Do Bogleheads invest in physical gold?

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TheTimeLord
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Do Bogleheads invest in physical gold?

Post by TheTimeLord »

Do Bogleheads ever invest in physical gold for diversification?
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Re: Do Bogleheads invest in physical gold?

Post by cflannagan »

StarbuxInvestor wrote:Do Bogleheads ever invest in physical gold for diversification?
I consider myself a Boglehead and no, I don't see the need to make things more complicated by investing into physical gold.
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Re: Do Bogleheads invest in physical gold?

Post by John3754 »

Some do, some don't.
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Re: Do Bogleheads invest in physical gold?

Post by hicabob »

I have a few ounce coins I bought decades ago pre-boglehead. They have been far from my best or worst investment over the years. I find they do make nice gifts when the right occasion arises and that's my current plan for the remainder, but if/when gold goes back to 400/oz or so, I may be tempted to accumulate more.
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Re: Do Bogleheads invest in physical gold?

Post by nedsaid »

I do not own gold now.

Years ago, I owned some gold and silver coins but sold them.
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Re: Do Bogleheads invest in physical gold?

Post by Kielke »

Why would I want to invest in a shiny near useless metal?

(If you do not get the humor, then let me just state that it is a clear NO!)
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Re: Do Bogleheads invest in physical gold?

Post by Grt2bOutdoors »

StarbuxInvestor wrote:Do Bogleheads ever invest in physical gold for diversification?
No, I buy physical coins to watch them gleem in the light. If it doesn't produce any income or earnings growth, then it is not an investment, it is a consumption item.
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Re: Do Bogleheads invest in physical gold?

Post by baw703916 »

I have five gold bars buried in my backyard ten paces north of the magnolia tree.


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Re: Do Bogleheads invest in physical gold?

Post by nisiprius »

1) This is a frequently discussed topic, try a search.

2) Some do, I think most don't, and it's not mentioned in the Bogleheads Investment Philosophy. The most common dismissal of it is that it is not a business, does not create value, does not grow or pay dividends, has an expected long-term real return of zero, and thus all investment returns from it are purely speculative.

3) An occasional forum participant, craigr, aka Craig Rowland, aka author of the Crawling Road blog, wrote a book on the Permanent Portfolio, which Taylor Larimore praised in this thread, The Permanent Portfolio: A Gem. Dr. William J. Bernstein has also said complimentary things about Rowland in his new eBooklet, "Deep RIsk." If there were a Boglehead approach to gold, Rowland's book would be it.

4) If you do decide to go in for gold, one thing you need to do is to get crystal-clear in your own mind the huge difference between investing in the stocks of gold-mining businesses (Vanguard Precious Metals and Mining fund), investing in the "GLD" ETF which holds physical gold, and personally investing in physical metal yourself. Also, before investing in the GLD ETF, read the Prospectus and notice that unlike any mutual fund, you are NOT protected either by the Investment Company Act of 1940 nor by the laws that protect commodities investors.

5) Dr. Bernstein talks about this in "Deep Risk," and the conclusion he comes to is a version of what I've thought myself. If what you are worried about is a financial disaster in the U.S., you probably can't buy a cheap, quick, easy shield of invulnerability just by clicking off GLD on your brokerage website--you need to plan seriously for emigration, and for setting up overseas accounts in case the U.S. imposes currency controls, etc. He also has some interesting historical perspective, showing that, counterintuitively, gold has not been very useful in protect against inflation, but has been most useful in deflation.

6) Burton Malkiel, in editions of A Random Walk Down Wall Street over the years, has expressed varying points of view. The current (2012) edition is mildly supportive of a small holding such as "5% of the portfolio." However, it is mentioned almost as an aside, and gold is not mentioned in The Elements of Investing, the book for beginners which he coauthored with Charles D. Ellis.

7) The gold advocates disagree, of course, but it seems to me that whenever I look at the data for myself, gold simply does not behave the way they say it "tends to" behave. It does not act as a stable store of value, it acts like any other wildly volatile, speculative asset. To me it is very telling that gold went on such a great run from 2000-2010 or so despite the absence of any significant inflation. Why is this important? Because it says gold didn't behave the way it was supposed to. To say, "yeah, but it did really well" is beside the point. Unpredictable is unpredictable.
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Re: Do Bogleheads invest in physical gold?

Post by umfundi »

I found a Krugerrand that I had forgotten I had, in amongst my Father's slide rules and other memorabilia I have. I sold the coin and kept the slide rules. I suppose that is some kind of diversification.

