Gold

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.

Gold

Postby Investing is boring » Thu May 16, 2013 2:52 pm

For the last couple of years, gold has consistently been debated on this forum. The vast majority of the posts were against using gold in a portfolio (except the PP folk), but there were a few aggressive "gold bugs" standing their ground. Where are they today? I didnt think people on this forum were such trend chasers...

In any case, what is the historical mean price for gold in 2013? If we are reverting to the mean, I would love to know how much more downside there is.
Investing is boring
 
Posts: 237
Joined: Tue Apr 09, 2013 12:55 pm

Re: Gold

Postby rmelvey » Thu May 16, 2013 2:57 pm

Well, I am not really a "gold bug" because I am neither bullish nor bearish I just use it for diversification purposes. I do plan on rebalancing if it keeps dropping, becoming too small a part of my portfolio. The drop has coincided with a large stock market rally, so the diversification argument has not really been hurt in my mind. When you are truly diversified, one of your assets (you never know which one in advance) will be dropping or performing below average.
User avatar
rmelvey
 
Posts: 403
Joined: Sat Sep 18, 2010 6:17 pm

Re: Gold

Postby donaldfair71 » Thu May 16, 2013 3:02 pm

I mean, I don't consider myself a Gold Bug, or a Trend Chaser, or a PP advocate for that matter. But I do like to keep a 5% allocation in gold and silver bullion if that counts.

Where is the bottom? I don't know, and I haven't really though about it. I worry about the bottom in gold about as much as I worry about the bottom (or top) in VTI, VINIX, VBTIX, VNQ, and VXUS. Rick Ferri suggested that the mean will revert to about the inflation-adjusted historical price of $850. I would say his guess is as good as any.
donaldfair71
 
Posts: 109
Joined: Wed Mar 06, 2013 5:15 pm

Re: Gold

Postby technovelist » Thu May 16, 2013 3:11 pm

I'm not sure of the definition of "gold bug", but I do keep a significant proportion of my assets in gold. I'm not too concerned about this drop, as I expect the price to continue its decade-long rise as soon as all of the weak hands have been shaken out. None of the reasons for that rise have gone away; in fact, they have intensified.
In theory, theory and practice are identical. In practice, they often differ.
technovelist
 
Posts: 1070
Joined: Wed Dec 30, 2009 10:02 pm

Re: Gold

Postby TO39 » Thu May 16, 2013 3:43 pm

technovelist wrote:I'm not sure of the definition of "gold bug", but I do keep a significant proportion of my assets in gold. I'm not too concerned about this drop, as I expect the price to continue its decade-long rise as soon as all of the weak hands have been shaken out. None of the reasons for that rise have gone away; in fact, they have intensified.



Not too significant a portion I hope
TO39
 
Posts: 191
Joined: Fri Mar 14, 2008 11:01 am

Re: Gold

Postby technovelist » Thu May 16, 2013 3:48 pm

TO39 wrote:
technovelist wrote:I'm not sure of the definition of "gold bug", but I do keep a significant proportion of my assets in gold. I'm not too concerned about this drop, as I expect the price to continue its decade-long rise as soon as all of the weak hands have been shaken out. None of the reasons for that rise have gone away; in fact, they have intensified.



Not too significant a portion I hope


About 70%.
My average cost basis is about $500/oz.
Last edited by technovelist on Thu May 16, 2013 3:49 pm, edited 1 time in total.
In theory, theory and practice are identical. In practice, they often differ.
technovelist
 
Posts: 1070
Joined: Wed Dec 30, 2009 10:02 pm

Re: Gold

Postby rmelvey » Thu May 16, 2013 3:49 pm

technovelist wrote:
TO39 wrote:
technovelist wrote:I'm not sure of the definition of "gold bug", but I do keep a significant proportion of my assets in gold. I'm not too concerned about this drop, as I expect the price to continue its decade-long rise as soon as all of the weak hands have been shaken out. None of the reasons for that rise have gone away; in fact, they have intensified.



