metals/msg2286168/#msg2286168).

If you don't hold any PMs then I would seriously advise to reconsider this. There will come a time when every dumb money stock market indexer on these forums who never read past JL Collins' "investing for dummies" had wished they had weighted more heavily in the PMs sector.

Quoted to avoid future deletion on the appearance of contradictory data.

Gold bull market? Based on a weeks worth of upswing?

Based on the definition of a bull market. Duh.

Please define.  Please define in such a way that it the bull market is known before the top (sorry, top is always IN :-).  but still....

A bull market is one where you can buy a male cow. I mean, itís OBVIOUS. DUH.
While bull=male cattle may be OBVIOUS, again, how do you determine that gold is a market with near exponential growth?
NOW, without the benefit of hindsight?
Title: Re: Precious Metals
Post by: freya on January 11, 2020, 09:21:37 AM
Gold is doing its job now just as it's done since Bretton Woods, and in a larger sense for the past several thousand years....

It is a hedge against stock market corrections, same as long-duration bonds.  Both have extended periods where they are uncorrelated with stocks.  If you own all three as part of a structured portfolio AND you are disciplined about tracking asset proportions and sticking with rebalance bands, you get a much more even ride for your portfolio (i.e. reduced standard deviation).  The opportunities to profit from rebalancing are helpful too.  That's the reason to own gold.  In fact, the combination of long bonds + gold is far more effective than the total bond market funds advocated at Bogleheads - those only soften the blow of a stock market correction but they don't compensate for it.

If you are just trying to invest in it on its own as a speculation, well, there are certainly better choices out there.
Title: Re: Precious Metals
Post by: BobTheBuilder on January 11, 2020, 10:09:14 AM
Gold is doing its job now just as it's done since Bretton Woods, and in a larger sense for the past several thousand years....

It is a hedge against stock market corrections, same as long-duration bonds.  Both have extended periods where they are uncorrelated with stocks.  If you own all three as part of a structured portfolio AND you are disciplined about tracking asset proportions and sticking with rebalance bands, you get a much more even ride for your portfolio (i.e. reduced standard deviation).  The opportunities to profit from rebalancing are helpful too.  That's the reason to own gold.  In fact, the combination of long bonds + gold is far more effective than the total bond market funds advocated at Bogleheads - those only soften the blow of a stock market correction but they don't compensate for it.

If you are just trying to invest in it on its own as a speculation, well, there are certainly better choices out there.

Well said.
Title: Re: Precious Metals
Post by: vand on January 12, 2020, 11:54:00 AM
Gold is now very clearly in a bull market.

I think we are still in the early adoption stage. Stage 2 doesn't really get going until we take out the old USD high at $1920, which could easily come this year. A 5-fold trough to peak move is my conservative forecast, playing out over most of the 2020s.. still supremely confident in my 10-year bet (https://forum.mrmoneymustache.com/investor-alley/precious-metals/msg2286168/#msg2286168).

If you don't hold any PMs then I would seriously advise to reconsider this. There will come a time when every dumb money stock market indexer on these forums who never read past JL Collins' "investing for dummies" had wished they had weighted more heavily in the PMs sector.

Quoted to avoid future deletion on the appearance of contradictory data.

Gold bull market? Based on a weeks worth of upswing?

Based on the definition of a bull market. Duh.

Please define.  Please define in such a way that it the bull market is known before the top (sorry, top is always IN :-).  but still....

A bull market is one where you can buy a male cow. I mean, itís OBVIOUS. DUH.
While bull=male cattle may be OBVIOUS, again, how do you determine that gold is a market with near exponential growth?
NOW, without the benefit of hindsight?

A bull market by most definitions follows the "Dow theory" of higher highs and highers lows of the same timeframe, such that the overall trend is up. There is absolutely no requirement for exponential growth, or even steady growth. None at all. So long as Dow theory holds then the overall trend remains intact.

Trend theory does not try to predict tops and bottoms; it merely establishes the main direction of the market.
Title: Re: Precious Metals
Post by: vand on January 15, 2020, 03:05:50 AM
Gold is doing its job now just as it's done since Bretton Woods, and in a larger sense for the past several thousand years....

It is a hedge against stock market corrections, same as long-duration bonds.  Both have extended periods where they are uncorrelated with stocks.  If you own all three as part of a structured portfolio AND you are disciplined about tracking asset proportions and sticking with rebalance bands, you get a much more even ride for your portfolio (i.e. reduced standard deviation).  The opportunities to profit from rebalancing are helpful too.  That's the reason to own gold.  In fact, the combination of long bonds + gold is far more effective than the total bond market funds advocated at Bogleheads - those only soften the blow of a stock market correction but they don't compensate for it.

If you are just trying to invest in it on its own as a speculation, well, there are certainly better choices out there.

Gold and stocks can and sometimes do go up together, also. The period from 2002-2007 was a good example of this, tailwinded by a weakening USD.
Title: Re: Precious Metals
Post by: ChpBstrd on January 15, 2020, 11:07:48 AM
If you are going to put money into gold and silver, you may as well just buy some cryptocurrency. It's basically the same thing. The value of it comes from expecting someone else to want to buy it from you. There is no intrinsic value to any of it. Ask a pawn shop owner if you don't believe me.

That's a strange idea. As I know, gold is something existing in real life. And so you can just buy a gold ingot and hide it somewhere just in case. But you can't do the same stuff with cryptocurrency.

My complete collection of Crystal Gayle vinyl albums from the 70ís also exists in physical reality, but my problem is that no one is willing to barter them in exchange for food, shelter, clothing, energy, or medicine. The property of having value is something assigned by human cultures. Value is always and everywhere a creation of human minds, not something existing in physical reality, and so it is with the value assigned to gold, cryptocurrencies, and sovereign currencies, fiat or not. The ultimate currency is work. Who is willing to work for whom and for how much of what? Unfortunately for my asset collection, Crystal Gayle albums arenít worth a bologna sandwich or a new pair of socks these days. But at least I didnít work years in exchange for them. (In fact, WTF do I still have them?)
Title: Re: Precious Metals
Post by: celerystalks on January 15, 2020, 06:51:29 PM
I asked for some silver for Chirstmas this year.

did you get any? if so what?
Title: Re: Precious Metals
Post by: vand on January 16, 2020, 04:13:54 AM
The white metals have been a tale of contrasting fortunes in the last decade as the world has abandoned Diesel engines.

Palladium has been a standout performer for the last 10 years

http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=palladium&uf=0&type=128&size=3&sid=200021861&style=320&freq=2&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=20&rand=812650046&compidx=aaaaa%3a0&ma=6&maval=21,55,233&lf=4&lf2=2&lf3=33554432&height=820&width=720&mocktick=1

Platinum on the other hand has been on of the worst performers:

http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=platinum&uf=0&type=128&size=3&sid=200021860&style=320&freq=2&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=13&rand=1628981711&compidx=aaaaa%3a0&ma=6&maval=21,55,233&lf=4&lf2=2&lf3=33554432&height=820&width=720&mocktick=1

However, Pt may be about to do some catching up. It just set a new 2-yr high.

I'm personally positioned in Pt. I think that it will eventually regain its status and trade higher than both Gold and Palladium.
Title: Re: Precious Metals
Post by: vand on February 24, 2020, 07:23:05 AM
Timely bump. Doubters are gonna doubt, all the way up.

Btw, if you think gold has done well recently in USD you should check out how well it has done in other currencies, especially euros.

Stand by my prediction that there will come a time when everyone who has no gold allocation will wish they had some, and those who did have some will probably wish they had a lot more. Dunno about you, I would rather not wait until CNBC is telling us we should hold some gold. I Ďd rather get ahead of the curve.
Title: Re: Precious Metals
Post by: waltworks on February 24, 2020, 07:47:05 AM
Of course that time will come. Broken clocks, and all.

Problem is, there's no way to predict when that is in advance, and it's a drag on your portfolio the rest of the time.

Market timing is still market timing, even if it's the gold market. Except the gold market doesn't get you exponential gains over long time periods...

-W
Title: Re: Precious Metals
Post by: MaaS on February 24, 2020, 07:48:11 AM
Timely bump. Doubters are gonna doubt, all the way up.

Btw, if you think gold has done well recently in USD you should check out how well it has done in other currencies, especially euros.

Stand by my prediction that there will come a time when everyone who has no gold allocation will wish they had some, and those who did have some will probably wish they had a lot more. Dunno about you, I would rather not wait until CNBC is telling us we should have hold some gold. I Ďd rather get ahead of the curve.

I never, ever thought I'd buy gold.

I changed my mind late last year and have about 6%. My decision was more based upon the interest rate race to the bottom than the stock market price, however.
Title: Re: Precious Metals
Post by: vand on February 24, 2020, 08:26:57 AM
Here is the gold/vti price over 20 years. Interpret it however you want..

(https://i.postimg.cc/Jn2Mfb38/goldvti.png)
Title: Re: Precious Metals
Post by: vand on February 24, 2020, 08:38:35 AM
Of course that time will come. Broken clocks, and all.

Problem is, there's no way to predict when that is in advance, and it's a drag on your portfolio the rest of the time.

Market timing is still market timing, even if it's the gold market. Except the gold market doesn't get you exponential gains over long time periods...

-W

Not really about being a broken clock. Markets go in cycles, and public sentiment necessarily reflects that. As previous chart shows there is ample opportunity to favour your investments one way or the other depending on the trend. Prices do no jump from a price where everyone despises it to one where everyone loves it overnight. It is a process in yje cycle that takes years. By the time the pendulum has swung back towards gold the sentiment will have shifted in line with the prices.
Title: Re: Precious Metals
Post by: waltworks on February 24, 2020, 08:54:28 AM
Yeah, that's what all the market timers say. If you can predict market cycles, more power to you. I can't, so I don't try.

-W
Title: Re: Precious Metals
Post by: appleshampooid on February 24, 2020, 08:59:18 AM
For better/worse/crazy/irrational I recently decided I wanted to add to my PM stash a bit....I have what amounts to about 1.5% of my total NW right now, last purchases in 2014. I want to keep it around 3%.

This was not based on the current PM prices at all, and of course, now is a really terrible time to buy. So the question is....do I try to time the PM market and wait a bit? I think I will wait a bit. My crystal ball says that after the Corona virus fears blow over, Gold/Silver prices will come down a bit. Since I buy so rarely, and buying in volume gets you some discount, I don't feel toooo bad about waiting for a dip.
Title: Re: Precious Metals
Post by: JAYSLOL on February 24, 2020, 10:08:52 AM
I buy sporadically, not based on what prices are or anything, but based on when I find a deal.  I buy coin collections privately at garage sales, estate sales etc, so Iím usually buying way below whatever the spot price is at the time.  Most of it I put aside, some of it I sell off.  I try to keep silver and gold to 5% or less of my portfolio, but it surges based on spot price or if I find a big collection all at once, currently up to 9% because of spot price and me being lazy to sell off some that I donít need.  I would have a really hard time buying silver or gold at retail prices when you take such a hit on the selling side.  Plus random collections are just way more interesting than bullion. 
Title: Re: Precious Metals
Post by: vand on February 24, 2020, 10:22:04 AM
For better/worse/crazy/irrational I recently decided I wanted to add to my PM stash a bit....I have what amounts to about 1.5% of my total NW right now, last purchases in 2014. I want to keep it around 3%.

This was not based on the current PM prices at all, and of course, now is a really terrible time to buy. So the question is....do I try to time the PM market and wait a bit? I think I will wait a bit. My crystal ball says that after the Corona virus fears blow over, Gold/Silver prices will come down a bit. Since I buy so rarely, and buying in volume gets you some discount, I don't feel toooo bad about waiting for a dip.

People asked the same after last monthsí missile exchanges in Iraq ďcausedĒ gold to spike above the $1600, and yet here we are just a few weeks later and people taking advantage of that panic to sell must be wondering if theyíll ever be able to get back in lower than they sold.

My take is that wether it is geopolitics or viruses, ďeventsĒ never drive a market where they do not ultimately want to go. The underlying driver of this bull market in gold has noting to do with the scare stories of the day; it is driven by the manipulation and abuse of currencies by virtually all those with the monopoly power to issue them. It is far worse than the sort of abuse which drove the 1972-1980 and 2000-2011 bull markets, and there should be no reason why, in the face of this action, gold will not perform in similar fashion compared to other financial assets as it did in those periods.
Title: Re: Precious Metals
Post by: TomTX on February 24, 2020, 05:18:17 PM
Here is the gold/vti price over 20 years. Interpret it however you want..
Doesn't that leave out the ~2% per year in dividends from VTI?
Title: Re: Precious Metals
Post by: waltworks on February 24, 2020, 07:16:14 PM
VTI with dividends reinvested is about a 6.2% annual return over the last 20 years. Gold does indeed beat that return handily, as that's a low point for gold prices and a (relative) high point for equities.

Longer time comparisons are not so kind to gold (which loses by about 3% annually since 1971), nor are shorter ones.

But we've been over all that before. I doubt anyone's mind is going to be changed. If gold makes you sleep better at night, then by all means buy some.

-W

Title: Re: Precious Metals
Post by: celerystalks on February 24, 2020, 08:00:22 PM
VTI with dividends reinvested is about a 6.2% annual return over the last 20 years. Gold does indeed beat that return handily, as that's a low point for gold prices and a (relative) high point for equities.

Longer time comparisons are not so kind to gold (which loses by about 3% annually since 1971), nor are shorter ones.

But we've been over all that before. I doubt anyone's mind is going to be changed. If gold makes you sleep better at night, then by all means buy some.

-W

Properly used in a portfolio, gold should be treated as an asset class. It should not be loaded up on all at once. It should be bought or sold regularly to maintain a desired percentage.This takes advantage of the inherent short term volatility gold, stocks, and bonds, and it takes advantage of goldís long term ability to do well during periods of high inflation.

If they had to be bought all at once at a single point in time, the same cherry picking of starting points or time periods arguments could be made with respect to stocks v. Bonds, or bonds v. Cash, or even stocks v. Cash in some cases.
Title: Re: Precious Metals
Post by: hodedofome on February 25, 2020, 09:22:34 AM
Here is a backtest from 2006 having S&P 500, GLD and IEF (10 year treasuries) equally weighted. Buy and hold is the red line, S&P 500 is the orange line, and buying each asset ONLY when it's above the 10 month moving average is the blue line.

https://www.portfoliovisualizer.com/test-market-timing-model?s=y&coreSatellite=false&timingModel=5&startYear=1985&endYear=2020&initialAmount=10000&periodicAdjustment=0&adjustmentAmount=0&inflationAdjusted=true&adjustmentPercentage=0.0&adjustmentFrequency=4&singleAbsoluteMomentum=false&volatilityTarget=9.0&downsideVolatility=false&outOfMarketAssetType=1&movingAverageSignal=1&movingAverageType=1&multipleTimingPeriods=false&periodWeighting=2&windowSize=10&windowSizeInDays=105&movingAverageType2=1&windowSize2=10&windowSizeInDays2=105&excludePreviousMonth=false&normalizeReturns=false&volatilityWindowSize=0&volatilityWindowSizeInDays=0&assetsToHold=1&allocationWeights=1&riskControl=false&riskWindowSize=10&riskWindowSizeInDays=0&rebalancePeriod=1&separateSignalAsset=false&tradeExecution=0&comparedAllocation=-1&benchmark=VFINX&timingPeriods%5B0%5D=5&timingUnits%5B0%5D=2&timingWeights%5B0%5D=100&timingUnits%5B1%5D=2&timingWeights%5B1%5D=0&timingUnits%5B2%5D=2&timingWeights%5B2%5D=0&timingUnits%5B3%5D=2&timingWeights%5B3%5D=0&timingUnits%5B4%5D=2&timingWeights%5B4%5D=0&volatilityPeriodUnit=2&volatilityPeriodWeight=0&symbol1=SPY&allocation1_1=34&symbol2=IEF&allocation2_1=33&symbol3=GLD&allocation3_1=33

Title: Re: Precious Metals
Post by: JetBlast on February 25, 2020, 09:54:17 AM
Dunno about you, I would rather not wait until CNBC is telling us we should hold some gold. I Ďd rather get ahead of the curve.

Just switch the channel to Fox News.  They have elderly B-List actors telling you to buy gold and silver during every commercial break! 

Here is the gold/vti price over 20 years. Interpret it however you want..