I think some Bogleheads hold gold (GLD?) as an asset class, but I suspect the percentage of gold their portfolios is much less than suggested by the Permanent Portfolio:

http://www.permanentportfoliofunds.com/ ... /PRPFX.pdf

GLD is down 24% in the last year, so the gold bugs have been pretty quiet. I do not know anyone who says you should personally hold the physical metal as an investment.

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Re: Do Bogleheads invest in physical gold?

Post by ab80 »

I think it would be pretty cool to have a gold bar lying around. Maybe I'd get bored of it if I actually did that, though. But no, I wouldn't buy physical gold as an investment.
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Re: Do Bogleheads invest in physical gold?

Post by nedsaid »

As an investor, I look for at least three things. One is that I want to buy cash flows represented either by stocks or bonds. Second, I want to beat inflation. Over time, stocks and bonds have given real returns over time. Third, I want to own asset classes that don't correlate with each other. Gold fails on one and two. No cash flows and no real returns over inflation. Gold is a non-correlating asset to stocks so it might have a benefit of possibly reducing volatility in a portfolio.

But I feel that if an investor is willing to wait things out, volatility takes care of itself. Insurance to reduce portfolio volatility tends to be over time only a drag on performance. More damage is done by investors trying to protect themselves against market volatility than market volatility itself. We all want our investments to go up in predictable, straight line fashion but that is not real life.

A brilliant point was brought up that asset classes often do not act the way they are supposed to. Or asset classes correlate at the time you don't want them to (that is on the way down). So investors need to learn to accept volatility in their portfolios in exchange for the higher returns.
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Re: Do Bogleheads invest in physical gold?

Post by Sbashore »

No, I invest in things that have a future income stream not a speculative return. In my opinion, movement in precious metals prices is completely random.
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Re: Do Bogleheads invest in physical gold?

Post by John3754 »

Sbashore wrote:In my opinion, movement in precious metals prices is completely random.
And movement in stock and bond prices are predictable?
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Re: Do Bogleheads invest in physical gold?

Post by cflannagan »

John3754 wrote:
Sbashore wrote:In my opinion, movement in precious metals prices is completely random.
And movement in stock and bond prices are predictable?
He did say "in his opinion".

I am the same way - I can understand (usually) "why" stocks and bonds move the general way they do over longer terms.

Precious metals, on the other hand, I don't understand why they move the way they do. And I don't feel comfortable investing into something I do not understand as well as stocks and bonds.
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Re: Do Bogleheads invest in physical gold?

Post by John3754 »

cflannagan wrote:
John3754 wrote:
Sbashore wrote:In my opinion, movement in precious metals prices is completely random.
And movement in stock and bond prices are predictable?
He did say "in his opinion".

I am the same way - I can understand (usually) "why" stocks and bonds move the general way they do over longer terms.

Precious metals, on the other hand, I don't understand why they move the way they do. And I don't feel comfortable investing into something I do not understand as well as stocks and bonds.
Placing the phrase "in my opinion" in front of a statement does not render it immune to logical critique, and understanding why stocks and bonds move in one direction or the other does not make it a predictable phenomenon, these are independent factors. For example, I know that if interest rates go up the price of bonds goes down, but that doesn't mean I know when interest rates are going to go up or down, or by how much.

I don't know if the price of gold is going to go up or down, but I don't know if the price of stocks or bonds are going to go up or down either, regardless of how well I understand the underlying mechanisms, nor do you.
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Re: Do Bogleheads invest in physical gold?

Post by umfundi »

John3754 wrote:
Sbashore wrote:In my opinion, movement in precious metals prices is completely random.
And movement in stock and bond prices are predictable?
I think the point is, more precisely, that there is no theory to explain the prices and their changes. Inflation is low. Why has gold dropped 24% in the last year? If it tracked inflation it should be up about 2%, right?

For equities and bonds you can create a theory that explains their expected returns over time.

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Re: Do Bogleheads invest in physical gold?

Post by nisiprius »

John3754 wrote:
Sbashore wrote:In my opinion, movement in precious metals prices is completely random.
And movement in stock and bond prices are predictable?
No, but movement in bond prices isn't very important because, long-term, the total return of bonds is entirely the result of interest and return of principal, which are predictable; while, short-term, the total return tends to be dominated by the upward loft of interest payments and/or fund dividends.

Stocks are interesting, because the time scale of their fluctuations and "predictability" is just on the hairy edge of an investing lifetime. The stocks-for-the-long-run optimists would have you believe that the fluctuations, uncertainty, and risk become minimal once you get out to a holding period of maybe 20, likely 30, and surely 40 years, or something like that. I don't know if I buy that but it's a reasonable ballpark. The proposition that if you invest in stocks and hold patiently for thirty or forty years, sooner or later your ship will come in, seems like a pretty good one, even if there is still significant risk over that time period.