Not too significant a portion I hope


About 70%.


Ouch.
User avatar
rmelvey
 
Posts: 403
Joined: Sat Sep 18, 2010 6:17 pm

Re: Gold

Postby mephistophles » Thu May 16, 2013 3:53 pm

Most things, including investment in gold, are not black and white.
User avatar
mephistophles
 
Posts: 2754
Joined: Tue Mar 27, 2007 3:34 am

Re: Gold

Postby technovelist » Thu May 16, 2013 4:04 pm

rmelvey wrote:
technovelist wrote:
TO39 wrote:
technovelist wrote:I'm not sure of the definition of "gold bug", but I do keep a significant proportion of my assets in gold. I'm not too concerned about this drop, as I expect the price to continue its decade-long rise as soon as all of the weak hands have been shaken out. None of the reasons for that rise have gone away; in fact, they have intensified.



Not too significant a portion I hope


About 70%.


Ouch.


This year hasn't been much fun so far, but then neither was much of 2008, which ended up all right.
In theory, theory and practice are identical. In practice, they often differ.
technovelist
 
Posts: 1070
Joined: Wed Dec 30, 2009 10:02 pm

Re: Gold

Postby Elbowman » Thu May 16, 2013 4:06 pm

technovelist wrote:I'm not too concerned about this drop, as I expect the price to continue its decade-long rise
If I held an asset class that had maintained abnormally high returns for the last decade, I would be concerned, not comforted. Mean reversion and all.
Elbowman
 
Posts: 281
Joined: Tue Apr 03, 2012 3:25 pm

Re: Gold

Postby Investing is boring » Thu May 16, 2013 4:21 pm

technovelist wrote:
TO39 wrote:
technovelist wrote:I'm not sure of the definition of "gold bug", but I do keep a significant proportion of my assets in gold. I'm not too concerned about this drop, as I expect the price to continue its decade-long rise as soon as all of the weak hands have been shaken out. None of the reasons for that rise have gone away; in fact, they have intensified.



Not too significant a portion I hope


About 70%.
My average cost basis is about $500/oz.


Hope isn't a strategy. You haven't made a single point that isn't in the news everyday, and therefor priced in. Good luck.
Investing is boring
 
Posts: 237
Joined: Tue Apr 09, 2013 12:55 pm

Re: Gold

Postby technovelist » Thu May 16, 2013 4:26 pm

Investing is boring wrote:
technovelist wrote:
TO39 wrote:
technovelist wrote:I'm not sure of the definition of "gold bug", but I do keep a significant proportion of my assets in gold. I'm not too concerned about this drop, as I expect the price to continue its decade-long rise as soon as all of the weak hands have been shaken out. None of the reasons for that rise have gone away; in fact, they have intensified.



Not too significant a portion I hope


About 70%.
My average cost basis is about $500/oz.


Hope isn't a strategy. You haven't made a single point that isn't in the news everyday, and therefor priced in. Good luck.


Thanks. Let me know when the average investor has a 10% allocation to gold, and then I'll reconsider.
In theory, theory and practice are identical. In practice, they often differ.
technovelist
 
Posts: 1070
Joined: Wed Dec 30, 2009 10:02 pm

Re: Gold

Postby donaldfair71 » Thu May 16, 2013 4:40 pm

Investing is boring wrote:
technovelist wrote:
TO39 wrote:
technovelist wrote:I'm not sure of the definition of "gold bug", but I do keep a significant proportion of my assets in gold. I'm not too concerned about this drop, as I expect the price to continue its decade-long rise as soon as all of the weak hands have been shaken out. None of the reasons for that rise have gone away; in fact, they have intensified.



Not too significant a portion I hope


About 70%.
My average cost basis is about $500/oz.


Hope isn't a strategy. You haven't made a single point that isn't in the news everyday, and therefor priced in. Good luck.