(https://i.postimg.cc/Jn2Mfb38/goldvti.png)

OMG!!!!  17-year head and shoulders pattern almost complete!  Gold is bound to fall shortly!  Top is in!
Title: Re: Precious Metals
Post by: Radagast on February 29, 2020, 10:18:16 AM
Properly used in a portfolio, gold should be treated as an asset class. It should not be loaded up on all at once. It should be bought or sold regularly to maintain a desired percentage.This takes advantage of the inherent short term volatility gold, stocks, and bonds, and it takes advantage of goldís long term ability to do well during periods of high inflation.

If they had to be bought all at once at a single point in time, the same cherry picking of starting points or time periods arguments could be made with respect to stocks v. Bonds, or bonds v. Cash, or even stocks v. Cash in some cases.
This is a good point. Gold is a perfect asset for dollar cost averaging. With no dividends and no expectation for compounding growth exceeding the relative cost of yoghurt (inflation) there is not a mean or median expectation of losing out by delayed investing. But it is very volatile, so you will get on average a slightly lower cost basis by DCA in. For PM, DCA is a winning strategy.

That is a dream head and shoulders chart.
Title: Re: Precious Metals
Post by: vand on March 12, 2020, 12:27:34 PM
Sill no love for the precious metals?

Dow/Gold ratio, having topped out at 22.5 in mid-2018 (coincidentally just about when this thread started) is now trading at 13.8.

That means gold has outperformed stocks by about 60% over the last 20 months.

The drivers of the long term gold bull - endless debt and monetary expansion - have just shifted into a new gear.

Title: Re: Precious Metals
Post by: dougules on March 12, 2020, 02:34:08 PM
Sill no love for the precious metals?

Dow/Gold ratio, having topped out at 22.5 in mid-2018 (coincidentally just about when this thread started) is now trading at 13.8.

That means gold has outperformed stocks by about 60% over the last 20 months.

The drivers of the long term gold bull - endless debt and monetary expansion - have just shifted into a new gear.

It's still a lifeless metallic substance last time I checked. 
Title: Re: Precious Metals
Post by: vand on March 12, 2020, 03:55:56 PM
Sill no love for the precious metals?

Dow/Gold ratio, having topped out at 22.5 in mid-2018 (coincidentally just about when this thread started) is now trading at 13.8.

That means gold has outperformed stocks by about 60% over the last 20 months.

The drivers of the long term gold bull - endless debt and monetary expansion - have just shifted into a new gear.

It's still a lifeless metallic substance last time I checked.

It's MONEY. Everything else is credit.

J.P. Morgan's words, not mine.
Title: Re: Precious Metals
Post by: dougules on March 13, 2020, 07:57:37 AM
Sill no love for the precious metals?

Dow/Gold ratio, having topped out at 22.5 in mid-2018 (coincidentally just about when this thread started) is now trading at 13.8.

That means gold has outperformed stocks by about 60% over the last 20 months.

The drivers of the long term gold bull - endless debt and monetary expansion - have just shifted into a new gear.

It's still a lifeless metallic substance last time I checked.

It's MONEY. Everything else is credit.

J.P. Morgan's words, not mine.

Yes, it's just money.  It makes no profits and no interest.  It's not busy reinvesting in itself, buying back its own shares, or buying other gold.  It's not providing any services like manufacturing surgical masks, transporting food, or building housing.  It's a lifeless metallic substance. 
Title: Re: Precious Metals
Post by: waltworks on March 13, 2020, 08:01:09 AM
Am I crazy, or is it also acting correlated with stocks right now?

I was expecting (I don't own any and don't plan to) gold to be on a tear, but it's certainly not doing the inverse of the stock market thus far.

-W
Title: Re: Precious Metals
Post by: JAYSLOL on March 13, 2020, 08:07:15 AM
You are right, they sometimes rise and fall together in times of great volatility. 
Title: Re: Precious Metals
Post by: dougules on March 13, 2020, 08:09:38 AM
Am I crazy, or is it also acting correlated with stocks right now?

I was expecting (I don't own any and don't plan to) gold to be on a tear, but it's certainly not doing the inverse of the stock market thus far.

-W

They mentioned on NPR this morning that stocks, bonds, and gold are not moving relative to each other in their normal fashion at the moment.  It is kind of odd. 
Title: Re: Precious Metals
Post by: maizefolk on March 13, 2020, 08:11:07 AM
Am I crazy, or is it also acting correlated with stocks right now?

I was expecting (I don't own any and don't plan to) gold to be on a tear, but it's certainly not doing the inverse of the stock market thus far.

-W

Yesterday stocks, bonds, and gold all fell together. The best explanation I've read is that some major investors/companies may be facing a serious cash crunch and are selling any assets they have.
Title: Re: Precious Metals
Post by: MustacheAndaHalf on March 13, 2020, 11:07:32 AM
Even when U.S. stocks have dropped this week, gold hasn't dropped as far.  it has "outperformed" by losing less.
Today looks a bit more normal, since right now U.S. stocks are up +3% and gold is down -3%.

Monday (Mar 9) was the first time I've ever sold equities and bought gold.  I expect it will perform better in a panic than stocks do, and I'm waiting for a panic when U.S. cases hit 10,000.  Assuming they even test 10,000 people for COVID-19...
Title: Re: Precious Metals
Post by: dougules on March 13, 2020, 03:15:40 PM
Even when U.S. stocks have dropped this week, gold hasn't dropped as far.  it has "outperformed" by losing less.
Today looks a bit more normal, since right now U.S. stocks are up +3% and gold is down -3%.

Monday (Mar 9) was the first time I've ever sold equities and bought gold.  I expect it will perform better in a panic than stocks do, and I'm waiting for a panic when U.S. cases hit 10,000.  Assuming they even test 10,000 people for COVID-19...

So you sold equities after a 19% drop?
Title: Re: Precious Metals
Post by: markbike528CBX on March 13, 2020, 09:06:50 PM
Even when U.S. stocks have dropped this week, gold hasn't dropped as far.  it has "outperformed" by losing less.
Today looks a bit more normal, since right now U.S. stocks are up +3% and gold is down -3%.

Monday (Mar 9) was the first time I've ever sold equities and bought gold.  I expect it will perform better in a panic than stocks do, and I'm waiting for a panic when U.S. cases hit 10,000.  Assuming they even test 10,000 people for COVID-19...

So you sold equities after a 19% drop?

Mmmmmmm......does not compute.......
Title: Re: Precious Metals
Post by: MustacheAndaHalf on March 13, 2020, 09:46:45 PM
Monday (Mar 9) was the first time I've ever sold equities and bought gold.  I expect it will perform better in a panic than stocks do, and I'm waiting for a panic when U.S. cases hit 10,000.  Assuming they even test 10,000 people for COVID-19...
So you sold equities after a 19% drop?
Do you think it's realistic to measure from the exact peak of the S&P 500?

The market is down this week, even after Friday's jump of +9%.
Title: Re: Precious Metals
Post by: JAYSLOL on March 13, 2020, 10:32:08 PM
Monday (Mar 9) was the first time I've ever sold equities and bought gold.  I expect it will perform better in a panic than stocks do, and I'm waiting for a panic when U.S. cases hit 10,000.  Assuming they even test 10,000 people for COVID-19...
So you sold equities after a 19% drop?
Do you think it's realistic to measure from the exact peak of the S&P 500?

The market is down this week, even after Friday's jump of +9%.

Well, 19% isnít exactly rounding-error territory.  I mean if you sold sub-5% off the Top, Iím sure nobody would bring it up, but bailing after 19% on the other hand...
Title: Re: Precious Metals
Post by: MustacheAndaHalf on March 14, 2020, 12:34:42 AM
Monday (Mar 9) was the first time I've ever sold equities and bought gold.
So you sold equities after a 19% drop?
Do you think it's realistic to measure from the exact peak of the S&P 500?
Well, 19% isnít exactly rounding-error territory.  I mean if you sold sub-5% off the Top, Iím sure nobody would bring it up, but bailing after 19% on the other hand...
You ignored my question, and refused to acknowledge or explain where you're getting "19%".

Gains are the difference between purchase and sale price.  The only way to get a "19% drop" as of March 9 is to assume I went from 100% cash to 100% equities on Feb 19, the very peak.  Anyone didn't buy at the exact peak isn't seeing a "19% drop" as you claim.
Title: Re: Precious Metals
Post by: Classical_Liberal on March 14, 2020, 03:20:28 AM
Yesterday stocks, bonds, and gold all fell together. The best explanation I've read is that some major investors/companies may be facing a serious cash crunch and are selling any assets they have.
This is correct.  It happens initially as margin calls come in and is expected by noncorrelation investors in the first stages of a very volatile market. Treasuries specifically, in my unprofessional opinion, just don't have much more to give.  I don't think the US will go negative. On the long end there is still a bit of upside thanks to convexity, but it could go the other way just as fast. The interesting thing about this market is that the gold upside started well before the equity panic, whereas historically it tends to lag a bit.  I think gold still has a decent amount of upside.
Title: Re: Precious Metals
Post by: JAYSLOL on March 14, 2020, 08:10:21 AM
Monday (Mar 9) was the first time I've ever sold equities and bought gold.
So you sold equities after a 19% drop?
Do you think it's realistic to measure from the exact peak of the S&P 500?
Well, 19% isnít exactly rounding-error territory.  I mean if you sold sub-5% off the Top, Iím sure nobody would bring it up, but bailing after 19% on the other hand...
You ignored my question, and refused to acknowledge or explain where you're getting "19%".

Gains are the difference between purchase and sale price.  The only way to get a "19% drop" as of March 9 is to assume I went from 100% cash to 100% equities on Feb 19, the very peak.  Anyone didn't buy at the exact peak isn't seeing a "19% drop" as you claim.

What?  Lol.  Thatís how drops work though.  Just because you live on the 4th floor of your apartment building for 2 years, and then suddenly decided to run up to the 19th floor and jump out the window, that doesnít mean you fell from 4 stories cause thatís where you were most of the time. 
Title: Re: Precious Metals
Post by: MustacheAndaHalf on March 14, 2020, 10:20:54 AM
Monday (Mar 9) was the first time I've ever sold equities and bought gold.
So you sold equities after a 19% drop?
Do you think it's realistic to measure from the exact peak of the S&P 500?
Well, 19% isnít exactly rounding-error territory.  I mean if you sold sub-5% off the Top, Iím sure nobody would bring it up, but bailing after 19% on the other hand...
You ignored my question, and refused to acknowledge or explain where you're getting "19%".

Gains are the difference between purchase and sale price.  The only way to get a "19% drop" as of March 9 is to assume I went from 100% cash to 100% equities on Feb 19, the very peak.  Anyone didn't buy at the exact peak isn't seeing a "19% drop" as you claim.
What?  Lol.  Thatís how drops work though.  Just because you live on the 4th floor of your apartment building for 2 years, and then suddenly decided to run up to the 19th floor and jump out the window, that doesnít mean you fell from 4 stories cause thatís where you were most of the time.
A drop in what?
Title: Re: Precious Metals
Post by: waltworks on March 14, 2020, 10:33:09 AM
So, I think most people would consider selling when the market is down by 20% from the peak a "loss".

If you prefer to think of the price you purchased the stock for vs. the price you sold it for, that's also a legitimate way to look at it, but it's not how most people would think about it.

So I think you guys are mostly just talking past each other.

-W
Title: Re: Precious Metals
Post by: MustacheAndaHalf on March 14, 2020, 10:55:32 AM
Okay, focusing on just this week for a moment.  I sold roughly -6% down at the beginning of the week.  People who did nothing are now -9.74% for the week, according to morningstar data for VTI (Vanguard Total Stock Market EtF):
https://www.morningstar.com/etfs/arcx/vti/performance
So I lost about -6% while others lost about -10%.  I avoided a -4% additional loss.

So if someone is tracking my loss from the peak, and saying -20%, shouldn't everyone else be tracking their own losses from the peak, of -24%?
Title: Re: Precious Metals
Post by: waltworks on March 14, 2020, 11:13:58 AM
Okay, focusing on just this week for a moment.  I sold roughly -6% down at the beginning of the week.  People who did nothing are now -9.74% for the week, according to morningstar data for VTI (Vanguard Total Stock Market EtF):
https://www.morningstar.com/etfs/arcx/vti/performance
So I lost about -6% while others lost about -10%.  I avoided a -4% additional loss.

So if someone is tracking my loss from the peak, and saying -20%, shouldn't everyone else be tracking their own losses from the peak, of -24%?

Assuming the stocks were pretty appreciated, right? What will the tax hit be?

-W
Title: Re: Precious Metals
Post by: Joe Schmo on March 14, 2020, 11:55:42 AM
They mentioned on NPR this morning that stocks, bonds, and gold are not moving relative to each other in their normal fashion at the moment.  It is kind of odd.
Odd for sure. Gold moved as it should when the market jumped up on Friday but when it doesn't move up in relation to market moving down it kinda defeats the purpose of the "golden butterfly" does it not?

PS: Looks like a good gold buying opportunity is staring us in the face...if we truly believe.
Title: Re: Precious Metals
Post by: TomTX on March 14, 2020, 01:22:28 PM
They mentioned on NPR this morning that stocks, bonds, and gold are not moving relative to each other in their normal fashion at the moment.  It is kind of odd.
Odd for sure. Gold moved as it should when the market jumped up on Friday but when it doesn't move up in relation to market moving down it kinda defeats the purpose of the "golden butterfly" does it not?

PS: Looks like a good gold buying opportunity is staring us in the face...if we truly believe.

Liquidity crunch. Hedge funds, etc needed to raise cash and sold off whatever assets they could.
Title: Re: Precious Metals
Post by: ChpBstrd on March 14, 2020, 08:49:21 PM
They mentioned on NPR this morning that stocks, bonds, and gold are not moving relative to each other in their normal fashion at the moment.  It is kind of odd.
Odd for sure. Gold moved as it should when the market jumped up on Friday but when it doesn't move up in relation to market moving down it kinda defeats the purpose of the "golden butterfly" does it not?

PS: Looks like a good gold buying opportunity is staring us in the face...if we truly believe.

Liquidity crunch. Hedge funds, etc needed to raise cash and sold off whatever assets they could.

Or maybe weakly correlated assets are not hedges. Goldbug Theory says this is exactly the sort of environment you wait years holding gold for, but fiat dollars have outperformed gold by 4.7%. What would it take to disprove the theory?

Here's an alternative idea. If investors hold an average asset allocation of gold at X%, and rebalance when that percentage changes, then a drop in stock prices will require them to sell gold, right? Stocks dropped. Investors are selling gold. I'm not even going to go into detail about how Zales is not moving nearly as many New Jersey gold necklaces or starter marriage rings now that retail stores are considered hot zones.
Title: Re: Precious Metals
Post by: Classical_Liberal on March 14, 2020, 09:14:49 PM
They mentioned on NPR this morning that stocks, bonds, and gold are not moving relative to each other in their normal fashion at the moment.  It is kind of odd.
Odd for sure. Gold moved as it should when the market jumped up on Friday but when it doesn't move up in relation to market moving down it kinda defeats the purpose of the "golden butterfly" does it not?

PS: Looks like a good gold buying opportunity is staring us in the face...if we truly believe.

Liquidity crunch. Hedge funds, etc needed to raise cash and sold off whatever assets they could.

Or maybe weakly correlated assets are not hedges. Goldbug Theory says this is exactly the sort of environment you wait years holding gold for, but fiat dollars have outperformed gold by 4.7%. What would it take to disprove the theory?

Here's an alternative idea. If investors hold an average asset allocation of gold at X%, and rebalance when that percentage changes, then a drop in stock prices will require them to sell gold, right? Stocks dropped. Investors are selling gold. I'm not even going to go into detail about how Zales is not moving nearly as many New Jersey gold necklaces or starter marriage rings now that retail stores are considered hot zones.