And the long-term real return is meaningful. Even if you don't believe "Siegel's constant," 6-7% real, and even if you look globally instead of just at the best-performing stock market ot he last century, still, 4-5% real.

If you look at the actual record of a) gold, and b) real estate as represented by the Herengracht data, what you see is that the holding period need for them to become "predictable" is much much more than 20-30 years... and the long-term real return is zero. More risk, longer holding periods needed to mitigate the risk, and lower return.

Look at the trend from 1830 to 1980, for example. That's 150 years of generally down. Within it are ups and downs, big enough to be quite rewarding OR quite impoverishing depending on your timing.

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Re: Do Bogleheads invest in physical gold?

Post by chaz »

Kielke wrote:Why would I want to invest in a shiny near useless metal?

(If you do not get the humor, then let me just state that it is a clear NO!)
I totally agree!
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Re: Do Bogleheads invest in physical gold?

Post by columbia »

I've always viewed it as the pyrite of responsible investing. :wink:
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Re: Do Bogleheads invest in physical gold?

Post by umfundi »

Thanks to Nisiprius for the graph:
Image
I was interested to read (in a history of South Africa) that the so-called world "gold standard" existed for only about fifty years, from the 1880s to about the 1930s. Also, the discovery of gold in South Africa in 1886 seems not to have affected the price. Maybe the decline from 1900 to WW1 is a result of increasing South African production?

Anyway, given the short tenure of the gold standard, I think the gold bugs have mythified the role and importance of gold during the first part of the last century. (And since, for that matter.)

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Re: Do Bogleheads invest in physical gold?

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umfundi wrote:
John3754 wrote:
Sbashore wrote:In my opinion, movement in precious metals prices is completely random.
And movement in stock and bond prices are predictable?
I think the point is, more precisely, that there is no theory to explain the prices and their changes. Inflation is low. Why has gold dropped 24% in the last year? If it tracked inflation it should be up about 2%, right?

For equities and bonds you can create a theory that explains their expected returns over time.

Keith
Actually no because like any investment it would be forward looking and probably was anticipating some semi-hyperinflation scenario from QE infinity and is now adjusting. Some view gold as a currency free of government policy manipulation, personally I see it as the divesifier against institutional instablility. It is strange how you took a gold pricing case that was short term then qualified stocks and bonds over a long term. I don't know if gold is a good investment or not or if people should hold some in their portfolios or not but honestily I think what causes large moves isn't as mysterious as some want to make it out to be. Anyone care to predict what would happen to the price of gold if we have another banking crisis or governmental debt crisis?
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Re: Do Bogleheads invest in physical gold?

Post by TheTimeLord »

umfundi wrote:
Thanks to Nisiprius for the graph:
Image
I was interested to read (in a history of South Africa) that the so-called world "gold standard" existed for only about fifty years, from the 1880s to about the 1930s. Also, the discovery of gold in South Africa in 1886 seems not to have affected the price. Maybe the decline from 1900 to WW1 is a result of increasing South African production?

Anyway, given the short tenure of the gold standard, I think the gold bugs have mythified the role and importance of gold during the first part of the last century. (And since, for that matter.)

Keith
I think if you read any significant religious text you will find the value of gold to be more deeply rooted in the human experience than 50 years. Having said that how gold's value is derived is definitely and interesting and complicated subject. Personally I wouldn't argue with the premise is it primarily a worthless metal with a couple very unique properties. But then again when I sell a stock it is because I believe I am getting more for it than what it is worth. To some extent the truth is something is worth whatever someone will pay for it no more and no less and that value is subject to change with the passage of time.
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Re: Do Bogleheads invest in physical gold?

Post by umfundi »

StarbuxInvestor wrote:I think if you read any significant religious text you will find the value of gold to be more deeply rooted in the human experience than 50 years.
That was not my point. It was that the use of gold by governments to back their (paper) currencies and economic policies was a short-lived thing.

A gold coin is a gold coin.

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Re: Do Bogleheads invest in physical gold?

Post by nisiprius »

umfundi wrote:I was interested to read (in a history of South Africa) that the so-called world "gold standard" existed for only about fifty years, from the 1880s to about the 1930s. Also, the discovery of gold in South Africa in 1886 seems not to have affected the price. Maybe the decline from 1900 to WW1 is a result of increasing South African production?

Anyway, given the short tenure of the gold standard, I think the gold bugs have mythified the role and importance of gold during the first part of the last century. (And since, for that matter.)