Don't see the gold-owner mentioning anything about "hope" at all.
donaldfair71
 
Posts: 109
Joined: Wed Mar 06, 2013 5:15 pm

Re: Gold

Postby technovelist » Thu May 16, 2013 4:50 pm

donaldfair71 wrote:
Investing is boring wrote:
technovelist wrote:
TO39 wrote:
technovelist wrote:I'm not sure of the definition of "gold bug", but I do keep a significant proportion of my assets in gold. I'm not too concerned about this drop, as I expect the price to continue its decade-long rise as soon as all of the weak hands have been shaken out. None of the reasons for that rise have gone away; in fact, they have intensified.



Not too significant a portion I hope


About 70%.
My average cost basis is about $500/oz.


Hope isn't a strategy. You haven't made a single point that isn't in the news everyday, and therefor priced in. Good luck.


Don't see the gold-owner mentioning anything about "hope" at all.


Thanks. I have noticed that there seems to be an irrationally negative tone toward the notion of gold as an investment here, and not just because of my high allocation. The thread on 100% stock allocation seems more reasoned, and that's a pretty extreme choice as well.
In theory, theory and practice are identical. In practice, they often differ.
technovelist
 
Posts: 1070
Joined: Wed Dec 30, 2009 10:02 pm

Re: Gold

Postby Ged » Thu May 16, 2013 5:08 pm

technovelist wrote:Thanks. I have noticed that there seems to be an irrationally negative tone toward the notion of gold as an investment here, and not just because of my high allocation. The thread on 100% stock allocation seems more reasoned, and that's a pretty extreme choice as well.


Possibly because many of us have been exposed to gold investors who have fringe-y world-views. For example any time the price of gold goes down the investment blogs will be full of claims it's the result of a conspiracy between international bankers and central banks. Another one is the 'you must own physical gold' crowd - paper gold is a sham. The GLD ETF doesn't actually have anything like the reserves claimed. I'm also sure we've all seen the claims that the stated US Treasury gold reserve amounts are a complete lie.

Whatever the merits of gold are (and I think if you have above some asset level it makes sense to own gold) these viewpoints turn people off.
Lack of planning on your part does not constitute an emergency on my part.
User avatar
Ged
 
Posts: 1857
Joined: Mon May 13, 2013 2:48 pm
Location: Roke

Re: Gold

Postby technovelist » Thu May 16, 2013 5:18 pm

Ged wrote:
technovelist wrote:Thanks. I have noticed that there seems to be an irrationally negative tone toward the notion of gold as an investment here, and not just because of my high allocation. The thread on 100% stock allocation seems more reasoned, and that's a pretty extreme choice as well.


Possibly because many of us have been exposed to gold investors who have fringe-y world-views. For example any time the price of gold goes down the investment blogs will be full of claims it's the result of a conspiracy between international bankers and central banks. Another one is the 'you must own physical gold' crowd - paper gold is a sham. The GLD ETF doesn't actually have anything like the reserves claimed. I'm also sure we've all seen the claims that the stated US Treasury gold reserve amounts are a complete lie.

Whatever the merits of gold are (and I think if you have above some asset level it makes sense to own gold) these viewpoints turn people off.


Have you read the GLD ETF's prospectus? I have, and you could drive an armored truck through the loopholes they have written into it to protect them if the gold turned up missing.

As for the US Treasury reserves, when was the last time they were audited? Of course the government would NEVER lie to us about anything important!

None of which has anything to do with the investment performance of gold over the last decade...
Last edited by technovelist on Thu May 16, 2013 5:25 pm, edited 1 time in total.
In theory, theory and practice are identical. In practice, they often differ.
technovelist
 
Posts: 1070
Joined: Wed Dec 30, 2009 10:02 pm

Re: Gold

Postby danwhite77 » Thu May 16, 2013 5:19 pm

As a 100% equities investor, I'll chime in. I think what turns many equity investors off to a gold dominated portfolio is the seemingly arbitrary nature of the choice of gold. Certainly, gold has been a store of value of thousands of years, longer than any civilization has lasted in its present form, so that makes it unique. However, there's no inherent industrial or practical application for gold (as there is for, say, oil or even platinum) so the value of gold is reliant on investors' opinion of gold's value alone. There's no other gauge of gold's value, it's whatever the next guy is willing to pay. Nothing more, nothing less.