Well, timeframes matter too.  It's not like we are looking as historical data from a weekly or even monthly standpoint.  What really matters from a withdrawal rate perspective is years. Because any type of short term V bear market doesn't really matter over 50 years.  What matter are long term cyclical bears. So, how does one asset correlate to another asset in these longer term circumstances. A long term 30-50% drawdown in equities is the only thing that kills the 4% rule.  If you own 10-15% in something that has a long term cyclical bull over those years, it makes a huge difference.
Title: Re: Precious Metals
Post by: Davnasty on March 14, 2020, 10:02:10 PM
(http://www.gomel-circus.by/a/0234/0234-bear401.jpg)

bicyclical?
Title: Re: Precious Metals
Post by: MustacheAndaHalf on March 15, 2020, 01:26:33 AM
Okay, focusing on just this week for a moment.  I sold roughly -6% down at the beginning of the week.  People who did nothing are now -9.74% for the week, according to morningstar data for VTI (Vanguard Total Stock Market EtF):
...
Assuming the stocks were pretty appreciated, right? What will the tax hit be?
True, but I considered tax impact in my Monday sales (or I would have sold more).  One had a +0.5% gain, the others were all net loss.  I did some buying in Feb owing to drops in other countries, before I realized the U.S. was about to be hit, while being under-prepared.  We agree taxes are an important consideration.
Title: Re: Precious Metals
Post by: v8rx7guy on March 15, 2020, 04:05:22 PM
I think Gold is going to have a nice little bump with the most recent 0% and QE announcement.
Title: Re: Precious Metals
Post by: vand on March 16, 2020, 02:38:22 AM
We got beat up a bit last week, but the Fed has made its intentions quite clear: QE infinity is now a reality and the Fed will do "whatever it takes" to try preserving the dysfunctional system.

There has never been a better time to hold some gold.

Dow/Gold is still around ~14 and the course of action is only going to take it lower.

And if I'm wrong then hey, my stocks holdings will go up to compensate me.  Nothing like being well diversified.
Title: Re: Precious Metals
Post by: dougules on March 16, 2020, 11:23:03 AM
Monday (Mar 9) was the first time I've ever sold equities and bought gold.
So you sold equities after a 19% drop?
Do you think it's realistic to measure from the exact peak of the S&P 500?
Well, 19% isnít exactly rounding-error territory.  I mean if you sold sub-5% off the Top, Iím sure nobody would bring it up, but bailing after 19% on the other hand...
You ignored my question, and refused to acknowledge or explain where you're getting "19%".

Gains are the difference between purchase and sale price.  The only way to get a "19% drop" as of March 9 is to assume I went from 100% cash to 100% equities on Feb 19, the very peak.  Anyone didn't buy at the exact peak isn't seeing a "19% drop" as you claim.
What?  Lol.  Thatís how drops work though.  Just because you live on the 4th floor of your apartment building for 2 years, and then suddenly decided to run up to the 19th floor and jump out the window, that doesnít mean you fell from 4 stories cause thatís where you were most of the time.
A drop in what?

I said "drop" not "loss."  There has definitely been a big drop.  My point was that the sudden urge to go to gold sounds like an emotional reaction to the big drop, whether or not there was an actual loss. 
Title: Re: Precious Metals
Post by: MustacheAndaHalf on March 16, 2020, 01:52:37 PM
That's not accurate.  When China had an outbreak, and markets dropped, I bought at the bottom (Feb 28).  I saw pure panic, and pushed my equity allocation up +2% to buy more stocks.  That day had pure panic, and I bought equities.

Lumping all drops together ignores the separate events that went into them.  There's the China outbreak, outbreaks outside China, the U.S. outbreak, and the oil price war between Russia and Saudi Arabia.

When I saw the U.S. outbreak reaching significant numbers on the weekend of Mar 7-8, the market saw it, too.   I saw country after country follow the same pattern, and cause panic.  When U.S. futures markets priced in a -5% drop, I couldn't reconcile such a small drop against such a major problem.  The U.S. was poorly prepared, with denials of a problem and inadequate testing.  Many people can't afford to visit doctors, nor can they afford to skip work, and would make it harder to contain the outbreak in the U.S.  All together, the market reaction looked too small, so I accepted a -6% drop as the price to avoid a much larger drop.

Tomorrow I expect the U.S. to hit 5,000 cases.  I've been saying that since last week, and the U.S. has 4,000 cases now.  More importantly, I predict 10,000 cases roughly by Friday, March 20.  I'm expecting 10,000 cases to be picked up by the media and cause another panic - just like last Friday, and like Feb 28th.

Since I sold, U.S. markets have dropped about -14%.  Italy, France and Spain are on lock down.  The two choices seem to be locking down, or allowing mass infections.  What I've seen is every country locks down regions (China) or the entire country in response to the pressure to save lives.  I don't see how the U.S. can avoid locking down cities and regions, impacting both consumption and production.  That's why I predicted more drops, and why markets have been very panicked for the past 6 trading days.

Now that U.S. markets are down -9%, with additional damage to small caps and international?  Now, I'm buying equities.
Title: Re: Precious Metals
Post by: dougules on March 16, 2020, 02:44:27 PM
Nonetheless still a reaction to current events instead of sticking with the plan. 
Title: Re: Precious Metals
Post by: Radagast on March 16, 2020, 09:47:23 PM
There is very little historical evidence that gold is negatively correlated, even in a crisis. In fact it seems to have had little discernible pattern of correlation with anything. Though I do generally feel it does not do well during a crisis (when it is, as ever, an inert lump) but might transfer precrisis value to the postcrisis era, when there could be a little lift. Or not.
Title: Re: Precious Metals
Post by: MustacheAndaHalf on March 16, 2020, 10:22:24 PM
There is very little historical evidence that gold is negatively correlated, even in a crisis.
To say that you need to ignore the 1970s oil crisis, 9/11 and the 2008 financial crisis, to name a few.
Title: Re: Precious Metals
Post by: Radagast on March 16, 2020, 10:56:39 PM
There is very little historical evidence that gold is negatively correlated, even in a crisis.
To say that you need to ignore the 1970s oil crisis, 9/11 and the 2008 financial crisis, to name a few.
Attachment: Morningstar graph of GLD and SPY for 2008. Note very little correlation. Portfolio visualizer correlations of these two in 2008: 0.03 for mothly correlation, -0.12 for daily correlation. Essentially none.
https://www.portfoliovisualizer.com/asset-correlations?s=y&symbols=%5EGOLD%2C+SPY&startDate=12%2F01%2F2007&endDate=01%2F31%2F2009&timePeriod=2&tradingDays=60&months=12

Attachment: Portfolio visualizer graph of SPY and gold price for 2001. There was some negative correlation around 9/11. PV correlations in 2001: -0.35 for monthly, -0.08 for daily. Weak to none.
https://www.portfoliovisualizer.com/asset-correlations?s=y&symbols=%5EGOLD%2CSPY&startDate=12%2F01%2F2000&endDate=01%2F31%2F2002&timePeriod=1&tradingDays=60&months=12

Oil crisis: Indistinguishable from other events. In 1970 the government-set price of gold was at its lowest in real terms in essentially the history of civilization, and it then recovered to its average value by around 1975. From that point the price recovery would have happened in any circumstance, you could argue whether there was a common cause in the government giving up on fixing gold and the other crises around that time.

2020: in progress, but right now highly correlated at a bad time.

The good and bad thing about gold is that it is like a roulette wheel at all times.
Title: Re: Precious Metals
Post by: MustacheAndaHalf on March 16, 2020, 11:05:26 PM
You're counting the 8 months before 9/11 happened, but ignoring 2002?

According to Portfolio Visualizer, U.S. stocks lost -20% in 2002 while gold rose +25%.  In 2008 U.S. stocks plunged -37% while gold rose +4%.
Title: Re: Precious Metals
Post by: Radagast on March 16, 2020, 11:17:57 PM
You're counting the 8 months before 9/11 happened, but ignoring 2002?

According to Portfolio Visualizer, U.S. stocks lost -20% in 2002 while gold rose +25%.  In 2008 U.S. stocks plunged -37% while gold rose +4%.
Mid-2001 did mark the point when gold began to lift out of the doldrums. There was a 9/11 lift. Mid-2001 was also the lowest real price ever set by the free market. It easily may have just been the random low of a boom-bust cycle, with a tiny spark.

From January 1, 2000 to March 13, 2020 PV reports a correlation of gold and SPY of -.04 for daily, 0.01 for monthly, and .08 for annual returns, which covers both periods in question. Very close to no correlation.
https://www.portfoliovisualizer.com/asset-correlations?s=y&symbols=%5EGOLD%2C+SPY&startDate=01%2F01%2F2000&endDate=3%2F16%2F2020&timePeriod=1&tradingDays=60&months=12

Gold versus long term bonds shows similarly little correlation.
Title: Re: Precious Metals
Post by: MustacheAndaHalf on March 17, 2020, 04:08:57 AM
You're counting the 8 months before 9/11 happened, but ignoring 2002?
From January 1, 2000 to March 13, 2020 PV reports a correlation of gold and SPY of -.04 for daily
That has nothing to do with my claim.  I said during a crisis, not every day for the past 20 years.
Title: Re: Precious Metals
Post by: Joe Schmo on March 17, 2020, 06:46:51 AM
present arguments aside, looks like another gold sale today because the market is up, gold is down...so you could buy it so that when the market is down gold goes...down?
Title: Re: Precious Metals
Post by: mrmoonymartian on March 17, 2020, 06:57:10 AM
present arguments aside, looks like another gold sale today because the market is up, gold is down...so you could buy it so that when the market is down gold goes...down?

We already established there is no correlation. What do you want - a negative correlation?
Title: Re: Precious Metals
Post by: appleshampooid on March 17, 2020, 07:36:21 AM
present arguments aside, looks like another gold sale today because the market is up, gold is down...so you could buy it so that when the market is down gold goes...down?
Yeah, I'm hoping that it stays low for a couple weeks, I need to buy more and A) I don't have any cash on hand B) most providers are out of what I want to buy right now :(
Title: Re: Precious Metals
Post by: Radagast on March 17, 2020, 07:40:10 PM
You're counting the 8 months before 9/11 happened, but ignoring 2002?
From January 1, 2000 to March 13, 2020 PV reports a correlation of gold and SPY of -.04 for daily
That has nothing to do with my claim.  I said during a crisis, not every day for the past 20 years.
And I showed that during a crisis, there is no evidence of negative correlation. September 2001 was up*, October 2008 was down, right now in the CoronaCrisis it is down. The years of 2001 and 2008 finished slightly up. The entire period, no correlation. There looks to be a greater tendency towards negative correlation over longer periods, for example 2-5 year periods, but I don't have tools to test that. But specifically during a crisis, no, no obvious historical correlation. It might help or it might not. William Bernstein also investigated this in his books with similar conclusions. I have shown a lot of evidence for no correlation and would be happy to see someone show consistent evidence of strong (-) correlation though.

*I recall one of the WTC towers had a large quantity of gold bullion in the basement, whose recovery was in doubt for a few weeks. That specific factoid could explain the month's price movement as well as a flight to safety would.
Title: Re: Precious Metals
Post by: MustacheAndaHalf on March 17, 2020, 10:44:37 PM
For two of my data points, once we agree on the dates, you agree with my data but then put an asterisk next to it.  Maybe I'm wrong about the global financial crisis, but let's at least agree on the dates.  The peak panic was when Lehman Brothers collapsed in Sept 2008,
https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%9308

It looks like gold rose from under $800/oz (start of Sep) to over $900/oz (end of Sept).
Title: Re: Precious Metals
Post by: ice_beard on March 18, 2020, 08:50:50 AM
Not that I actually want to buy any, but i have been looking at a few of the websites that sell PMs. 

You can't buy silver in any quantity right now.  Spot is now at $12.40, which is quite cheap and the only bars I've seen are 10 oz and were listed for $174 last night.  Not sure who will be buying that or who will even be selling at that price.

I don't follow these markets closely but I'm under the impression people, brokerages, etc are selling PMs to generate cash, hence the price fall instead of the increase as a perceived "safe haven".  I wonder if/when it will return to "safe haven" status and then where the price will go. 
Title: Re: Precious Metals
Post by: appleshampooid on March 18, 2020, 10:18:05 AM
Not that I actually want to buy any, but i have been looking at a few of the websites that sell PMs. 

You can't buy silver in any quantity right now.  Spot is now at $12.40, which is quite cheap and the only bars I've seen are 10 oz and were listed for $174 last night.  Not sure who will be buying that or who will even be selling at that price.

I don't follow these markets closely but I'm under the impression people, brokerages, etc are selling PMs to generate cash, hence the price fall instead of the increase as a perceived "safe haven".  I wonder if/when it will return to "safe haven" status and then where the price will go.
Yeah basically everything I would want to buy right now is out of stock. However, I also don't have any free cash right now, so not a problem. I'm hoping stuff gets back in stock in a couple weeks.

Anyone want to sell me some British sovereigns? Or 100oz silver bars? We can both save over using APMex or whoever :P
Title: Re: Precious Metals
Post by: ice_beard on March 18, 2020, 10:19:46 AM
I was actually interested in seeing if I could find a 100 oz bar at < $1300.  Negative. 
Title: Re: Precious Metals
Post by: appleshampooid on March 18, 2020, 01:15:11 PM
APmex finally has British Sovereigns back in stock, of course they are about $15 more expensive than the prices listed at other dealers, where you can't actually buy them right now :D
Title: Re: Precious Metals
Post by: appleshampooid on March 18, 2020, 01:51:54 PM
Are bullion premiums way up right now due to high demand? It sure seems that way, but I'm not really in this game very often, so I may be out of whack.

Gold doesn't seem too far off, but some sliver examples. The 100oz silver bars that are actually in stock at SD Bullion are priced around $1704 with a current spot price of $12.05...roughly 41% premium.

On 90% junk silver bags it's even worse. I know these carry a higher markup generally, but I'm seeing like 66% markup on a $500 face value bag! $7167 when the spot price is $4311.

I have a spreadsheet tracking my past purchases, cost basis, and current value, but now I wish I had also tracked the current spot price when I bought those items to track premiums over time.

I wonder if big institutions are selling driving the prices down, but individuals are buying due to the APOCALYPSE and thus these retail outlets are pricing in crazy markups.
Title: Re: Precious Metals
Post by: Radagast on March 18, 2020, 08:24:42 PM
For two of my data points, once we agree on the dates, you agree with my data but then put an asterisk next to it.  Maybe I'm wrong about the global financial crisis, but let's at least agree on the dates.  The peak panic was when Lehman Brothers collapsed in Sept 2008,
https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%9308

It looks like gold rose from under $800/oz (start of Sep) to over $900/oz (end of Sept).
For two of my data points, once we agree on the dates, you agree with my data but then put an asterisk next to it.  Maybe I'm wrong about the global financial crisis, but let's at least agree on the dates.  The peak panic was when Lehman Brothers collapsed in Sept 2008,
https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%9308

It looks like gold rose from under $800/oz (start of Sep) to over $900/oz (end of Sept).
I will agree that was when peak panic started, but the biggest losses and most volatile days in the stock market were in October. October was also when Total Bond lost money for the month because people thought the system might fail. If there was ever a crisis when gold should shine that was it, but it was down that month as well, setting its low for the year. Foretelling price movement in 2020, possibly. So no, it is not reliable in a crisis.

In the past it seems as if it has often done well post-crisis, maybe it has a bright future later this year?
Title: Re: Precious Metals
Post by: Joe Schmo on March 18, 2020, 09:56:50 PM
Waiting for IAU to revisit the 13.80ish point...
Title: Re: Precious Metals
Post by: MustacheAndaHalf on March 18, 2020, 10:32:53 PM
For two of my data points, once we agree on the dates, you agree with my data but then put an asterisk next to it.  Maybe I'm wrong about the global financial crisis, but let's at least agree on the dates.  The peak panic was when Lehman Brothers collapsed in Sept 2008,
https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%9308

It looks like gold rose from under $800/oz (start of Sep) to over $900/oz (end of Sept).
I will agree that was when peak panic started, but the biggest losses and most volatile days in the stock market were in October. October was also when Total Bond lost money for the month because people thought the system might fail. If there was ever a crisis when gold should shine that was it, but it was down that month as well, setting its low for the year. Foretelling price movement in 2020, possibly. So no, it is not reliable in a crisis.

In the past it seems as if it has often done well post-crisis, maybe it has a bright future later this year?
Total Bond Market loses money any time all bond yields go up - it's not something that panics markets.

Here's the timeline on Wikipedia:

Sept 2008: Lehman brothers went bankrupt, then Washington Mutual. Fannie Mae, Freddie Mac and even A.I.G. (a public company) were taken over by the government.  A money market fund, widely considered the same as cash, "broke the buck" and lost money, an extremely rare and scary event.  Even cash wasn't safe.  The month ended with Congress failing to pass legislation to help, and markets dropped.
https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%9308#Timeline

On that timeline on wikipedia, October 2008 has one sole entry:
"October 3, 2008: Congress passed the Emergency Economic Stabilization Act of 2008."