Keith
That's very interesting--love to have the reference to the gold standard only existing for fifty years, if you happen to run across it. I am certain that gold bugs exaggerate the ubiquity and universality of gold both in space and in time. It would be silly to ignore the obvious--King Midas and the Golden Touch were mentioned in Aristotle, showing that gold has been emblematic of wealth for a long time. It would be equally silly to ignore the fact that the age of discovery was triggered by the search for spices, not gold; that pepper was the medium of exchange when Genoa and Venice were mercantile empires; that "salary" is a reference to salt, not gold; and that the Wise Men brought, yes, gold, but also myrrh and frankincense.

The gold bugs can talk about the universality and timelessness of gold and it tends to slide past our BS detectors because of our childhood reading of fairy tales, which teach us not only that precious metals are precious, but their relative value--the dog with eyes as big as teacups guards the copper, the dog with eyes as big as mill-wheels guards the silver, and the dog with eyes as big as the Round Tower guards the gold.

I think the use of gold in coinage was partially an anti-counterfeiting measure, although the milled edges indicate the material itself had value. But just because gold coin is made of precious metal does not mean it cannot be fiat money. Reinhart and Rogoff relate that
[In the fourth century B. C.] Dionysus of Syracuse, who had borrowed from his subjects in the form of promissory notes, issued a decree that all money in circulation was to be turned over to the government, with those refusing subject to the pain of death. After he collected all the coins, he stamped each one-drachma coin with a two-drachma mark and used the proceeds to pay off his debt.
It would be interesting to see some objective measure of the degree to which gold had a special status different from that of other compact materials that were widely accepted as valuable.
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Re: Do Bogleheads invest in physical gold?

Post by nedsaid »

Taking one drachma coins and restamping them as two drachma coins is the classic devaluation of currency to pay off debts. In modern days, governments do that through inflation.

On a gold standard, the government could just arbitrarily change the statutory relationship of dollars to gold just as Dionysus did with the drachma coins. I have never been a big advocate of the gold standard for this reason. It is just another form of fiat money. Yes, money is backed by physical gold but the government can change the gold price in dollars any time it wants.

So I am not a gold bug. As portfolio insurance, gold might have value as a diversifier. I have thought about it, but have not bitten.
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Re: Do Bogleheads invest in physical gold?

Post by umfundi »

nisiprius wrote:
umfundi wrote:I was interested to read (in a history of South Africa) that the so-called world "gold standard" existed for only about fifty years, from the 1880s to about the 1930s. Also, the discovery of gold in South Africa in 1886 seems not to have affected the price. Maybe the decline from 1900 to WW1 is a result of increasing South African production?

Anyway, given the short tenure of the gold standard, I think the gold bugs have mythified the role and importance of gold during the first part of the last century. (And since, for that matter.)

Keith
That's very interesting--love to have the reference to the gold standard only existing for fifty years, if you happen to run across it. I am certain that gold bugs exaggerate the ubiquity and universality of gold both in space and in time. It would be silly to ignore the obvious--King Midas and the Golden Touch were mentioned in Aristotle, showing that gold has been emblematic of wealth for a long time. It would be equally silly to ignore the fact that the age of discovery was triggered by the search for spices, not gold; that pepper was the medium of exchange when Genoa and Venice were mercantile empires; that "salary" is a reference to salt, not gold; and that the Wise Men brought, yes, gold, but also myrrh and frankincense.

The gold bugs can talk about the universality and timelessness of gold and it tends to slide past our BS detectors because of our childhood reading of fairy tales, which teach us not only that precious metals are precious, but their relative value--the dog with eyes as big as teacups guards the copper, the dog with eyes as big as mill-wheels guards the silver, and the dog with eyes as big as the Round Tower guards the gold.

I think the use of gold in coinage was partially an anti-counterfeiting measure, although the milled edges indicate the material itself had value. But just because gold coin is made of precious metal does not mean it cannot be fiat money. Reinhart and Rogoff relate that
[In the fourth century B. C.] Dionysus of Syracuse, who had borrowed from his subjects in the form of promissory notes, issued a decree that all money in circulation was to be turned over to the government, with those refusing subject to the pain of death. After he collected all the coins, he stamped each one-drachma coin with a two-drachma mark and used the proceeds to pay off his debt.
It would be interesting to see some objective measure of the degree to which gold had a special status different from that of other compact materials that were widely accepted as valuable.
Nisiprius,

I was reading, "The Afrikaners, biography of a people" by Hermann Giliomee. All 698 pages of it. I'll have to hunt for chapter and verse.

