Author Topic: Precious Metals  (Read 20306 times)

Paul990

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Re: Precious Metals
« Reply #200 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 don’t know what do you mean with stock market.  The Dow Jones?
If that’s the case, you are comparing an index whose composition changes, with gold bars.
I’m 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.

I’m not criticising the composition changes per se.
I’m not suggesting some evil manipulation in order to make the index performance look good.
I’m 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 let’s 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.

Let’s take for example the so-called Overnight Strategy.
„Starting 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 day’s morning Gold Fixing price, your $35 would now be worth $15,843.
That’s the cumulative value of the Overnight strategy.“



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 ...

waltworks

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Re: Precious Metals
« Reply #201 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

vand

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Re: Precious Metals
« Reply #202 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.
« Last Edit: September 22, 2019, 02:47:54 AM by vand »

waltworks

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Re: Precious Metals
« Reply #203 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.

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maizeman

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Re: Precious Metals
« Reply #204 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 don’t know what do you mean with stock market.  The Dow Jones?
If that’s 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
„Starting 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 day’s morning Gold Fixing price, your $35 would now be worth $15,843.
That’s the cumulative value of the Overnight strategy.“



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.

TomTX

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Re: Precious Metals
« Reply #205 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.

vand

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Re: Precious Metals
« Reply #206 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.

« Last Edit: September 23, 2019, 01:14:14 AM by vand »

Paul990

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Re: Precious Metals
« Reply #207 on: October 05, 2019, 12:07:45 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.



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.



„Starting 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 day’s morning Gold Fixing price, your $35 would now be worth $15,843.
That’s the cumulative value of the Overnight strategy.“



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?)
« Last Edit: October 05, 2019, 12:09:50 PM by Paul990 »

maizeman

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Re: Precious Metals
« Reply #208 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.

I’m talking about title of ownership of gold bars.
It doesn’t have to be in-hand. I don’t belong to the „If you don’t touch it, you don’t own it“ camp.
In my view, BullionVault, GoldMoney, BullionStar (just examples) are as much gold as tangible in-my-hand gold.
ETF shares don’t 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.

TomTX

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Re: Precious Metals
« Reply #209 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.

Telecaster

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Re: Precious Metals
« Reply #210 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. 

waltworks

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Re: Precious Metals
« Reply #211 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

TomTX

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Re: Precious Metals
« Reply #212 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.

Paul990

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Re: Precious Metals
« Reply #213 on: October 09, 2019, 07:07:18 AM »
I'm trying to understand the investment strategy you are advocating
Me too Maizeman, as I wasn’t 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 don’t 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.

                                 

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 today: „Paper is poverty. It is only the ghost of money, and not money itself”, and I wonder, which investing strategy was T. Jefferson advocating?

maizeman

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Re: Precious Metals
« Reply #214 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.

Paul990

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Re: Precious Metals
« Reply #215 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 doesn’t require a lot of efforts either. You can write an app and let the computer to do the work.
But that’s not the point.

The question I’m addressing is what constitutes a fair comparison when we compare gold’s with stock’s performance.
Good performing/getting big gets in, bad performing/getting small gets out: as long as this mechanism is in place, it doesn’t matter if we are talking about a 30, a 300 or a 3,000 stocks basket.
(The dividends aspect is also irrelevant.)

Let’s 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 „gold“ with „stocks“, if with „stocks“ 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 gold’s with stocks’ performance, with „stocks“ they mean US stocks.
That happens also in forums based outside of the USA.
So, now I'm wondering, is it fair to compare gold’s 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, wouldn’t make more sense to compare gold's performance with Mexican stocks? For Russians, wouldn’t be more interesting to compare gold's performance with Russian stocks? For Filipinos, wouldn’t be…



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 doesn’t matter Maizeman.
My point is, gold is designated as risk free, stocks aren’t.
My point is, comparing gold’s with stock’s performance, the fact that gold is less risky, or even risk free, doesn’t get factored in.
Gold holders have a benefit which stocks holders don’t have, but this benefit doesn’t 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 don’t.
This advantage of the gold holders doesn’t get factored in when comparing gold’s with stocks’ performance.
This too, I find unfair.