Agreeing on a relief package doesn't strike me as the moment of maximum panic, compared to bankruptcies, U.S. government seizing control of a public company, and a money market fund breaking the buck.
Title: Re: Precious Metals
Post by: appleshampooid on March 19, 2020, 09:55:28 AM
Are bullion premiums way up right now due to high demand? It sure seems that way, but I'm not really in this game very often, so I may be out of whack.

Gold doesn't seem too far off, but some sliver examples. The 100oz silver bars that are actually in stock at SD Bullion are priced around $1704 with a current spot price of $12.05...roughly 41% premium.

On 90% junk silver bags it's even worse. I know these carry a higher markup generally, but I'm seeing like 66% markup on a $500 face value bag! $7167 when the spot price is $4311.

I have a spreadsheet tracking my past purchases, cost basis, and current value, but now I wish I had also tracked the current spot price when I bought those items to track premiums over time.

I wonder if big institutions are selling driving the prices down, but individuals are buying due to the APOCALYPSE and thus these retail outlets are pricing in crazy markups.
I looked up historical prices, and in 2014 I bought a bag of $100 face value 90% junk silver for roughly $1.50/oz over spot. Prices right now for junk silver are like $8-$10/oz over spot. Definitely not pulling the trigger on one of those...
Title: Re: Precious Metals
Post by: JAYSLOL on March 19, 2020, 12:27:26 PM
I was actually interested in seeing if I could find a 100 oz bar at < $1300.  Negative.

Hahaha, no, not a chance.  Spot price in Canada is like $17.50CDN/ounce, looked at online bullion dealers, they all want $2450+
Title: Re: Precious Metals
Post by: pecunia on March 21, 2020, 12:30:07 PM
Would smart people be dumping their precious metals now to buy stock at very low value?
Title: Re: Precious Metals
Post by: Radagast on March 21, 2020, 12:35:16 PM
Would smart people be dumping their precious metals now to buy stock at very low value?
I think yes. Gold is approximately flat for the year. Stocks are down 30%. Anybody smart would have an asset allocation and rebalancing policy, which would almost certainly have them rebalancing now. Unless they are on a calendar year schedule.
Title: Re: Precious Metals
Post by: waltworks on March 21, 2020, 12:36:00 PM
If you were using gold as a hedge/uncorrelated asset, yes, you'd be rebalancing at least some now.

In my experience the majority of the pro-gold folks (not necessarily on this forum but IRL) are constantly pessimistic and are waiting for the apocalypse. So they just own gold because it makes them feel good, not because they're investing for the future.

If I had any gold I'd be selling it to buy stock, that's for sure.

-W
Title: Re: Precious Metals
Post by: vand on March 21, 2020, 12:46:00 PM
Would smart people be dumping their precious metals now to buy stock at very low value?

Nowhere near tempted.

I expect the Dow/Gold ratio to fall at least to a sub-5 level by middle of this decade.

Remember it peaked at 22.5 and is currently sitting at 13.

The huge stimulus in response to the crisis was entirely predictable and is why it makes sense to hold onto your gold.


Title: Re: Precious Metals
Post by: Radagast on March 21, 2020, 02:33:48 PM
And for those interested I attached a plot of the S&P500 price divided by the gold price since 1954. I am having a hard time wrapping my head around that ratio. However, the average since 1954 is 1.55, and right now it is 1.54 sooo ... that means something. Very very meaning.

Actually I am surprised. I think I would have expected that ratio to change more than it has. The exercise was more interesting than I expected. But I think it indicates it is a better than average time to be buying stocks.
Title: Re: Precious Metals
Post by: MaaS on March 21, 2020, 02:48:18 PM
Would smart people be dumping their precious metals now to buy stock at very low value?

Nowhere near tempted.

I expect the Dow/Gold ratio to fall at least to a sub-5 level by middle of this decade.

Remember it peaked at 22.5 and is currently sitting at 13.

The huge stimulus in response to the crisis was entirely predictable and is why it makes sense to hold onto your gold.

Who would have thought that gold would drop during this unprecedented money printing? What is happening to the dollar is truly remarkable (Not necessarily in a positive way).


Title: Re: Precious Metals
Post by: vand on March 21, 2020, 03:03:51 PM
Would smart people be dumping their precious metals now to buy stock at very low value?

Nowhere near tempted.

I expect the Dow/Gold ratio to fall at least to a sub-5 level by middle of this decade.

Remember it peaked at 22.5 and is currently sitting at 13.

The huge stimulus in response to the crisis was entirely predictable and is why it makes sense to hold onto your gold.

Who would have thought that gold would drop during this unprecedented money printing? What is happening to the dollar is truly remarkable (Not necessarily in a positive way).

Personally I am not surprised.

Short term liquidity issues are at play and a lot of stuff is getting sold regardless. The exact same thing happened in 2008; Gold got hit along with everything else, but then it rallied well before the equities bear market had bottomed then went on to do about 270% into the 2011 peak. I expect the same thing to play out this time as the corona panic eventually subsides and we are left with the fallout, where the investing world will take on a different shape and gold will be more desireable by mainstream investors.

Title: Re: Precious Metals
Post by: vand on March 21, 2020, 03:11:41 PM
And for those interested I attached a plot of the S&P500 price divided by the gold price since 1954. I am having a hard time wrapping my head around that ratio. However, the average since 1954 is 1.55, and right now it is 1.54 sooo ... that means something. Very very meaning.

Actually I am surprised. I think I would have expected that ratio to change more than it has. The exercise was more interesting than I expected. But I think it indicates it is a better than average time to be buying stocks.

I'm fairly bullish on stocks, but even more bullish on gold. I see economic policy designed to support paper assets as providing strong tailwind to precious metals.

Can I remind you that you have been questioning and doubting my forecasting and reasoning on this bullish gold play since I jumped into this thread 14 months ago, and so far I would say that that the price changes have done all the justification for me.

Trust me, we have a LONG way to go. How do I know? Look at the level of the gold mining index relative to the price of gold - it has almost NEVER been lower! What sort of a bubble or even a bull market is that? When companies pulling the metal out of the ground can't even make profit and keep having to raise capital it suggests that the price has still a long, long way to run up.

In one mf my earliest posts I wrote:

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.

and that is probably the truest thing that we all will probably agree on.
Title: Re: Precious Metals
Post by: Radagast on March 21, 2020, 05:15:50 PM
I'm fairly bullish on stocks, but even more bullish on gold. I see economic policy designed to support paper assets as providing strong tailwind to precious metals.

Can I remind you that you have been questioning and doubting my forecasting and reasoning on this bullish gold play since I jumped into this thread 14 months ago, and so far I would say that that the price changes have done all the justification for me.

Trust me, we have a LONG way to go. How do I know? Look at the level of the gold mining index relative to the price of gold - it has almost NEVER been lower! What sort of a bubble or even a bull market is that? When companies pulling the metal out of the ground can't even make profit and keep having to raise capital it suggests that the price has still a long, long way to run up.
I am actually somewhat surprised at how well the S&P500/gold ratio has done at forecasting relative price movements between the two in the past, so I will concede that to you. When the ratio gets to an extreme in the future I might consider giving one more weight than the other. However right now it is at the very center of its range, so I prefer dividends instead of expenses, thanks.

Questioning and doubting your "bullish gold play": yes, and I continue to do that, even more strongly now, relative to stocks. First, I expect the stock market to continue to exceed gold by an annual rate of about 4%, of which around half will be in dividends and half price increases. With a lot of variability. There is no doubt which I would rather be in long term: stocks. Which is not to say a small amount of gold might not be useful, but not as a major part of a person's finances. The graph I posted reinforces my doubting you: The price of the S&P500 is at its average relative to gold, and yet I would expect it to increase over time. Throw in dividends, and I would say gold is not looking good relative to stocks.

Gold mining companies are doing fine. They are out exploring and expanding, and they have good P/B ratios and are paying decent dividends for the first time in a long time. They are not euphoric and over leveraged like in 2010-2013, but still feeling pretty good and are on much better footing than back then. It is true that their stock prices versus gold are low relative to what they used to be, but they are well above the 2015 bottom, by several multiples. I agree the companies are probably better to own than the metal at this point. Public opinion is bad about the companies relative to the metal, but that doesn't mean the price of the metal will outpace the broader stock market.
Title: Re: Precious Metals
Post by: vand on March 22, 2020, 05:21:16 AM
@Radagast

You plot the S&P/Gold ratio but then you draw a completely useless conclusion.

What you should look at is the range it has traded between:

(I will use the Dow/Gold ratio as I'm more familiar with it)

I'm 42 year sold, and the ratio has swung between 1:1 and 40:1 in my lifetime. That is an absolutely huge range. How meaningful is simply looking at the long term average given this range?

Rather than wait for one to be 5 or 10% overvalued compared to the long term average, the huge range tells me that the cycles at play in these markets gives the investor fantastic opportunity to outperform the long term average in both of them if you can position yourself to be more heavily tilted towards the asset that is in the ascendency. 1970-1982 you would have done well being more heavily in gold. 1982-2000 you would have done well to be more heavily in equities. 2000-2011, back to Gold, 2011-2018 Equities

2018-?? It's looking like gold's time so far.. and given the duration of the average swing it is likely there are a few more year left where gold will be in the ascendency.


Title: Re: Precious Metals
Post by: Classical_Liberal on March 22, 2020, 07:05:27 PM
@vand

I don't think his conclusions are useless.  Instead we are looking at two completely different investment mindsets.  You are thinking near to midterm 0.5-4 years maybe.  While @Radagast  is looking at longer term, 10 years out. At this point, being we are near the median, looking at long term investments is quite different than the nearer term.  IOW, you are looking at momentum and value, whereas Radagast is mostly looking at value.

I tend to be on @Radagast's side in that I'm looking for the investment that will outperform over the next decade, not the next year or two. I'm basically looking for places to park some of my 35% cash allocation for the long term.
Title: Re: Precious Metals
Post by: Radagast on March 22, 2020, 10:02:27 PM
@vand
IOW, you are looking at momentum and value, whereas Radagast is mostly looking at value.
That seems like a fair assessment.

I've had it pretty well drummed into me that I can't predict future price movements. As a result, in general my only strategy is to build up my investments (mostly stocks) over many years by dollar cost averaging. Then, in 5 or 15 years when they inevitably but unpredictably go through the roof, I can sell a lot of them. Not too sure how that will work out compared to buying only one stock fund or any of the the gazillion market timing strategies. But, I do have 5% in gold miners, which should act like 15% in gold if @vand ends up being right. And if Vand is not right and they tank, I'll just buy more to maintain my 5% and they will jump eventually.
Title: Re: Precious Metals
Post by: vand on March 23, 2020, 12:37:49 AM
I don't consider this a momentum play. If anything I consider myself a value investor, which is the opposite of a momentum investor. I like gold because it is still cheap and still very unloved by both Wall streer and Main street, both still brainwashed that the only the asset classes worth investing in are equities and real estate.

 I consider this a global macro play. I have been very enthusiastic on PMs for 4 years (actually about 15 years, but only an investor since 2016) even while they were still losing ground to stocks, because I could see the implications of the breathtaking course of action that the Trump administration was following meant that we were doubling down on the same orthodoxy that caused the last two meltdowns and has driven the long term bull market since 2000.
Title: Re: Precious Metals
Post by: vand on March 23, 2020, 12:47:45 AM
Gold and gold miners behave VERY differently. You should not consider them anywhere close to being the same asset class; they're not. I consider my miners as part of my equity allocation, not my PM allocation.


Title: Re: Precious Metals
Post by: markbike528CBX on March 23, 2020, 06:47:51 AM
......... I like gold because it is still cheap and still very unloved by both Wall streer and Main street, both still brainwashed that the only the asset classes worth investing in are equities and real estate.

BS. Gold is way above the The 10 year moving average. 
Title: Re: Precious Metals
Post by: vand on March 23, 2020, 07:37:46 AM
......... I like gold because it is still cheap and still very unloved by both Wall streer and Main street, both still brainwashed that the only the asset classes worth investing in are equities and real estate.

BS. Gold is way above the The 10 year moving average.

https://www.youtube.com/watch?v=7FBo467hLzQ
Title: Re: Precious Metals
Post by: Radagast on March 23, 2020, 08:49:55 AM
Gold and gold miners behave VERY differently. You should not consider them anywhere close to being the same asset class; they're not. I consider my miners as part of my equity allocation, not my PM allocation.
Annual returns of gold miners since 1977 are about about 80% like gold and 20% like the broader economy, with double the price movements. Less correlated for returns over shorter periods (1 month, 1 day), but probably more correlated for returns over longer periods.
Title: Re: Precious Metals
Post by: markbike528CBX on March 23, 2020, 08:59:23 AM
......... I like gold because it is still cheap and still very unloved by both Wall streer and Main street, both still brainwashed that the only the asset classes worth investing in are equities and real estate.

BS. Gold is way above the The 10 year moving average.

https://www.youtube.com/watch?v=7FBo467hLzQ

You are in invoking DAVE RAMSEY as your authority? Or is he your strawman? 
Not sure, he makes a good case for long term mutual fund holding

https://onlygold.com/gold-prices/historical-gold-prices/
Recent spot from https://www.xe.com/currencyconverter/convert/?Amount=1&From=XAU&To=USD

Date          Value              10 year moving average
2020.23   $1,523.76    $1,350.19
2019   $1,523.00    $1,310.53
2018   $1,286.81    $1,251.15
2017   $1,302.81    $1,210.21
2016   $1,133.69    $1,149.56
2015   $1,060.00    $1,093.14
2014   $1,202.32    $1,036.37
2013   $1,204.50    $965.00
2012   $1,664.00    $886.66
2011   $1,531.00    $760.53
2010   $1,420.25    $646.13
2009   $1,087.50    $543.40
2008   $869.75    $470.79
2007   $836.50    $417.81
2006   $635.70    $375.31
2005   $513.00    $352.70
2004   $435.60    $340.91
2003   $417.25    $336.92
2002   $342.75    $329.26
2001   $276.50    $330.21
2000   $272.65    $340.18
1999   $290.25    $351.85
1998   $288.70    $362.75
1997   $287.05    $380.73
1996   $369.00    $390.17
1995   $387.00    $386.35
1994   $383.25    $379.17
1993   $391.75    $378.88
1992   $333.00    $383.90
1991   $353.15    $389.99
1990   $386.20    $411.97
1989   $401.00    $418.59
1988   $410.15    $401.05
1987   $486.50    $378.41
1986   $390.90    $346.34
1985   $327.00    $323.47
1984   $308.00    $310.45
1983   $380.00    $292.13
1982   $447.00    $263.39
1981   $400.00    $226.80
1980   $594.90    $193.98
1979   $459.00    $143.62
1978   $208.10    $105.85
1977   $161.10    $90.16
1976   $133.77    $78.73
1975   $139.29    $69.80
1974   $183.77    $60.35
1973   $106.48    $46.85
1972   $63.84    $40.38
1971   $44.60    $37.80
1970   $38.90    $37.07
1969   $41.00    $36.74
1968   $43.50    $36.21
1967   $35.50    $35.46
1966   $35.40    $35.44
1965   $35.50    $35.41
1964   $35.35    $35.41
1963   $35.25    $35.41
1962   $35.35    $35.43
1961   $35.50    $35.44
1960   $36.50    $35.43
1959   $35.25    $35.22
1958   $35.25    $35.21
1957   $35.25    $35.20
1956   $35.20    $35.18


Disclosure:  I bought gold ~20K USD in 2010 as "near SHTF" emergency fund money that I didn't want to totally rot in cash.
Note that it was at, near, or slightly below the 10  year moving average at the time.

If you want to beat your head against a gold brick, I would suggest a Pan-Galactic Gargle Blaster, https://hitchhikers.fandom.com/wiki/Pan_Galactic_Gargle_Blaster.
For those of your not HHGTG fans, Its effects are similar to "having your brains smashed out by a slice of lemon wrapped round a large gold brick."


Doesn't gold get taxed at 28% no matter what your income is otherwise?
Title: Re: Precious Metals
Post by: vand on March 23, 2020, 09:05:43 AM
......... I like gold because it is still cheap and still very unloved by both Wall streer and Main street, both still brainwashed that the only the asset classes worth investing in are equities and real estate.