Then, I was struck by this comment by Bobcat2 in my lamented thread on deflation (my bold):
Nobel laureate economist Milton Friedman blamed this prolonged economic crisis on the imposition of a new gold standard, part of which he referred to by its traditional name, The Crime of 1873. This forced shift into a currency whose supply was limited by nature, unable to expand with demand, caused a series of economic and monetary contractions that plagued the entire period of the Long Depression. In other words the inflexibility of the gold standard led to deflation and instability.
http://www.bogleheads.org/forum/viewtop ... 6#p1799376

Then, I went to Wikipedia with a jaundiced eye:

http://en.wikipedia.org/wiki/Gold_standard

My reading of this is that the gold standard as a matter of government monetary policy was a phenomenon of the last half of the 19th century. And it lasted until 1930 or so? And, it was variable by country.

I think "mythification" is the correct word. Yes, a coin is a coin and gold has intrinsic value, but much that you hear about the evils of Roosevelt and Nixon abandoning gold as a tenet of government financial responsibility is, well ...

Now, to my 698-page haystack.

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Re: Do Bogleheads invest in physical gold?

Post by chaz »

DW likes her gold jewelry. I like my gold Omega.
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Re: Do Bogleheads invest in physical gold?

Post by nisiprius »

umfundi wrote:
Nobel laureate economist Milton Friedman blamed this prolonged economic crisis on the imposition of a new gold standard, part of which he referred to by its traditional name, The Crime of 1873. This forced shift into a currency whose supply was limited by nature, unable to expand with demand, caused a series of economic and monetary contractions that plagued the entire period of the Long Depression. In other words the inflexibility of the gold standard led to deflation and instability.
No, no, you don't need to go into the haystack. "The Crime of 1873" is a good enough needle. Thanks for putting a puzzle piece into place for me. So, when William Jennings Bryan gave his "Cross of Gold" speech in 1896, he was in fact inveighing against a policy that was only a couple of decades old.

In fact, I now see that the gold needle is right there in that speech:
But if he means to say that we cannot change our monetary system without protecting those who have loaned money before the change was made, I want to ask him where, in law or in morals, he can find authority for not protecting the debtors when the act of 1873 was passed when he now insists that we must protect the creditor.
It was all blah blah blah to me when I read it in high school... it's still mostly blah blah blah to me now... although somewhere along the line I figured out that he was advocating for inflation.
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Re: Do Bogleheads invest in physical gold?

Post by SpringMan »

I have a 1927 gold quarter eagle given to me 62 years ago when I was 4 years old by a kind next door lady, a friend of my grandmother. Other than some gold jewelery that is the only gold we have. Also have some 90% silver coins as part of an old coin collection. I agree with Mr. Bogle, commodities are for speculation, not for investing.
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Re: Do Bogleheads invest in physical gold?

Post by umfundi »

nisiprius wrote:
umfundi wrote:
Nobel laureate economist Milton Friedman blamed this prolonged economic crisis on the imposition of a new gold standard, part of which he referred to by its traditional name, The Crime of 1873. This forced shift into a currency whose supply was limited by nature, unable to expand with demand, caused a series of economic and monetary contractions that plagued the entire period of the Long Depression. In other words the inflexibility of the gold standard led to deflation and instability.
No, no, you don't need to go into the haystack. "The Crime of 1873" is a good enough needle. Thanks for putting a puzzle piece into place for me. So, when William Jennings Bryan gave his "Cross of Gold" speech in 1896, he was in fact inveighing against a policy that was only a couple of decades old.

In fact, I now see that the gold needle is right there in that speech:
But if he means to say that we cannot change our monetary system without protecting those who have loaned money before the change was made, I want to ask him where, in law or in morals, he can find authority for not protecting the debtors when the act of 1873 was passed when he now insists that we must protect the creditor.
It was all blah blah blah to me when I read it in high school... it's still mostly blah blah blah to me now... although somewhere along the line I figured out that he was advocating for inflation.
Nisiprius,

I think the rest of the world perspective is relevant:

Hermann Giliomee, "The Afrikaners", p.246.

Large quantities of gold were found in the Witwatersrand in 1886. In 1900 the South Afrivan (Boer) War erupted, essentially a battle over the resources of the Transvaal. Giliomee says:
[a theory is] that control over the gold mines and trade with South Africa was a necessity in Britain's struggle for power with other European nations and the United States. What gave special impetus to their actions - so the argument runs - was the switch to gold in the monetary system of the industrialized nations, which made a steady and constant supply of gold to the Bank of England crucial.
Since the Boers and the mineowners were happy to send the gold to the Bank of England, this is disputed as a major cause of the war. My point is that it (late 1890s) was the switch to gold in the monetary system of the industrialized nations that first led me to realize that the days of gold as a government monetary standard (as fondly remembered by the gold bugs) were short-lived.

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Re: Do Bogleheads invest in physical gold?

Post by grog »

I think you could make a Boglehead case for owning the "market portfolio" in gold. (I remember the economist Greg Mankiw had a NYT article about gold investing not to long ago and he said this would be about a 2% allocation to gold). Of course, that is so small you might as well not bother.