With 100% equities, I'm invested (in very small increments) in businesses all over the world that provide goods and services and, in exchange, are paid money. If every investor in the world suddenly decided that all stocks should go to zero, I'm fine with that (and I'll buy everything for nothing!) so long as the underlying businesses are operating as normal. Eventually, the money the businesses are paid for their goods and services will flow through in the form of stock repurchases or dividends. Unlike gold, there is some return that will support the value of that equity, some money that will flow through the business to the investor (theoretically, anyway).

I think this is the difference that really polarizes people. And having said this, I certainly do not pass judgment on anyone 70% or 100% in gold. We all have to make our allocations and make peace with them. This is merely my take on why the gold investors and equity investors are sometimes diametrically opposed on this board and elsewhere. The investments are fundamentally very different.
"While some mutual fund founders chose to make billions, he chose to make a difference." - Dedication to Jack Bogle in 'The Bogleheads' Guide to Investing'.
User avatar
danwhite77
 
Posts: 285
Joined: Thu Mar 08, 2012 10:21 am

Re: Gold

Postby technovelist » Thu May 16, 2013 5:32 pm

danwhite77 wrote:As a 100% equities investor, I'll chime in. I think what turns many equity investors off to a gold dominated portfolio is the seemingly arbitrary nature of the choice of gold. Certainly, gold has been a store of value of thousands of years, longer than any civilization has lasted in its present form, so that makes it unique. However, there's no inherent industrial or practical application for gold (as there is for, say, oil or even platinum) so the value of gold is reliant on investors' opinion of gold's value alone. There's no other gauge of gold's value, it's whatever the next guy is willing to pay. Nothing more, nothing less.

With 100% equities, I'm invested (in very small increments) in businesses all over the world that provide goods and services and, in exchange, are paid money. If every investor in the world suddenly decided that all stocks should go to zero, I'm fine with that (and I'll buy everything for nothing!) so long as the underlying businesses are operating as normal. Eventually, the money the businesses are paid for their goods and services will flow through in the form of stock repurchases or dividends. Unlike gold, there is some return that will support the value of that equity, some money that will flow through the business to the investor (theoretically, anyway).

I think this is the difference that really polarizes people. And having said this, I certainly do not pass judgment on anyone 70% or 100% in gold. We all have to make our allocations and make peace with them. This is merely my take on why the gold investors and equity investors are sometimes diametrically opposed on this board and elsewhere. The investments are fundamentally very different.


Thanks for the reasoned response. I also do not pass judgment on those with different allocations. We each have to go with what lets us sleep at night, and we all have different goals and concerns...
In theory, theory and practice are identical. In practice, they often differ.
technovelist
 
Posts: 1070
Joined: Wed Dec 30, 2009 10:02 pm

Re: Gold

Postby rmelvey » Thu May 16, 2013 5:39 pm

Gold is really not that arbitrary of a commodity to hoard. It is by far the easiest commodity to hoard because it lasts forever and is rare which means it usually has a high value relative to the weight. Can you imagine shoving barrels of oil into a safety deposit box? It wouldn't work. CCF are ofcourse another option, but they are exactly a "real asset" they are a financial contract.
User avatar
rmelvey
 
Posts: 403
Joined: Sat Sep 18, 2010 6:17 pm

Re: Gold

Postby Ged » Thu May 16, 2013 5:50 pm

technovelist wrote:Have you read the GLD ETF's prospectus? I have, and you could drive an armored truck through the loopholes they have written into it to protect them if the gold turned up missing.