BS. Gold is way above the The 10 year moving average.

https://www.youtube.com/watch?v=7FBo467hLzQ

You are in invoking DAVE RAMSEY as your authority? Or is he your strawman? 
Not sure, he makes a good case for long term mutual fund holding

https://onlygold.com/gold-prices/historical-gold-prices/
Recent spot from https://www.xe.com/currencyconverter/convert/?Amount=1&From=XAU&To=USD

Date          Value              10 year moving average
2020.23   $1,523.76    $1,350.19
2019   $1,523.00    $1,310.53
2018   $1,286.81    $1,251.15
2017   $1,302.81    $1,210.21
2016   $1,133.69    $1,149.56
2015   $1,060.00    $1,093.14
2014   $1,202.32    $1,036.37
2013   $1,204.50    $965.00
2012   $1,664.00    $886.66
2011   $1,531.00    $760.53
2010   $1,420.25    $646.13
2009   $1,087.50    $543.40
2008   $869.75    $470.79
2007   $836.50    $417.81
2006   $635.70    $375.31
2005   $513.00    $352.70
2004   $435.60    $340.91
2003   $417.25    $336.92
2002   $342.75    $329.26
2001   $276.50    $330.21
2000   $272.65    $340.18
1999   $290.25    $351.85
1998   $288.70    $362.75
1997   $287.05    $380.73
1996   $369.00    $390.17
1995   $387.00    $386.35
1994   $383.25    $379.17
1993   $391.75    $378.88
1992   $333.00    $383.90
1991   $353.15    $389.99
1990   $386.20    $411.97
1989   $401.00    $418.59
1988   $410.15    $401.05
1987   $486.50    $378.41
1986   $390.90    $346.34
1985   $327.00    $323.47
1984   $308.00    $310.45
1983   $380.00    $292.13
1982   $447.00    $263.39
1981   $400.00    $226.80
1980   $594.90    $193.98
1979   $459.00    $143.62
1978   $208.10    $105.85
1977   $161.10    $90.16
1976   $133.77    $78.73
1975   $139.29    $69.80
1974   $183.77    $60.35
1973   $106.48    $46.85
1972   $63.84    $40.38
1971   $44.60    $37.80
1970   $38.90    $37.07
1969   $41.00    $36.74
1968   $43.50    $36.21
1967   $35.50    $35.46
1966   $35.40    $35.44
1965   $35.50    $35.41
1964   $35.35    $35.41
1963   $35.25    $35.41
1962   $35.35    $35.43
1961   $35.50    $35.44
1960   $36.50    $35.43
1959   $35.25    $35.22
1958   $35.25    $35.21
1957   $35.25    $35.20
1956   $35.20    $35.18


Disclosure:  I bought gold ~20K USD in 2010 as "near SHTF" emergency fund money that I didn't want to totally rot in cash.
Note that it was at, near, or slightly below the 10  year moving average at the time.

If you want to beat your head against a gold brick, I would suggest a Pan-Galactic Gargle Blaster, https://hitchhikers.fandom.com/wiki/Pan_Galactic_Gargle_Blaster.
For those of your not HHGTG fans, Its effects are similar to "having your brains smashed out by a slice of lemon wrapped round a large gold brick."


Doesn't gold get taxed at 28% no matter what your income is otherwise?

You really don't do subtle, do you?

DR is mainstream. DR hates gold. The mainstream hates gold.

Now run along back to your index trackers, and come back with the rest of the mainstream are clambering for gold.
Title: Re: Precious Metals
Post by: markbike528CBX on March 23, 2020, 09:30:08 AM
The question of 28% taxes is out of vand's preview as a UK person.   Could any US person chime in?

@vand nope, no subtlety to be found here, fresh out (actually never here).
You did not answer my question on whether Dave Ramsey was a strawman.   
There are numerous threads here on the MMM boards that note that DR is a lousy investment advisor and near-quack/charlatan for investments in which he has a financial interest.

@vand You also didn't deign to comment on the data and graph provided as proof of my "greater than 10 year moving average" statement.

you run along back to your index trackers, and come back with the rest of the mainstream are clambering for gold.
  - please leave off the smarmy, it is unbecoming to one of Her Majesty's subjects ;-)

and I will be back to sell you and the mainstream my gold at great selling prices.   The time to buy [gold] is past, the time to sell [gold] is nigh!

Edit to add correct quote stamp, and fix a punctuation
Title: Re: Precious Metals
Post by: vand on March 23, 2020, 11:43:38 AM
Dow/Gold is now 12.

Main street should start taking it more seriously as a viable investment when it reaches sub-10.
Title: Re: Precious Metals
Post by: markbike528CBX on March 23, 2020, 12:44:57 PM
Dow/Gold is now 12.

Main street should start taking it more seriously as a viable investment when it reaches sub-10.

Not a big Dow fan. or is this a special Dow of the Dogs thingy?
Title: Re: Precious Metals
Post by: ChpBstrd on March 23, 2020, 01:13:11 PM
The mainstream hates gold.

Now run along back to your index trackers, and come back with the rest of the mainstream are clambering for gold.

Is it "mainstream" now? I thought "normies" was the term for people outside one's own cult? Admittedly, I'm not keeping up with "alternative" economic theories on Reddit / YouTube, so that probably makes me something like that.
Title: Re: Precious Metals
Post by: vand on March 23, 2020, 01:20:19 PM
Gold made a new high in my local currency today.

But the public don't notice:

https://trends.google.com/trends/explore?date=today%205-y&q=gold

all they care about is their stocks:

https://trends.google.com/trends/explore?date=today%205-y&geo=US&q=vtsax

My portfolio is treading water much better consequently - down from peak by 20% time weighted (17% money weighted), and it's my PMs that have kept it from the anniilation that the overloaded equity investors will be suffering. And yes, there will be all the geniuses popping their head above the parapet to let us know how they suddenly became expert market timers and sold everything days before the crash, but you know what, I don't really believe half their stories, and even if they did, I don't really care, I'm not that into day trading, just smart asset allocation and readjustment.
Title: Re: Precious Metals
Post by: Classical_Liberal on March 23, 2020, 04:48:00 PM
The question of 28% taxes is out of vand's preview as a UK person.   Could any US person chime in?

It's an important question.  Personally, I keep enough of a percentage of my gold allocation in a Roth IRA (currently about 40%, was <30 before).  This way it can be sold to rebalance without tax consequences.  I'm one of those folks who will always keep some of my assets in gold.  5-10 percent on the low end.  So even in a market where rebalancing is needed I have enough flexibility in my roth to sell gold and purchase equities when I get too far out of wack in allocation.
_____

I am sitting in the @vand camp of being down about 18% of my portfolio.  The combination of cash, gold, and treasuries, which made up about 40% of my portfolio pre-COVID crash, is holding pretty steady at about 1/2 S&P losses.  This is what my projections, based on historical data, had shown would happen in an event like this.  So, I'm as happy as I can be with losing 3-4 years of living expenses. Since the crash, I sold about 50% of my I-term Treasuries when yield was at about 0.75 and converted to cash.  I have since been using some of that cash to DCA into US and international equities once US CAPE got below 25 (S&P 2600ish).  As well as some earnings from my post retirement part time job.  I have not sold any gold yet, I think there is still some good upside.
Title: Re: Precious Metals
Post by: celerystalks on March 25, 2020, 08:34:24 PM
Good luck to anyone who is trying to get their hands on physical gold right now. 1 oz of gold is going for about 1800. Premiums are huge. Most online bullion dealers are reporting extreme order volumes, and are running out of stocks of certain coins like krugerrands.
Title: Re: Precious Metals
Post by: effigy98 on March 26, 2020, 01:37:20 AM
Can't wait for a 1oz coin to buy a house. Thank you Fed!
Title: Re: Precious Metals
Post by: celerystalks on March 26, 2020, 07:56:26 AM
Can't wait for a 1oz coin to buy a house. Thank you Fed!

That likely wonít happen. The price of anything of tangible value will probably go up as well.
Title: Re: Precious Metals
Post by: vand on April 13, 2020, 12:39:55 PM
I guess as the self-proclaimed goldbug around this place, it would be remiss not to point out that we have a new 7 year USD high for gold @ $1722..

30daychg   +192.10   +12.56%
1yearchg   +432.20   +33.51%

For investors who think still that it's dangerous to put a part of your wealth in precious metals..  as usual..  you have it backwards.

With the astonishing action by central banks and governments around the world in an effort to reflate their economies, I see the next few years as a extremely dangerous time to NOT have a significant part of your wealth in precious metals.

Remember Dalio's prognosis (https://www.linkedin.com/pulse/paradigm-shifts-ray-dalio). What worked well in the last paradigm tends to work much less well when the world transition to a new paradigm. Are we entering that new paradigm? Central bank action and asset prices seem to suggest that we might be. Adjust your thinking and your portfolio accordingly.
Title: Re: Precious Metals
Post by: waltworks on April 13, 2020, 12:56:05 PM
It will be interesting to see if the hyperinflation folks are right this time, I'll certainly say that.

Not wishing I had gold, though. I'm happy with a big low-rate mortgage (planning to make it bigger and lower rate soon!) and stocks.

-W
Title: Re: Precious Metals
Post by: vand on April 13, 2020, 01:14:38 PM
It will be interesting to see if the hyperinflation folks are right this time, I'll certainly say that.

Not wishing I had gold, though. I'm happy with a big low-rate mortgage (planning to make it bigger and lower rate soon!) and stocks.

-W

I don't predict hyperinflation, but I think people underestimate the possibility of an inflationary recession (ie stagflation) similar to the 1970s. In this scenario the stock/bond portfolio gets crushed as central banks lose their main tool in fighting economic contraction.  The purchasing power of the currency could halve or quarter over a decade. That's nowhere near hyperinflationary, but it is more inflationary that most people have ever known.
Title: Re: Precious Metals
Post by: maizefolk on April 13, 2020, 01:26:40 PM
I don't predict hyperinflation, but I think people underestimate the possibility of an inflationary recession (ie stagflation) similar to the 1970s. In this scenario the stock/bond portfolio gets crushed  as central banks lose their main tool in fighting economic contraction. The purchasing power of the currency could halve or quarter over a decade. That's nowhere near hyperinflationary, but it is more inflationary that most people have ever known.

Inflation is bad for bonds in the short term and disastrous in the long term.

Inflation is bad for stocks in the short term and neutral in the long term. In Venezuela, which is experiencing actual hyperinflation, buying stocks as soon as you got paid and then selling them as needed to make purchases is one of the ways the middle class (such as it is) over there adapted to a currency that was constantly losing its value.

I hold almost no bonds not because I'm greedy and want higher returns but because I know a stock based portfolio can ultimately recover from a significant rise in inflation while a bond based one will not.
Title: Re: Precious Metals
Post by: appleshampooid on April 13, 2020, 01:27:50 PM
Back in the day I used to set a 5% target of NW in physical bullion. My wife talked me out of it some time ago and it retracted to about 1.5% depending on asset prices. I managed to negotiate with her back to a 3% position. Since we met on that number, I have been setting aside some cash but it has been slow going accumulating the necessary cash. I'm hoping to buy about 8k worth of gold for this round in any coin or bar close to 0.25 troy ounces (sovereigns would be great for this). Current target if the market stays relatively stable in terms of what's in stock and premiums:
https://sdbullion.com/5-us-commemorative-gold-coins-bu-proof

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

I'm upset in myself that I let my position deteriorate to the point where I'm now buying on the upswing instead of over the previous years while prices were relatively low. On the other hand, it's such a small part of my portfolio that it won't matter much.
Title: Re: Precious Metals
Post by: TomTX on April 13, 2020, 03:06:14 PM
I guess as the self-proclaimed goldbug around this place, it would be remiss not to point out that we have a new 7 year USD high for gold @ $1722..

<snip>

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

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

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

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

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

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

I have been thinking of adding to my stack, but it has sort of changed it percentage versus stock due to the rise in gold and drop in stock price. So I am going to sit tight.
Title: Re: Precious Metals
Post by: celerystalks on April 13, 2020, 07:50:04 PM
I guess as the self-proclaimed goldbug around this place, it would be remiss not to point out that we have a new 7 year USD high for gold @ $1722..

<snip>

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

Thanks!

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

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


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

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

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

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

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

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

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

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

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

I have been thinking of adding to my stack, but it has sort of changed it percentage versus stock due to the rise in gold and drop in stock price. So I am going to sit tight.
The link I posted was in stock yesterday and is still in stock today at a modest 5% premium over spot. Things are starting to return to in stock status, slowly and with generally longer shipping times. but not as bad as a few weeks ago.
Title: Re: Precious Metals
Post by: markbike528CBX on April 14, 2020, 02:12:26 PM
Why aren't gold and silver tracking more closely?
Silver(XAG) is not even at trailing 12month average vs USD..
Title: Re: Precious Metals
Post by: TomTX on April 14, 2020, 07:49:17 PM
Why aren't gold and silver tracking more closely?
Silver(XAG) is not even at trailing 12month average vs USD..

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

Gold is mostly "Ooh, Shiny! Must have and then stash where nobody will find it!"
Title: Re: Precious Metals
Post by: celerystalks on April 14, 2020, 08:10:45 PM
Why aren't gold and silver tracking more closely?
Silver(XAG) is not even at trailing 12month average vs USD..

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

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

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

The market for silver is much more volatile. Overall my guess is silver is very undervalued right now.  At some point the economy will recover ó it always does. And at that time silver demand would naturally increase.
Title: Re: Precious Metals
Post by: markbike528CBX on April 14, 2020, 11:20:41 PM
Why aren't gold and silver tracking more closely?
Silver(XAG) is not even at trailing 12month average vs USD..

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

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

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

The market for silver is much more volatile. Overall my guess is silver is very undervalued right now.  At some point the economy will recover ó it always does. And at that time silver demand would naturally increase.
What ARE the industrial uses of silver?  I've only seem gold on electronics.
Title: Re: Precious Metals
Post by: 2Birds1Stone on April 15, 2020, 03:50:25 AM
Silver is used in the process of soldering and brazing alloys, batteries, dentistry, glass coatings, LED chips, medicine, nuclear reactors, photography, photovoltaic (or solar) energy, RFID chips (for tracking parcels or shipments worldwide), semiconductors, touch screens, water purification, wood preservatives and many other industrial uses.

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

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

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

https://earlyretirementnow.com/2020/01/08/gold-hedge-against-sequence-risk-swr-series-part-34/
Title: Re: Precious Metals
Post by: appleshampooid on April 15, 2020, 05:06:37 AM
The spot price of silver is totally disconnected from the price you can actually get for bullion from a dealer. For what's available, the premiums are in the 20-70% (!!) range.
Title: Re: Precious Metals
Post by: celerystalks on April 15, 2020, 06:11:08 AM
Why aren't gold and silver tracking more closely?
Silver(XAG) is not even at trailing 12month average vs USD..

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

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

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

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

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

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

Silver is the most heat and electrical conductive element at STPl.
Polished silver has the highest reflectivity.
Antimicrobial silver products are generally safe.
T
Title: Re: Precious Metals
Post by: TomTX on April 15, 2020, 09:42:34 AM
Silver is used in the process of soldering and brazing alloys, batteries, dentistry, glass coatings, LED chips, medicine, nuclear reactors, photography, photovoltaic (or solar) energy, RFID chips (for tracking parcels or shipments worldwide), semiconductors, touch screens, water purification, wood preservatives and many other industrial uses.

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

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

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

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

Yeah, by far the best time for gold to be a bear market hedge was during the period you effectively couldn't own gold and the price was under government control. Any data from 1933-1974 (inclusive) is worthless. Redo the analysis with that removed and the answer is far different.
Title: Re: Precious Metals
Post by: markbike528CBX on April 15, 2020, 10:29:14 PM
Why aren't gold and silver tracking more closely?
Silver(XAG) is not even at trailing 12month average vs USD..

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

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

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

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

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

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

Silver is the most heat and electrical conductive element at STPl.
Polished silver has the highest reflectivity.
Antimicrobial silver products are generally safe.
T
Thanks @celerystalks
Title: Re: Precious Metals
Post by: Wrenchturner on April 15, 2020, 11:10:15 PM
The spot price of silver is totally disconnected from the price you can actually get for bullion from a dealer. For what's available, the premiums are in the 20-70% (!!) range.
I'm seeing a spread up here of 5% for gold and 10% for silver from a local place, not sure how that reflects historical spreads though.  Applies to ozs and kgs of silver.
Title: Re: Precious Metals
Post by: vand on April 16, 2020, 02:41:42 AM
With all the talk of the increased premiums on physical...is nobody buying gold ETFs?
Personally I have a mixture of both physical and ETFs. At times like this it's kind of a no-brainer to just buy the ETF and wait for the stress in the physical supply chains to subside. Increasingly though I'm sticking with ETFs. I already have enough physical that I'll be fine in the event of a nuclear strike.
Title: Re: Precious Metals
Post by: cool7hand on April 16, 2020, 06:17:00 AM
With all the talk of the increased premiums on physical...is nobody buying gold ETFs?
Personally I have a mixture of both physical and ETFs. At times like this it's kind of a no-brainer to just buy the ETF and wait for the stress in the physical supply chains to subside. Increasingly though I'm sticking with ETFs. I already have enough physical that I'll be fine in the event of a nuclear strike.