My point is, comparing gold and (e.g.) stocks, shouldn’t 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.

maizeman

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Re: Precious Metals
« Reply #216 on: October 09, 2019, 08:13:46 AM »
Let’s 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 gold’s with stocks’ performance, with „stocks“ they mean US stocks.
That happens also in forums based outside of the USA.
So, now I'm wondering, is it fair to compare gold’s 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?

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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 doesn’t matter Maizeman.
My point is, gold is designated as risk free, stocks aren’t.

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 gold’s with stock’s performance, the fact that gold is less risky, or even risk free, doesn’t get factored in.
Gold holders have a benefit which stocks holders don’t have, but this benefit doesn’t 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 don’t.
This advantage of the gold holders doesn’t get factored in when comparing gold’s with stocks’ 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, shouldn’t 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.

maizeman

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Re: Precious Metals
« Reply #217 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.)



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.
« Last Edit: October 09, 2019, 09:30:48 AM by maizeman »

waltworks

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Re: Precious Metals
« Reply #218 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

Dago

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Re: Precious Metals
« Reply #219 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.

Car Jack

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Re: Precious Metals
« Reply #220 on: October 11, 2019, 12:03:12 PM »


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.

TomTX

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Re: Precious Metals
« Reply #221 on: October 11, 2019, 05:50:55 PM »
The Overnight Strategy doesn’t require a lot of efforts either. You can write an app and let the computer to do the work.
But that’s 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?

Paul990

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Re: Precious Metals
« Reply #222 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




Related to US stocks, gold is cheap




Inflation adjusted gold is cheap




Using 1980 CPI formula, gold is super cheap




Related to US money supply, gold is cheap




maizeman

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Re: Precious Metals
« Reply #223 on: October 20, 2019, 12:02:59 PM »
Inflation adjusted gold is cheap



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



This is a graph of the price of silver....

TomTX

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Re: Precious Metals
« Reply #224 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.

Telecaster

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Re: Precious Metals
« Reply #225 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



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.


robartsd

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Re: Precious Metals
« Reply #226 on: October 21, 2019, 08:46:32 AM »
Related to the US debt, gold is cheap


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.

js82

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Re: Precious Metals
« Reply #227 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.

TomTX

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Re: Precious Metals
« Reply #228 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.

Orthodox Investor

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Re: Precious Metals
« Reply #229 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.

ChpBstrd

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Re: Precious Metals
« Reply #230 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.

Orthodox Investor

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Re: Precious Metals
« Reply #231 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.

js82

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Re: Precious Metals
« Reply #232 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.

Orthodox Investor

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Re: Precious Metals
« Reply #233 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.

freya

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Re: Precious Metals
« Reply #234 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.

maizeman

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Re: Precious Metals
« Reply #235 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.

markbike528CBX

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Re: Precious Metals
« Reply #236 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. 

waltworks

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Re: Precious Metals
« Reply #237 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

robartsd

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Re: Precious Metals
« Reply #238 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.

TomTX

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Re: Precious Metals
« Reply #239 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.

Orthodox Investor

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Re: Precious Metals
« Reply #240 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.

Radagast

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Re: Precious Metals
« Reply #241 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.

maizeman

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Re: Precious Metals
« Reply #242 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 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!

RWD

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Re: Precious Metals
« Reply #243 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/

waltworks

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Re: Precious Metals
« Reply #244 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

freya

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Re: Precious Metals
« Reply #245 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.
« Last Edit: October 30, 2019, 09:10:13 AM by freya »

maizeman

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Re: Precious Metals
« Reply #246 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%.

Telecaster

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Re: Precious Metals
« Reply #247 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.   

Telecaster

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Re: Precious Metals
« Reply #248 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? 

Orthodox Investor

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Re: Precious Metals
« Reply #249 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.