I actually kind of like the idea of owning some gold, at least in theory. I even went and talked to a gold dealer not that long ago. A few things ended up turning me off. First, there is a bid-ask spread. If you buy gold and turn around and sell it immediately you will probably lose at least 1%. You will also see different prices at different dealers. If you order online you will have to pay for shipping and insurance also. Rebalancing your portfolio would be kind of a pain. Second, you have storage costs and/or storage risks (theft, etc.). Third, it has unfavorable tax treatment relative to stocks (collectible not capital gains rate). This also kills some of it's value as an inflation hedge. It seems gold doesn't score particularly well on the Boglehead principles of low costs and tax efficiency.
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Re: Do Bogleheads invest in physical gold?

Post by nisiprius »

grog wrote:... Second, you have storage costs and/or storage risks (theft, etc.)...
I think people overestimate the risk of theft, and underestimate the risk of simple loss. I enter in evidence:
umfundi wrote:I found a Krugerrand that I had forgotten I had, in amongst my Father's slide rules and other memorabilia I have.
It would be interesting to know just how many people do simply lose their gold. The horns of the dilemma are: if you tell anyone at all about it, you increase the risk of theft, but if you fail to tell anyone about it, you increase the risk of loss.
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Re: Do Bogleheads invest in physical gold?

Post by umfundi »

nisiprius wrote:
grog wrote:... Second, you have storage costs and/or storage risks (theft, etc.)...
I think people overestimate the risk of theft, and underestimate the risk of simple loss. I enter in evidence:
umfundi wrote:I found a Krugerrand that I had forgotten I had, in amongst my Father's slide rules and other memorabilia I have.
It would be interesting to know just how many people do simply lose their gold. The horns of the dilemma are: if you tell anyone at all about it, you increase the risk of theft, but if you fail to tell anyone about it, you increase the risk of loss.
Oh, I am now "evidence"?

Yes, dealing with physical gold seems very inefficient.

By the way, one of the slide rules is a Faber-Castell novo-duplex 2/83N. It has 20 scales on the rule, and 10 on the slide. I recall techniques that involved inverting or reversing the slide. Anyway, it is the epitome of slide rule design: I bought it the year after the first Hewlett-Packard scientific calculator was introduced, possibly 1970.

http://www.stefanv.com/calculators/fc283n.html

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Re: Do Bogleheads invest in physical gold?

Post by Atilla »

I stockpile liquor and ammunition. Can't get myself to buy gold.
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InvestorNewb
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Re: Do Bogleheads invest in physical gold?

Post by InvestorNewb »

I like dividends. Gold doesn't pay dividends.
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JoMoney
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Re: Do Bogleheads invest in physical gold?

Post by JoMoney »

grog wrote:... there is a bid-ask spread. If you buy gold and turn around and sell it immediately you will probably lose at least 1%. You will also see different prices at different dealers. If you order online you will have to pay for shipping and insurance also...
I know you said "at least", but I think it would be a lot more than 1%. I recall trying to sell some gold jewelry several years ago, after shopping it around a bit, I wound up selling it to a jeweler as scrap for well below the gold spot/trading price at the time.
There is a lot of ways to get cheated in physical gold if you don't know what you're looking for and how to test it and grade the quality. There's no saying what price you'll be able to get if you want to sell it quickly.
Regardless, if I wanted to own gold, it would be the physical kind, and it would be in a form or fashion that I could get some use out of it and enjoy it - that would be my "dividend".
The only gold I currently own would be in a dental crown :annoyed and the plating on some audio/video/data cables.
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Re: Do Bogleheads invest in physical gold?

Post by joe8d »

I thought it was only the Fox News viewers that were buying gold :)
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Re: Do Bogleheads invest in physical gold?

Post by FatCat »

No. I don't plan to, either.
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Re: Do Bogleheads invest in physical gold?

Post by nisiprius »

umfundi wrote:[By the way, one of the slide rules is a Faber-Castell novo-duplex 2/83N. It has 20 scales on the rule, and 10 on the slide. I recall techniques that involved inverting or reversing the slide.
Wow... never heard of that.
Anyway, it is the epitome of slide rule design: I bought it the year after the first Hewlett-Packard scientific calculator was introduced, possibly 1970.

http://www.stefanv.com/calculators/fc283n.html

Keith
Alas, I no longer have my 12" Pickett and Eckel Aluminum Log-Log Duplex Decitrig, which, if not gold, was at least Eye-Ease Yellow. (Whatever happened to Eye-Ease? Some readability experts found that black text was more readable on a background of pale off-yellow or light-colored greenish-grey-snot-color, and the Children's DIgest I had a subscription to was printed on greenish-grey tinted paper...) When my son went off to engineering school, I gave it to him. He said "What am I supposed to do with this?" and I said "Pretend to accept it." And somehow it got lost... :)

I remember when the HP-35 came out. It cost $395, equivalent to about $2,400 today. I was a grad student on a stipend of $2600/year, but believe you me I was tempted. and I thought "Well, if I could be convinced this would never break, here for the first time is an object that I would be willing to give up my slide rule for."