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

I never really understood the value of physical gold. If there is a "nuclear strike" as you put it, guns and bullets, food, survival gear, etc. would have value. Not gold.
Title: Re: Precious Metals
Post by: celerystalks on April 16, 2020, 06:23:48 AM
With all the talk of the increased premiums on physical...is nobody buying gold ETFs?
Personally I have a mixture of both physical and ETFs. At times like this it's kind of a no-brainer to just buy the ETF and wait for the stress in the physical supply chains to subside. Increasingly though I'm sticking with ETFs. I already have enough physical that I'll be fine in the event of a nuclear strike.

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

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

Physical gold will always be valuable to humans. For thousands of years it has been the ultimate status symbol and luxury item. And desire for luxuries is unlimited.  This will not change.
Title: Re: Precious Metals
Post by: vand on April 16, 2020, 07:20:59 AM
I never really understood the value of physical gold. If there is a "nuclear strike" as you put it, guns and bullets, food, survival gear, etc. would have value. Not gold.

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

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


Title: Re: Precious Metals
Post by: markbike528CBX on April 16, 2020, 08:05:46 AM
With all the talk of the increased premiums on physical...is nobody buying gold ETFs?
Personally I have a mixture of both physical and ETFs. At times like this it's kind of a no-brainer to just buy the ETF and wait for the stress in the physical supply chains to subside. Increasingly though I'm sticking with ETFs. I already have enough physical that I'll be fine in the event of a nuclear strike.

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

I never really understood the value of physical gold. If there is a "nuclear strike" as you put it, guns and bullets, food, survival gear, etc. would have value. Not gold.
Add toilet paper to the list!  One of the big surprises for me from Covid-19.
Title: Re: Precious Metals
Post by: waltworks on April 16, 2020, 08:24:57 AM
We use Ray Dalio's all season's portfolio, which calls for among other things 7.5% in a gold etf. We rebalance quarterly in times of low volatility, monthly in higher volatility, but now is the first time we have ever rebalanced weekly. Oh has it paid off. While our friends who use 100% stocks or 60/40 stocks/bonds are down substantially, we're currently up.

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

-W
Title: Re: Precious Metals
Post by: appleshampooid on April 16, 2020, 08:44:58 AM
The spot price of silver is totally disconnected from the price you can actually get for bullion from a dealer. For what's available, the premiums are in the 20-70% (!!) range.
I'm seeing a spread up here of 5% for gold and 10% for silver from a local place, not sure how that reflects historical spreads though.  Applies to ozs and kgs of silver.
Interesting, I have never bought PMs locally since I moved states. I know there is a dealer in my local downtown, but I have never even price checked them. I just assume those places are way higher than the online shops, but if you are seeing 10% spread for physical silver then I guess I should take a look. That's way lower anything I can find online right now.
Title: Re: Precious Metals
Post by: Radagast on April 16, 2020, 11:25:00 PM
Gold and gold miners behave VERY differently. You should not consider them anywhere close to being the same asset class; they're not. I consider my miners as part of my equity allocation, not my PM allocation.
Annual returns of gold miners since 1977 are about about 80% like gold and 20% like the broader economy, with double the price movements. Less correlated for returns over shorter periods (1 month, 1 day), but probably more correlated for returns over longer periods.

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

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

Now, this may be risk worth taking if (like me) your investing thesis is that we are in a long term bull market where the whole sector is going much higher and so are prepared to ride out the 45% corrections we have just seen, but if (like you) your investing thesis is that you have no idea how the cycles will play out and your exposure to the sector based on desired assset allocation, then choosing miners instead of the metal is a very suboptimal way to play it.
I do not have a strong opinion on where the price of gold is headed. It is not cheap by historic standards, but current events, based on past history, do seem favorable for it over the next few years. I do have an opinion that miners are likely to have better returns than the metal over the coming years and decades, and that even if the returns end up the same the extra volatility of the miners will allow me to have a relatively lower cost basis for the eventual good times. I'd ask you to provide evidence for your last statement, but my thesis is that miners were overpriced for decades until 2015, so obviously any backtest will work against me. I also have a pretty good list of other reasons to prefer mining companies over the metal.
Title: Re: Precious Metals
Post by: vand on April 17, 2020, 02:19:55 AM
Gold and gold miners behave VERY differently. You should not consider them anywhere close to being the same asset class; they're not. I consider my miners as part of my equity allocation, not my PM allocation.
Annual returns of gold miners since 1977 are about about 80% like gold and 20% like the broader economy, with double the price movements. Less correlated for returns over shorter periods (1 month, 1 day), but probably more correlated for returns over longer periods.

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

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

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

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

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

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

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

That is why it is always GOLD that is added to create efficient portfolios. Not silver, or mining shares or general commodities.
Title: Re: Precious Metals
Post by: Radagast on April 17, 2020, 09:07:57 AM
I'm not going to prove it out myself, but it's possible to use the MPT tools to show why Gold is superior to "gold proxies" that are correlated to gold but have more variability and poorer long term returns than gold itself.

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

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

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

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

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

Silver: no argument, I see no particular benefit.
Title: Re: Precious Metals
Post by: vand on April 17, 2020, 10:05:16 AM
@Radagast
thanks -a good rebuke.

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

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

In fact, it's a shame we can't get more historic data on gold miners. bigcharts has data on Newmont back to 1985 too, which confirms that the 1985-1987 period was basically a bonanza for gold stocks.. NEM went from sub $10 to over $50. Without those specific few years the argument for holding the miners looks much weaker.
Title: Re: Precious Metals
Post by: Radagast on April 17, 2020, 10:38:06 AM
@Radagast
thanks -a good rebuke.

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

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

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

Addition: I perceive that gold mine equity entered a bubble beginning in the late 1980's and it becoming increasingly egregious for the next 22ish years. People might look and think that the bubble didn't really take off until 2009. However 1989 is really the point from which the stock prices became increasingly untethered from both the price of the metal and sentiment on the ground. Relatively speaking, 1992-2002 was nearly as bad a bubble for gold miner stocks as 2002-2012 was.
Title: Re: Precious Metals
Post by: mrmoonymartian on April 17, 2020, 07:04:25 PM
Isn't the biggest problem with miners and paper PM that you don't get to play with the shiny things? Seems like a no-brainer that getting physical maximises happiness.
Title: Re: Precious Metals
Post by: celerystalks on April 17, 2020, 07:36:09 PM
Isn't the biggest problem with miners and paper PM that you don't get to play with the shiny things? Seems like a no-brainer that getting physical maximises happiness.
Yes. Physical gold is portable wealth.

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

  I anticipate that once that happens criminal enterprise will switch to setting payments in gold instead of hundred dollar bills.
Title: Re: Precious Metals
Post by: Wrenchturner on April 17, 2020, 08:47:37 PM
Isn't the biggest problem with miners and paper PM that you don't get to play with the shiny things? Seems like a no-brainer that getting physical maximises happiness.
Yes. Physical gold is portable wealth.

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

  I anticipate that once that happens criminal enterprise will switch to setting payments in gold instead of hundred dollar bills.
mind=blown
Title: Re: Precious Metals
Post by: ChpBstrd on April 19, 2020, 08:45:51 PM
Isn't the biggest problem with miners and paper PM that you don't get to play with the shiny things? Seems like a no-brainer that getting physical maximises happiness.
Yes. Physical gold is portable wealth.

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

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

Gold is the betamax or laserdisc of untraceable criminal currencies. It's not coming back and it was never a thing to begin with. Cryptocurrency has a weight of nothing. A person can transport millions across borders, on airplanes, into and out of prisons, etc. by anyone with a cell phone.
Title: Re: Precious Metals
Post by: celerystalks on April 19, 2020, 09:00:12 PM
Isn't the biggest problem with miners and paper PM that you don't get to play with the shiny things? Seems like a no-brainer that getting physical maximises happiness.
Yes. Physical gold is portable wealth.

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

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

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

Oh here we go again with Au v. Cryptos..
Title: Re: Precious Metals
Post by: mrmoonymartian on April 20, 2020, 03:54:40 AM
Isn't the biggest problem with miners and paper PM that you don't get to play with the shiny things? Seems like a no-brainer that getting physical maximises happiness.
Yes. Physical gold is portable wealth.

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

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

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

I agree we should outlaw everything to do with crypto. Not sure why it's taking so long.
Title: Re: Precious Metals
Post by: celerystalks on April 20, 2020, 06:21:50 AM
Isn't the biggest problem with miners and paper PM that you don't get to play with the shiny things? Seems like a no-brainer that getting physical maximises happiness.
Yes. Physical gold is portable wealth.

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

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

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

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

Agreed. Cryptos are a scam.

Gold and cryptos have virtually nothing in common.
Title: Re: Precious Metals
Post by: robartsd on April 21, 2020, 10:34:11 AM
Isn't the biggest problem with miners and paper PM that you don't get to play with the shiny things? Seems like a no-brainer that getting physical maximises happiness.
Yes. Physical gold is portable wealth.

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

  I anticipate that once that happens criminal enterprise will switch to setting payments in gold instead of hundred dollar bills.
There are still added costs of converting gold from/to the currency for spending outside of criminal activities, so the weight difference might need to favor gold more heavily before the majority of criminal enterprises start preferring cold hard money. Since legal enterprises primarily transfer wealth electronically these days, there would be little demand for improved value per gram of paper money. While crypto currency does provide some advantages for criminals, blockchain transactions are public so physical exchange would still be preferred for some criminal transfers.
Title: Re: Precious Metals
Post by: magnet18 on April 21, 2020, 11:18:49 AM
I agree we should outlaw everything to do with crypto. Not sure why it's taking so long.

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


Agreed. Cryptos are a scam.

Gold and cryptos have virtually nothing in common.

It's only a scam if someone sells it to you, or your grandma.
Otherwise it's just an unbacked currency.
Title: Re: Precious Metals
Post by: celerystalks on April 21, 2020, 05:18:34 PM
I agree we should outlaw everything to do with crypto. Not sure why it's taking so long.

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


Agreed. Cryptos are a scam.

Gold and cryptos have virtually nothing in common.

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

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

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

Gold could not be more different than crypto claptrap.
Title: Re: Precious Metals
Post by: maizefolk on April 21, 2020, 06:27:36 PM
I agree we should outlaw everything to do with crypto. Not sure why it's taking so long.

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

I think it's gotta be sarcasm.

(https://imgs.xkcd.com/comics/legal_hacks.png)
Title: Re: Precious Metals
Post by: Radagast on April 21, 2020, 08:54:16 PM
Isn't the biggest problem with miners and paper PM that you don't get to play with the shiny things? Seems like a no-brainer that getting physical maximises happiness.
Yes. Physical gold is portable wealth.

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

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

On that note I stumbled across this today while looking for something totally different. This is a gold mining company price index relative to the price of gold. It ends in 2015 at the record low point.
(http://pricedingold.com/charts/BGMI-1940.png)

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

(https://pricedingold.com/charts/HUI-1997.png)
Title: Re: Precious Metals
Post by: vand on April 22, 2020, 03:05:09 AM
Good find Radagast.

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

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

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

Title: Re: Precious Metals
Post by: Radagast on April 22, 2020, 02:29:58 PM
Good find Radagast.

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

My expectations:
Spot gold: tracks inflation with 15% standard deviation and little correlation to anything, but perhaps highest and most useful in the aftermath of a crisis
Gold bullion buyers: Spot price, less 0.5% annualized expenses if they are careful and very thrifty, plus some deep extra-spreadsheet risks such as theft, fraud, and an extra chance of dying in a home invasion
Gold ETF buyers: spot price, less 0.X% fund-dependent annualized expenses, plus some deep extra-spreadsheet risks (does anyone really think that the bullion watchers at SGOL are really going sit on $1 billion of untraceable metal for the next century, content with naught but 0.0019 of it per year? Not only does history speak against it, but they'd have to be absolute altruistic imbeciles).
Gold mine equity buyers: spot price, plus dividends, plus tracking error, plus an additional annualized 30% standard deviation, does not have the deep risk of outright theft and murder, and at least there is a strong regulatory framework for possible fraud.
Title: Re: Precious Metals
Post by: Radagast on April 22, 2020, 02:32:43 PM
Anyhow that 1940-2015 chart is pretty useful. I always wondered why so many gold mines and gold mine funds opened in 1964-1969, considering gold prices were flat, low, and had no prospect for anything else. I guess investors were pumping them full of capital. Which I still do not understand.
Title: Re: Precious Metals
Post by: vand on April 23, 2020, 03:22:08 AM
Good find Radagast.

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

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

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

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

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

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

And to be clear, I am not anti-mining. I have exposure myself, because I'm an active investor and it fits in with my investment thesis.
Title: Re: Precious Metals
Post by: ice_beard on April 23, 2020, 09:32:21 AM
I do follow PM prices a bit, primarily because I find them through my favorite hobby of metal detecting.  I am not a stacker. 

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

I'm skeptical these will be long term holds for me, but who knows.  BoA did estimate gold at $3k yesterday. 
Title: Re: Precious Metals
Post by: vand on April 23, 2020, 10:09:44 AM

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

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

(https://transportgeography.org/wp-content/uploads/stages_bubble.png)

In my view we are still a long way away from the public awareness stage, never mind the eventual mania
Title: Re: Precious Metals
Post by: Radagast on April 23, 2020, 11:17:24 AM
Personally I think you've pretty much invented the relative costs to fit in with your own assumptions.

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

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

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

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

Or we can just extrapolate the current situation: the miner ETF RING has a dividend yield of 1.02% after expenses, while the bullion ETF IAU charges 0.25% annually, a gap of 1.27%. Use GLD and GDX if you prefer. I have no reason to think the difference would have been substantially lower in the past.
Title: Re: Precious Metals
Post by: BicycleB on April 23, 2020, 02:03:32 PM
@Radagast, I like your reasoning but have questions about the fundamentals. You appear to assume that miners' long term price varies in proportion to gold, so that dividends produce a 1 to 1 variance (an advantage) compared to gold. But don't miners have many differences from gold itself, enough differences that they could have a long term performance quite different from gold itself?

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

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

How do we know that miners' underlying long term yield is gold price + dividends?
Title: Re: Precious Metals
Post by: Wrenchturner on April 23, 2020, 03:15:26 PM
Seems weird to me that a comparison is being drawn between a company that extracts a material and a finished product that stores value.  Maybe I've got the interpretation wrong.

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

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

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

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

Quote
How do we know that miners' underlying long term yield is gold price + dividends?
We don't :) That is my own (somewhat studied) guess.
Title: Re: Precious Metals
Post by: Radagast on April 23, 2020, 07:27:22 PM
Seems weird to me that a comparison is being drawn between a company that extracts a material and a finished product that stores value.  Maybe I've got the interpretation wrong.
Why? In the oil thread there was lots of comparisons to producers, storage companies, transporters, etc. If this is investor alley rather than collector alley, then gold miners will be affected by the price of gold as follows. Say gold is $1200/oz, and a mine produces it for a cost of $1,000/oz. The price rises to $1600, suddenly the same mine is making 3x more money on the same amount of gold --> a 33% gold price increase caused a 300% increase in mine profit. So in the short term producers are very sensitive to the price of metal. In reality they have a lot of room to adjust costs. If metal prices get very high they will mine lower grade or more difficult ore, expand exploration projects, and buy new equipment. If metal prices drop they will switch to higher grade ore, eliminate the exploration department, and not buy any new equipment. So it would not be as extreme as the example, but still should follow the metal with magnified movements.
Title: Re: Precious Metals
Post by: Wrenchturner on April 23, 2020, 09:16:44 PM
Seems weird to me that a comparison is being drawn between a company that extracts a material and a finished product that stores value.  Maybe I've got the interpretation wrong.
Why? In the oil thread there was lots of comparisons to producers, storage companies, transporters, etc. If this is investor alley rather than collector alley, then gold miners will be affected by the price of gold as follows. Say gold is $1200/oz, and a mine produces it for a cost of $1,000/oz. The price rises to $1600, suddenly the same mine is making 3x more money on the same amount of gold --> a 33% gold price increase caused a 300% increase in mine profit. So in the short term producers are very sensitive to the price of metal. In reality they have a lot of room to adjust costs. If metal prices get very high they will mine lower grade or more difficult ore, expand exploration projects, and buy new equipment. If metal prices drop they will switch to higher grade ore, eliminate the exploration department, and not buy any new equipment. So it would not be as extreme as the example, but still should follow the metal with magnified movements.
Good points here.
Title: Re: Precious Metals
Post by: vand on April 24, 2020, 03:34:27 AM
Annual gold production is one of those things that tends to be pretty stable even despite fluctuating gold prices. It isn't easy for production to ramp up quickly to respond to demand in the same way that the energy sector can, and producers tend to hedge to offset falling prices rather than just shutting down production.  This predictable new supply also keeps the total above ground stock very stable and predictable.