I still have my trusty 6" Pickett and Eckel with, let me count them, 8 scales on each side, but alas it is no longer usable. I have to read a few more websites with cleaning suggestions. The slide is thoroughly bound up in the stock and so far no amount of cleaning, graphite, or talcum powder has restored it to good operation. Indeed, the "slide" always was the weak spot in the technology--it was very hard to keep it properly lubricated and tensioned so that you could slide it easily but it would then stay put while you moved the cursor. Maybe wooden slide rules were better. Furthermore, I don't know what has happened to the scales, but the surface is sticky and gritty to the touch and so far everything I've tried has either failed to remove the sticky-gritty coating, or has succeeded in removing the scale markings themselves.

It is always sad when really well-done, good technologies pass from the scene. There are some things that are just plain nice, and slide rules were among them. And, I don't know how to address the quality factor, but there was something in slide rules, good slide rules were better of their kind than modern calculators are. You have the feeling that slide rule designers really cared. I don't get that feeling about electronic calculators. Modern calculators are always just a little slipshod--there is always something confusing or irrational about the button layout or the behavior when calculating corner cases, and the on-screen software versions (e.g. for Windows, Mac, or Android) are just as bad, often worse. I have the feeling that nobody involved in manufacturing calculators actually uses them, in any sustained serious way, or that they talk to people that do. They are just not refined.

All of TI's calculators work differently. I once wanted to take a standardized test for prospective teachers, and the directions said that examinees could not bring their own calculators and "would be provided with TI-34 calculators"--I think it was TI-34--some specific model was spelled out. I wanted to be sure I wasn't going to waste time trying to figure out an unfamiliar calculator, so I went off to Staples to buy one. It was, of course, an obsolete model, so I bought the closest model number I could, you know, a TI-34xII or a TI-34E+ or something, and practiced with it at home. When I got to the exam, I found out that not only were there differences in the button layout and screen (multiline versus single line), but in fact they worked completely differently, different order of operation entry, difference precedence, different way of carrying the result of the last calculation into the next....
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Re: Do Bogleheads invest in physical gold?

Post by columbia »

I feel like I know the answer, but it appears that gold speculation is based on certain ideologies and good old fashioned fear; which - to me - doesn't seem like a strong foundation for long term investing.
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Re: Do Bogleheads invest in physical gold?

Post by leonidas »

I have 5% of my portfolio in physical metals. Closer to 7% if you include SGOL. 90% of my portfolio is indexed. I first invested in gold in 1999 and rebalanced thru the 00's as gold went up 500%. There are very valid points made on this board from the pro and anti gold camps. I find that gold provides some diversification benefits and seems to react positivily(mostly) in a negative real rate environment. Even if wrong, 5-7% won't ruin my plans.
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Re: Do Bogleheads invest in physical gold?

Post by Quasimodo »

StarbuxInvestor wrote:Do Bogleheads ever invest in physical gold for diversification?
Speaking personally, yes.

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Re: Do Bogleheads invest in physical gold?

Post by zaboomafoozarg »

baw703916 wrote:I have five gold bars buried in my backyard ten paces north of the magnolia tree.
... I'll be right over.
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Re: Do Bogleheads invest in physical gold?

Post by Sbashore »

cflannagan wrote:
John3754 wrote:
Sbashore wrote:In my opinion, movement in precious metals prices is completely random.
And movement in stock and bond prices are predictable?
He did say "in his opinion".

I am the same way - I can understand (usually) "why" stocks and bonds move the general way they do over longer terms.

Precious metals, on the other hand, I don't understand why they move the way they do. And I don't feel comfortable investing into something I do not understand as well as stocks and bonds.
Well said (better than me :happy ). Yes in my opinion I cannot make any informed decision where precious metals prices are headed. There is no "cause and effect" that I can detect. Also in my opinion, I believe that stock and bond prices are not predictable IN THE SHORT TERM. Over my investing lifetime, I expect that stocks and bonds will provide an investment return, and so far they have. They pretty much behave the way I expect them to, (not to be confused with how I'd prefer them to).
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Re: Do Bogleheads invest in physical gold?

Post by sometimesinvestor »

Some believe its a bit of an insurance policy against bad things.If you can afford it consider 5 to 20 1/2 oz American Eagle Coins. In a bad world someone might take them off your hands for food or medicine or a gun. If you have that in mind fine but don't think of it as an investment. A minor to major problem with GLD is that the person on the other end of the trade may know more than you.
We are now seeming to go into a situation where interest rates are going up.This is not generally good for assets that don't pay interest. Market timing is discouraged on this site but you could consider Dollar Cost averaging by buying a coin/per month or per quarter or per year
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Re: Do Bogleheads invest in physical gold?

Post by sschullo »

cflannagan wrote:
StarbuxInvestor wrote:Do Bogleheads ever invest in physical gold for diversification?
I consider myself a Boglehead and no, I don't see the need to make things more complicated by investing into physical gold.
+1
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Re: Do Bogleheads invest in physical gold?

Post by stemikger »

StarbuxInvestor wrote:Do Bogleheads ever invest in physical gold for diversification?
No, gold is a nonproductive asset because it doesn't produce anything of value.

I am a true Boglehead and invest 100% in index funds and split them between stocks and bonds. Why complicate things?
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Re: Do Bogleheads invest in physical gold?

Post by LH »

nedsaid wrote:As an investor, I look for at least three things. One is that I want to buy cash flows represented either by stocks or bonds. Second, I want to beat inflation. Over time, stocks and bonds have given real returns over time. Third, I want to own asset classes that don't correlate with each other. Gold fails on one and two. No cash flows and no real returns over inflation. Gold is a non-correlating asset to stocks so it might have a benefit of possibly reducing volatility in a portfolio.

But I feel that if an investor is willing to wait things out, volatility takes care of itself. Insurance to reduce portfolio volatility tends to be over time only a drag on performance. More damage is done by investors trying to protect themselves against market volatility than market volatility itself. We all want our investments to go up in predictable, straight line fashion but that is not real life.

A brilliant point was brought up that asset classes often do not act the way they are supposed to. Or asset classes correlate at the time you don't want them to (that is on the way down). So investors need to learn to accept volatility in their portfolios in exchange for the higher returns.
Those are all admirable, and within the time frame I have experienced, as a 44 year old, in the US, are all that have been needed

Now, if one ventures out in history, in US, or in other countries, there are other risks.

US confederate notes, 1930s when one could not withdrawal from bank, and in even 2007, talk of atms/banks potentially failing to be able to distribute case.

Take argentenia currently. I have read they are investing in foreign automobiles as a store of value.
Currency is tanking. Official inflation rates, their version of our cpi-u, are simply very very false, reportedly some legal difficulties arise now even questioning the official rate there possibly.
Take cyprus, how would you like to have your money in a cyprus bank.

Ok, so those are 2nd world, third world countries? Or however one wants to discount it??? (note I am not saying they are, just accounting for a potential objection)

Well, lets look at an undeniable first world country. Germany. US won the big wars, germany lost. Look at the german experience. It is a main line, highly developed country for the past 100 years. Line up your criteria in Germany, over the past 100 years, read when money fails, read ann frank. Think of Weimar, think of east berlin, etc. think of all those states.....

Gold mitigates risk in those states. It mitigates German experience, it mitigates Argentina now. sometimes things do not work. There is counterparty risk. There is currency devaluation. There is significant inflation.

1000 year Reich, right? Roaring 20s, no problemo, right?

Wrong.

I thought like you myself, then I read more and more history. financial and otherwise. Decline and Fall of Roman empire, herotodus Histories, ancient greece, etc, classics. Then the diary of the great depression, when money fails, read books magazines from 1933s, and 1980s in US.

Its an interesting reality.

The on thing that strikes me reading history is:

No one has a clue of what is coming, but they are all pretty confident things will continue as they are.

Diversification should include German experience at minimum I would posit in ones thought process, if one has something significant saved.

Now for average person, yeah, tear up the credit cards, get out of debt, and save something........ Yeah, they do not need gold, they simply need some assets of any type. Really getting to the above quoted thought process, is nirvana really, one which few will obtain, and will hopefully work fine in our financial lifetimes.

But it may not, thats a pretty big next step to take.

While nothing is perfect, and yeah gold can be confiscated, I will leave you with the thought of a 40 year old US investor, sipping champagne, in 1929.

All is well.
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Re: Do Bogleheads invest in physical gold?

Post by nimo956 »

Gold is a form of money, and thus it competes with fiat currencies, like the USD. When there are problems (or perceived problems) with the USD, people will flock to gold and its value will rise, sometimes dramatically. Gold has a history of providing this protection, whereas stocks and bonds do not. Therefore, it is prudent for investors to hold at least some gold in their portfolio.
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