Title: Re: Precious Metals
Post by: BicycleB on April 24, 2020, 07:17:10 AM
^Good comment, @vand! Helps for my general understanding, as well as pondering metal vs miners.

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

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

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

Not exactly, but reading the overall reply, I think it's answered. Also, thanks for the chart!

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

Great answers. Much appreciated, @Radagast.

My personal takeaway is something like "If I get around to properly allocating my portfolio this summer, I think I'm putting at least half of the gold portion in miners." This is from someone with no gold at present, unless there are miners lurking in my index funds.
Title: Re: Precious Metals
Post by: big_owl on April 24, 2020, 11:18:05 AM
Having physical gold is fun. Before we lost ours in the unfortunate boating accident a few years back it was a lot of fun to take out the gold coins and hold them all in your hands and drool over them. Much more fun than looking at stock values on a website. 
Title: Re: Precious Metals
Post by: Radagast on April 24, 2020, 06:10:54 PM
My personal takeaway is something like "If I get around to properly allocating my portfolio this summer, I think I'm putting at least half of the gold portion in miners." This is from someone with no gold at present, unless there are miners lurking in my index funds.
Seems reasonable. I keep 5% of my portfolio in ZROZ (25-30 year zero coupon treasury bonds) and 5% in RING (gold miner ETF) since 2016 because they give me effective exposure of about 15% each to gold prices and bond prices, but without needing to devote that much space to them because they are pretty scary and have low expected returns individually. Eventually I plan to expand those to be more defensive, and would possibly add 5% shiny coins and 5% long term TIPS, but that is for Futureme to decide. If you are looking for more research, the "guru" who recommends gold equity is Bill Bernstein who has consistently done so in The Intelligent Asset Allocator, The Four Pillars of Investing, Rational Expectations, and Deep Risk. Of course I note that all of those books came out during what I would call a bubble in gold equity. But hey, I bet not a single person spoke highly of gold bullion as an investment between 1996 and 2007 and since then they can't shut up. If we didn't learn about different investment options in a bubble, then we would never learn about them at all.
Title: Re: Precious Metals
Post by: celerystalks on April 28, 2020, 09:05:10 PM
Having physical gold is fun. Before we lost ours in the unfortunate boating accident a few years back it was a lot of fun to take out the gold coins and hold them all in your hands and drool over them. Much more fun than looking at stock values on a website.

How much gold? Where was this boating accident? Coordinates?
Title: Re: Precious Metals
Post by: jojoguy on April 29, 2020, 12:43:54 AM
I just keep the silver that I overpaid for 10 years ago when prices were jumping sky high and save it for a rainy day.
Title: Re: Precious Metals
Post by: dougules on April 29, 2020, 11:16:18 PM
Having physical gold is fun. Before we lost ours in the unfortunate boating accident a few years back it was a lot of fun to take out the gold coins and hold them all in your hands and drool over them. Much more fun than looking at stock values on a website.

Plus you can't use stocks to make teeth.
Title: Re: Precious Metals
Post by: TomTX on April 30, 2020, 06:26:41 PM
Having physical gold is fun. Before we lost ours in the unfortunate boating accident a few years back it was a lot of fun to take out the gold coins and hold them all in your hands and drool over them. Much more fun than looking at stock values on a website.

Plus you can't use stocks to make teeth.

Sure I can. Use the dividends to pay for a new implant/crown/whatever.
Title: Re: Precious Metals
Post by: maizefolk on April 30, 2020, 06:33:43 PM
Having physical gold is fun. Before we lost ours in the unfortunate boating accident a few years back it was a lot of fun to take out the gold coins and hold them all in your hands and drool over them. Much more fun than looking at stock values on a website.

Plus you can't use stocks to make teeth.

Sure I can. Use the dividends to pay for a new implant/crown/whatever.

On top of that, stocks like DDD, make the teeth without you having to do any work at all.

https://www.3dsystems.com/industries/dental
Title: Re: Precious Metals
Post by: ice_beard on May 04, 2020, 11:51:56 AM
Having physical gold is fun. Before we lost ours in the unfortunate boating accident a few years back it was a lot of fun to take out the gold coins and hold them all in your hands and drool over them. Much more fun than looking at stock values on a website.

Plus you can't use stocks to make teeth.

Don't laugh but a portion of my PM holdings is in gold teeth/dental pieces.  As a hobbyist beach metal detectorist, I find gold teeth, implants and grills on the semi-regular.  Those are good finds. 
Title: Re: Precious Metals
Post by: markbike528CBX on May 05, 2020, 07:19:27 AM
Having physical gold is fun. Before we lost ours in the unfortunate boating accident a few years back it was a lot of fun to take out the gold coins and hold them all in your hands and drool over them. Much more fun than looking at stock values on a website.

Plus you can't use stocks to make teeth.

Don't laugh but a portion of my PM holdings is in gold teeth/dental pieces.  As a hobbyist beach metal detectorist, I find gold teeth, implants and grills on the semi-regular.  Those are good finds.
Winner for creepiest post of the day.    WTF, metal comes out of peoples heads?  Do you go to the Mobs narc-punching beach? No, don't answer that question, forget I asked.
Title: Re: Precious Metals
Post by: ice_beard on May 05, 2020, 11:20:59 AM
No, regular beaches in California.  People swimming in the water have things fall off and apparently out of them some times.  Gold teeth are one of them.  I find rings much more often but I usually find one or two gold teeth a year.  I have found three "grills" too.  Granted those were all found at more "urban" beaches.  Gangsters wanna go to the beach and swim too ya know. 
Title: Re: Precious Metals
Post by: appleshampooid on May 05, 2020, 11:56:07 AM
Premiums seem to be returning to more ~normal levels and stocks are returning at a lot of online dealers. I bought some British sovereigns which I had been coveting for some time as a <1oz gold coin.
Title: Re: Precious Metals
Post by: vand on May 08, 2020, 09:32:37 AM
Has there been a better performing sector than Big Tech in the last few years??

Yes.. the dready old gold miners has now beaten the might of Silicon Valley juggernaut over the last 1, 2 and nearly 3 year.

2yr GDX/VGT: http://schrts.co/GXQictmr
Title: Re: Precious Metals
Post by: TomTX on May 08, 2020, 04:59:35 PM
vand: You seem to be trying super hard.
Title: Re: Precious Metals
Post by: Wrenchturner on May 08, 2020, 07:42:23 PM
vand: You seem to be trying super hard.

I think he/she makes good points!
Title: Re: Precious Metals
Post by: waltworks on May 09, 2020, 10:05:02 AM
vand: You seem to be trying super hard.

I think he/she makes good points!

They are the same points Vand would make regardless of the circumstances, though, as far as I can tell. The extreme loss-averse mindset is really damaging for your prospects in the long run, historically.

-W
Title: Re: Precious Metals
Post by: vand on May 10, 2020, 07:02:07 AM
vand: You seem to be trying super hard.

I think he/she makes good points!

They are the same points Vand would make regardless of the circumstances, though, as far as I can tell. The extreme loss-averse mindset is really damaging for your prospects in the long run, historically.

-W

For everything there is a season - I am not a perma bull or a perma bear on gold or anything.

Being permanently wedded to a single position or investment idea is really damaging for your prospects in the long run.

There will come a day when I will look at gold and consider it fully or overvalued and want to own less of it. 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.

Stay on the sides. I don't really care TBH. All said I'd rather be on board during a bull market than on the sides, but I guess some people would rather miss out than have to change their world view.
Title: Re: Precious Metals
Post by: waltworks on May 10, 2020, 02:19:24 PM
I'm not on the sidelines, I'm investing my same $1500 a week, just like always. I'm just investing for 30+ year time horizons, so I'm uninterested in gold.

-W
Title: Re: Precious Metals
Post by: celerystalks on May 10, 2020, 03:58:32 PM
I'm not on the sidelines, I'm investing my same $1500 a week, just like always. I'm just investing for 30+ year time horizons, so I'm uninterested in gold.

-W

Why so short sighted?

 Iím investing for the next 500 years.  That should set up for the next 25 generations of descendants, give or take. Gold is one of few sure fire ways to preserve wealth for a couple of centuries.  So I have an allocation to gold.
Title: Re: Precious Metals
Post by: big_owl on May 10, 2020, 05:33:44 PM
i'm going back to my original prognostication (bloviating?).  You can shit on gold all you want, but I'm telling you, when it comes to wealth there are few things more satisfying than taking your gold coins and clanking them together in your hands while you drool over that lusty sheen.  Add in some silver coins and the sound is even better.  Now, take that and add in some guns and ammo...nothing better.  That's what I used to do in the old days.  Guns were also lost in the canoeing accident.  To this day it keeps me up at night knowing the loss I incurred.

Title: Re: Precious Metals
Post by: meghan88 on May 10, 2020, 07:02:24 PM
Having physical gold is fun. Before we lost ours in the unfortunate boating accident a few years back it was a lot of fun to take out the gold coins and hold them all in your hands and drool over them. Much more fun than looking at stock values on a website.

Plus you can't use stocks to make teeth.

Don't laugh but a portion of my PM holdings is in gold teeth/dental pieces.  As a hobbyist beach metal detectorist, I find gold teeth, implants and grills on the semi-regular.  Those are good finds.
Winner for creepiest post of the day.    WTF, metal comes out of peoples heads?  Do you go to the Mobs narc-punching beach? No, don't answer that question, forget I asked.

LMFAO.  Thanks for the visual.
Title: Re: Precious Metals
Post by: waltworks on May 10, 2020, 07:41:42 PM
I'm not on the sidelines, I'm investing my same $1500 a week, just like always. I'm just investing for 30+ year time horizons, so I'm uninterested in gold.

-W

Why so short sighted?

 Iím investing for the next 500 years.  That should set up for the next 25 generations of descendants, give or take. Gold is one of few sure fire ways to preserve wealth for a couple of centuries.  So I have an allocation to gold.

Actually that is roughly my horizon. I figure we'll either be extinct or in space (there is a LOT of Ag floating around...) by then.

Hence no interest in glod.

_W
Title: Re: Precious Metals
Post by: Buffaloski Boris on May 10, 2020, 08:02:52 PM
i'm going back to my original prognostication (bloviating?).  You can shit on gold all you want, but I'm telling you, when it comes to wealth there are few things more satisfying than taking your gold coins and clanking them together in your hands while you drool over that lusty sheen.  Add in some silver coins and the sound is even better.  Now, take that and add in some guns and ammo...nothing better.  That's what I used to do in the old days.  Guns were also lost in the canoeing accident.  To this day it keeps me up at night knowing the loss I incurred.

Those canoeing accidents are a bear. Seems to have been a rash of them the last several years. Maybe we need some PSAs on the dangers of canoeing with barbaric tools and relics?
Title: Re: Precious Metals
Post by: waltworks on May 10, 2020, 08:21:27 PM
i'm going back to my original prognostication (bloviating?).  You can shit on gold all you want, but I'm telling you, when it comes to wealth there are few things more satisfying than taking your gold coins and clanking them together in your hands while you drool over that lusty sheen.  Add in some silver coins and the sound is even better.  Now, take that and add in some guns and ammo...nothing better.  That's what I used to do in the old days.  Guns were also lost in the canoeing accident.  To this day it keeps me up at night knowing the loss I incurred.

Those canoeing accidents are a bear. Seems to have been a rash of them the last several years. Maybe we need some PSAs on the dangers of canoeing with barbaric tools and relics?

If we keep losing doubloons out of canoes at this rate, there will be a Scrooge McDuck pool crisis. Then you'll *really* see the price of gold jump!

-W
Title: Re: Precious Metals
Post by: MustacheAndaHalf on May 16, 2020, 01:26:04 AM
I don't own gold, but have thought about it in the past for it's low correlation to stocks and bonds.

For those deciding between bonds and gold, bond yields are near historic lows right now.  Their expected interest payments are low, and a rise in rates pushes the value of bonds down.  Switching from bonds to gold gives up less than it usually would.
Title: Re: Precious Metals
Post by: vand on May 16, 2020, 03:48:07 AM
I'm not on the sidelines, I'm investing my same $1500 a week, just like always. I'm just investing for 30+ year time horizons, so I'm uninterested in gold.

-W

Why so short sighted?

 Iím investing for the next 500 years.  That should set up for the next 25 generations of descendants, give or take. Gold is one of few sure fire ways to preserve wealth for a couple of centuries.  So I have an allocation to gold.

Actually that is roughly my horizon. I figure we'll either be extinct or in space (there is a LOT of Ag floating around...) by then.

Hence no interest in glod.

_W

For someone with no interest in gold, you seem to have an unusually keen interest in this thread :)
Title: Re: Precious Metals
Post by: vand on May 16, 2020, 03:50:16 AM
Golddiggers vs clickbaiters, last 3 years:

(https://i.postimg.cc/0j7YxDgq/Capture.png)
Title: Re: Precious Metals
Post by: TomTX on May 16, 2020, 08:28:22 AM
"I'm so high on gold that I quote myself at the bottom of every post" -vand
Title: Re: Precious Metals
Post by: waltworks on May 16, 2020, 08:56:13 AM
For someone with no interest in gold, you seem to have an unusually keen interest in this thread :)

I have interest in humor/goldbugs. Also keeping noobs from thinking glod is a good idea.

-W
Title: Re: Precious Metals
Post by: Buffaloski Boris on May 16, 2020, 09:11:10 AM
@vand

Iím curious. Whatís your thoughts on the proportion of ďbarbaric relicsĒ one should hold in their portfolio? In spite of the inherent risk of boating accidents that ownership of it seems to attract.
Title: Re: Precious Metals
Post by: vand on May 16, 2020, 11:05:43 AM
@vand

Iím curious. Whatís your thoughts on the proportion of ďbarbaric relicsĒ one should hold in their portfolio? In spite of the inherent risk of boating accidents that ownership of it seems to attract.

This may sound like dodging the question, but I'm not a big believer in having fixed asset allocation percentages. I think its smarter to be overweight in sectors where you see the most attractive risk/return.  Whether that is gold, equities, bonds or some other alternative asset class or subclass.

Of course, to have an opinion on an asset's risk/return profile is largely a macro-call, so you need to leave you JL Collins hat at home, put on your active investor's hat, and be prepared to have an opinion on things that affect asset prices.

With all that said, if someone wasn't particularly interested in following MACD on the S&P or interest rate futures I would.. first slap them across the face and tell them to wash their damn mouth out with soap and water.. and then tell about the Permanent Portfolio that has a 25% gold allocation. This is a perfectly sound strategy for every hands-off invested who has no idea what their risk tolerance is and doesn't know what they don't know.  You can tweak as much as you like from there once you are up and running.

I think a 10%-20% allocation is shown to have historically done a very good job of improving risk adjusted returns for a portfolio. I think I'm around 30% currently, would be happy to adjust this to anywhere between 5-40% depending on how attractive I consider in relation to other asset classes, and I consider my allocation to asset classes similarly, eg bonds I think I'm very underweight at about 6% as I consider them very unattractively priced.
Title: Re: Precious Metals
Post by: vand on May 16, 2020, 11:19:03 AM
For someone with no interest in gold, you seem to have an unusually keen interest in this thread :)

I have interest in humor/goldbugs. Also keeping noobs from thinking glod is a good idea.

-W

Except that gold has outperformed stocks for the last 20 years or more and will continue to do so, so the joke's really on those stockholders who can only think in straight lines and wrongly believe stocks to be the best performing asset of their investing lifetime
Title: Re: Precious Metals
Post by: TomTX on May 16, 2020, 11:39:39 AM


Except that gold has outperformed stocks for the last 20 years or more and will continue to do so, so the joke's really on those stockholders who can only think in straight lines and wrongly believe stocks to be the best performing asset of their investing lifetime

Tsk, tsk. Both cherry picking dates and mystical knowledge of the future.

Gold bugs really are special.
Title: Re: Precious Metals
Post by: ice_beard on May 16, 2020, 11:54:10 AM
I actually saw an add in a print mailer (yes, I've gotten so bored at times, I'm looking through all the junk mail!) for this...  golden eagle at "cost".  https://nationwidecoins.com/product/government-issued-1-oz-50-gold-american-eagles-at-cost-copy/

There are a few catches...  first, it's not spot, but the premium is the smallest I've seen in months.  When I bought it was basically spot + $15.  Second, you can only buy 1 oz at this price and it's an unknown year.  Third, the shipping takes a long time, like 2-3 weeks via FedEx but that doesn't really matter.  Fourth, to actually order involves them calling you on the phone.  They gave a brief pitch about some graded coins they have which was short and to the point and easy to decline.  Might be a good deal if you are into graded coins.  I am not. 

They accepted a credit card too with no extra fee (unheard of right?).  I scored 1 oz for $1725 all in.  Of course it hasn't arrived so I can't completely say if this was a good deal, but an oz at that price now is a good deal. 

Silver stocks had a nice bump on Friday.  My little silver mine hedges were up 18 and 12% for the day. 
Title: Re: Precious Metals
Post by: Buffaloski Boris on May 16, 2020, 12:26:02 PM
@vand

Iím curious. Whatís your thoughts on the proportion of ďbarbaric relicsĒ one should hold in their portfolio? In spite of the inherent risk of boating accidents that ownership of it seems to attract.

This may sound like dodging the question, but I'm not a big believer in having fixed asset allocation percentages. I think its smarter to be overweight in sectors where you see the most attractive risk/return.  Whether that is gold, equities, bonds or some other alternative asset class or subclass.

Of course, to have an opinion on an asset's risk/return profile is largely a macro-call, so you need to leave you JL Collins hat at home, put on your active investor's hat, and be prepared to have an opinion on things that affect asset prices.

With all that said, if someone wasn't particularly interested in following MACD on the S&P or interest rate futures I would.. first slap them across the face and tell them to wash their damn mouth out with soap and water.. and then tell about the Permanent Portfolio that has a 25% gold allocation. This is a perfectly sound strategy for every hands-off invested who has no idea what their risk tolerance is and doesn't know what they don't know.  You can tweak as much as you like from there once you are up and running.

I think a 10%-20% allocation is shown to have historically done a very good job of improving risk adjusted returns for a portfolio. I think I'm around 30% currently, would be happy to adjust this to anywhere between 5-40% depending on how attractive I consider in relation to other asset classes, and I consider my allocation to asset classes similarly, eg bonds I think I'm very underweight at about 6% as I consider them very unattractively priced.

Itís not a dodge at all. If assets arenít favorably priced now (e.g. SP 5+495 and bonds), they probably will be in the future.  Buy what is favorably priced. I donít happen to see much right now. Foreign to the US equities is about all I can think of.  Maybe Ag. Maybe 6 months ago for Au. You might have a different perspective on that.
Title: Re: Precious Metals
Post by: maizefolk on May 16, 2020, 12:52:26 PM
Except that gold has outperformed stocks for the last 20 years or more and will continue to do so, so the joke's really on those stockholders who can only think in straight lines and wrongly believe stocks to be the best performing asset of their investing lifetime

Over the last twenty years, huh? Any particular reason you picked specifically 20 years?

(https://imgpile.com/images/IWscAG.png) (https://imgpile.com/i/IWscAG)
Title: Re: Precious Metals
Post by: waltworks on May 16, 2020, 12:56:37 PM
Except that gold has outperformed stocks for the last 20 years or more and will continue to do so, so the joke's really on those stockholders who can only think in straight lines and wrongly believe stocks to be the best performing asset of their investing lifetime

That's some quality cherrypicking - the lowest price for gold since the late 70s, with the biggest stock bubble ever... yeah, it sure did. Outside of that year or two, though, you are incorrect.

I'll give you a cherrypick that's more fun. If, in 1976 (the year of my birth, and early on in the period when owning gold was legal again) my parents had purchased baby Waltworks an ounce of gold for $133.77, today I'd have something like $1700, assuming I paid nothing to store it and didn't  lose it while canoeing. Not bad!

Oh, but wait...

If they had stuck $133.77 into an S&P index fund and never touched it, I'd have $10,617.

Feel free to try some other years. Other than the tech crash (if you invested a lump sum), you're never going to win with gold. It's not even close.

-W

Title: Re: Precious Metals
Post by: vand on May 16, 2020, 01:02:13 PM
Except that gold has outperformed stocks for the last 20 years or more and will continue to do so, so the joke's really on those stockholders who can only think in straight lines and wrongly believe stocks to be the best performing asset of their investing lifetime

That's some quality cherrypicking - the lowest price for gold since the late 70s, with the biggest stock bubble ever... yeah, it sure did. Outside of that year or two, though, you are incorrect.

I'll give you a cherrypick that's more fun. If, in 1976 (the year of my birth, and early on in the period when owning gold was legal again) my parents had purchased baby Waltworks an ounce of gold for $133.77, today I'd have something like $1700, assuming I paid nothing to store it and didn't  lose it while canoeing. Not bad!

Oh, but wait...

If they had stuck $133.77 into an S&P index fund and never touched it, I'd have $10,617.

Feel free to try some other years. Other than the tech crash (if you invested a lump sum), you're never going to win with gold. It's not even close.

-W

Yeah yeah, all bad investors fall back on "long term averages".
The ONLY thing that matters is the growth that YOU are able to capture, not what someone did before or after.
Title: Re: Precious Metals
Post by: maizefolk on May 16, 2020, 01:16:46 PM
Yeah yeah, all bad investors fall back on "long term averages".
The ONLY thing that matters is the growth that YOU are able to capture, not what someone did before or after.

I've been investing significant money in the stock market for about a decade (since 2010/11). As show above in every single year I've captured more value by putting that money into stocks and leaving it there than into gold and leaving it there.

If I was in my sixties and had been investing for 40 years, in 35 of those years I would have captured more value by putting my money into stocks and leaving it there than into gold and leaving it there.

If you bought gold at no other time than for the five years right at the start of the 21st century where it allowed you to capture more value than putting that same money into the stock market, congratulations, it sounds like you made an excellent and prescient investing decision.
Title: Re: Precious Metals
Post by: waltworks on May 16, 2020, 01:34:23 PM
LOL, "bad investors fall back on long term averages".

I'd say, that when I'm done investing, my long term average is what I'll be interested in, actually.

Like Maizeman said, if you can predict the market and know when to buy gold (or stocks) that's awesome. Given the track record,  I'll err on the side of buying something that most likely comes out ahead over the long term, thanks.

-W
Title: Re: Precious Metals
Post by: Davnasty on May 16, 2020, 01:40:38 PM
Except that gold has outperformed stocks for the last 20 years or more and will continue to do so, so the joke's really on those stockholders who can only think in straight lines and wrongly believe stocks to be the best performing asset of their investing lifetime

That's some quality cherrypicking - the lowest price for gold since the late 70s, with the biggest stock bubble ever... yeah, it sure did. Outside of that year or two, though, you are incorrect.

I'll give you a cherrypick that's more fun. If, in 1976 (the year of my birth, and early on in the period when owning gold was legal again) my parents had purchased baby Waltworks an ounce of gold for $133.77, today I'd have something like $1700, assuming I paid nothing to store it and didn't  lose it while canoeing. Not bad!

Oh, but wait...

If they had stuck $133.77 into an S&P index fund and never touched it, I'd have $10,617.

Feel free to try some other years. Other than the tech crash (if you invested a lump sum), you're never going to win with gold. It's not even close.

-W

Yeah yeah, all bad investors fall back on "long term averages".
The ONLY thing that matters is the growth that YOU are able to capture, not what someone did before or after.

I tried to think of a bunch of reasons and examples to refute this statement but honestly, this is a stupid argument and I think you're smart enough to know why.

I've seen you make reasonable cases for owning gold. Cherry picking data from one of the few time frames that gold outperformed stocks is not one of them.

Title: Re: Precious Metals
Post by: vand on May 16, 2020, 02:05:44 PM
Except that gold has outperformed stocks for the last 20 years or more and will continue to do so, so the joke's really on those stockholders who can only think in straight lines and wrongly believe stocks to be the best performing asset of their investing lifetime

That's some quality cherrypicking - the lowest price for gold since the late 70s, with the biggest stock bubble ever... yeah, it sure did. Outside of that year or two, though, you are incorrect.

I'll give you a cherrypick that's more fun. If, in 1976 (the year of my birth, and early on in the period when owning gold was legal again) my parents had purchased baby Waltworks an ounce of gold for $133.77, today I'd have something like $1700, assuming I paid nothing to store it and didn't  lose it while canoeing. Not bad!

Oh, but wait...

If they had stuck $133.77 into an S&P index fund and never touched it, I'd have $10,617.

Feel free to try some other years. Other than the tech crash (if you invested a lump sum), you're never going to win with gold. It's not even close.

-W

Yeah yeah, all bad investors fall back on "long term averages".
The ONLY thing that matters is the growth that YOU are able to capture, not what someone did before or after.

I tried to think of a bunch of reasons and examples to refute this statement but honestly, this is a stupid argument and I think you're smart enough to know why.

I've seen you make reasonable cases for owning gold. Cherry picking data from one of the few time frames that gold outperformed stocks is not one of them.



As I have often said, you can win any X v Y argument if you pick a time frame to support your biases. Who cares, I'm over it.
The only timeframe that I'm personally interested in is the from the day I invest my first penny to the day that I die. I don't care what Buffett did back in the '71 because I wasn't around then, nor do I care what anyone is able to make 100 years from now when I'll have shuffled off this mortal coil.

If you ignore the best performing asset during your investing lifetime then you're not a smart investor, you're a hopelessly naive and narrowminded investor who has been brainwashed by Wall Street's marketing dept (or JL Collins).
Title: Re: Precious Metals
Post by: waltworks on May 16, 2020, 02:12:29 PM
But even that isn't true, unless you invested a lump sum in 2000 and then never invested again. I will give you that, though. If your "investing lifetime" (ie, time putting money in) was a 2-3 year period around the tech bubble/crash, and you put *all* your money in at once, you are currently ahead with gold.

Over any other time period, or under more reasonable assumptions (ie, investing steadily over that 20 years) buying gold works out very very poorly, though.

-W
Title: Re: Precious Metals
Post by: TomTX on May 16, 2020, 02:19:27 PM
Yeah yeah, all bad investors fall back on "long term averages".
The ONLY thing that matters is the growth that YOU are able to capture, not what someone did before or after.

And the really bad investors think they're asset-picking geniuses who figured out a pattern nobody else has. Nevermind it never worked before in the long term. This time, momentum is going to work!
Title: Re: Precious Metals
Post by: vand on May 16, 2020, 02:37:34 PM
The world of investing according to Gone With The Wind.

On Land
*******
"Do you mean to tell me, Katie Scarlett O'Hara, that Tara, that land doesn't mean anything to you? Why, land is the only thing in the world worth workin' for, worth fightin' for, worth dyin' for, because it's the only thing that lasts."

On Gold
*******
"$150 dollars. In Gold."
"For which lady, sir?"
"For Mrs Charles Hamilton."

"Look, Mrs. Meade. It's a great deal of money. $10, $20, $30, $50. And it's not our paper money. It's gold."

On Bonds
********
"What are those papers?"
"Oh ... Bonds - they're all we've saved - all we have left - bonds."
"What kind of bonds, Pa?"
"Why, Confederate bonds, of course, daughter."
"What good are they to anybody?"
"I'll not have you talking like that, Katie Scarlett."



You can learn a lot of good financial lessons from that film, let me tell you.
Title: Re: Precious Metals
Post by: waltworks on May 16, 2020, 02:44:06 PM
So 1971, not relevant, but 1871, yes? And we're talking about Confederate bonds now?

Just trying to clarify.

-W
Title: Re: Precious Metals
Post by: maizefolk on May 16, 2020, 03:05:59 PM
In the event that the United States is defeated in a war and occupied, I completely agree that land (and gold) will be preferable investments to US government bonds. Land is probably a good investment for that scenario.

We can learn more from "War, Wealth, and Wisdom" by Barton Biggs.

Quote
Could you have swapped even gold for food in Japan in those first bitterly cold postwar winters? Those that were there say that warm clothes and food were the most desirable barter items. People wanted to first cure being cold and hungry before they became greedy for possessions. One european family that lived through the war in Japan found that the exchange rate for clothes was much higher than that for jewelry, and they survived the hungry years by bartering their large inventory of sweaters and overcoats for food.

There was one other asset class in Japan that functioned to preserve wealth during the war years and enhance it afterwards: commercial and residential land. ....

After all is said and done, considering the enormity of the calamity that was World War II, Japanese equities and land did an impressive job of preserving and enhancing real wealth over the long run. (Emphasis in the original).
Title: Re: Precious Metals
Post by: maizefolk 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.
Title: Re: Precious Metals
Post by: markbike528CBX 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.
Title: Re: Precious Metals
Post by: celerystalks 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.
Title: Re: Precious Metals
Post by: maizefolk 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.
Title: Re: Precious Metals
Post by: TomTX 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.
Title: Re: Precious Metals
Post by: Painters Brush 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.

Title: Re: Precious Metals
Post by: waltworks 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
Title: Re: Precious Metals
Post by: TomTX 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.
Title: Re: Precious Metals
Post by: maizefolk 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.
Title: Re: Precious Metals
Post by: waltworks 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
Title: Re: Precious Metals
Post by: BicycleB 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.
Title: Re: Precious Metals
Post by: MustacheAndaHalf 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?
Title: Re: Precious Metals
Post by: mrmoonymartian 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.
Title: Re: Precious Metals
Post by: vand 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.
Title: Re: Precious Metals
Post by: celerystalks 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.



Title: Re: Precious Metals
Post by: ChpBstrd 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/ (https://www.statista.com/statistics/238414/global-gold-production-since-2005/)

If a currencyís supply is its inflation, why not consider this inflation too?
Title: Re: Precious Metals
Post by: waltworks 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
Title: Re: Precious Metals
Post by: maizefolk 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 (http://historymatters.gmu.edu/d/5354/)" speech. <-- he was a great orator, even if he later tarnished his legacy by participating in the Scopes trial.
Title: Re: Precious Metals
Post by: waltworks 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
Title: Re: Precious Metals
Post by: MustacheAndaHalf 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
Title: Re: Precious Metals
Post by: celerystalks 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).


Title: Re: Precious Metals
Post by: waltworks 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
Title: Re: Precious Metals
Post by: celerystalks 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.







Title: Re: Precious Metals
Post by: waltworks 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
Title: Re: Precious Metals
Post by: celerystalks 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
Title: Re: Precious Metals
Post by: waltworks 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
Title: Re: Precious Metals
Post by: TomTX 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.
Title: Re: Precious Metals
Post by: celerystalks 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?

Title: Re: Precious Metals
Post by: waltworks 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
Title: Re: Precious Metals
Post by: celerystalks 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.


Title: Re: Precious Metals
Post by: waltworks 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
Title: Re: Precious Metals
Post by: Buffaloski Boris 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.
Title: Re: Precious Metals
Post by: maizefolk 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.
Title: Re: Precious Metals
Post by: BicycleB 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!
Title: Re: Precious Metals
Post by: TomTX 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.
Title: Re: Precious Metals
Post by: Wrenchturner 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?
Title: Re: Precious Metals
Post by: Buffaloski Boris 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.
Title: Re: Precious Metals
Post by: BicycleB 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.
Title: Re: Precious Metals
Post by: vand 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.
Title: Re: Precious Metals
Post by: mrmoonymartian 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.
Title: Re: Precious Metals
Post by: celerystalks 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.
Title: Re: Precious Metals
Post by: Car Jack 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.
Title: Re: Precious Metals
Post by: celerystalks 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.
Title: Re: Precious Metals
Post by: waltworks 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
Title: Re: Precious Metals
Post by: vand 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
Title: Re: Precious Metals
Post by: waltworks 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
Title: Re: Precious Metals
Post by: MustacheAndaHalf 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
Title: Re: Precious Metals
Post by: celerystalks 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.
Title: Re: Precious Metals
Post by: vand 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
Title: Re: Precious Metals
Post by: mrmoonymartian on May 22, 2020, 09:44:37 PM
Iíll take this as agreement that if inflat