As for the US Treasury reserves, when was the last time they were audited? Of course the government would NEVER lie to us about anything important!

None of which has anything to do with the investment performance of gold over the last decade...


The best projection of gold performance over time is that it will match inflation. One ounce of gold buys a nice suit today, and will continue to do so in the future. I need better performance than that.
Lack of planning on your part does not constitute an emergency on my part.
User avatar
Ged
 
Posts: 1857
Joined: Mon May 13, 2013 2:48 pm
Location: Roke

Re: Gold

Postby Browser » Thu May 16, 2013 6:03 pm

The point of owning gold is to own an asset that as free of counterparty risk as possible, which stocks, bonds, and other financial instruments are not. So, to really benefit the most from the diversification and hedging potential of gold you should own it in physical form store it outside the reach of others, particularly governments. That said, I own gold in the form of a gold ETF. Buying gold bullion and burying it in the backyard, while being the best way to own it IMO, is a little too far out there for me. But I readily admit that isn't as effective.
If we have data, let’s look at data. If all we have are opinions, let’s go with mine. – Jim Barksdale
Browser
 
Posts: 2794
Joined: Wed Sep 05, 2012 5:54 pm

Re: Gold

Postby rmelvey » Thu May 16, 2013 6:10 pm

Browser wrote:The point of owning gold is to own an asset that as free of counterparty risk as possible, which stocks, bonds, and other financial instruments are not. So, to really benefit the most from the diversification and hedging potential of gold you should own it in physical form store it outside the reach of others, particularly governments. That said, I own gold in the form of a gold ETF. Buying gold bullion and burying it in the backyard, while being the best way to own it IMO, is a little too far out there for me. But I readily admit that isn't as effective.


Bank of America gives free safety deposit boxes if you have enough money with them. Not a bad way to go. I am also a fan of GTU because their prospectus is short and simple. Additionally, one can spread their ETF gold over many different ETFs, each one held in different geographic locations and with different institutions to help mitigate that counter-party risk. Whenever people ask me about which gold option is best I really think it's an "all of the above" approach.
User avatar
rmelvey
 
Posts: 403
Joined: Sat Sep 18, 2010 6:17 pm

Re: Gold

Postby Browser » Thu May 16, 2013 6:19 pm

But if you have your gold in a bank's safety deposit box it is within reach of the bank and the government, violating my premise that you should ideally hold it out of reach if that is possible. You may be aware of the following:

By Executive Order Of The President of The United States, March 9, 1933.
By virtue of the authority vested in me by Section 5 (b) of the Act of October 6, 1917, as amended by Section 2 of the Act of March 9, 1933, in which Congress declared that a serious emergency exists, I as President, do declare that the national emergency still exists; that the continued private hoarding of gold and silver by subjects of the United States poses a grave threat to the peace, equal justice, and well-being of the United States; and that appropriate measures must be taken immediately to protect the interests of our people.
Therefore, pursuant to the above authority, I hereby proclaim that such gold and silver holdings are prohibited, and that all such coin, bullion or other possessions of gold and silver be tendered within fourteen days to agents of the Government of the United States for compensation at the official price, in the legal tender of the Government.
All safe deposit boxes in banks or financial institutions have been sealed, pending action in the due course of the law. All sales or purchases or movements of such gold and silver within the borders of the United States and its territories and all foreign exchange transactions or movements of such metals across the border are hereby prohibited.
Your possession of these proscribed metals and/or your maintenance of a safe deposit box to store them is known by the government from bank and insurance records. Therefore, be advised that your vault box must remain sealed, and may only be opened in the presence of an agent of the Internal Revenue Service.
By lawful order given this day, the President of the United States.
Franklin Roosevelt—March 9, 1933
If we have data, let’s look at data. If all we have are opinions, let’s go with mine. – Jim Barksdale
Browser
 
Posts: 2794
Joined: Wed Sep 05, 2012 5:54 pm

Re: Gold

Postby rmelvey » Thu May 16, 2013 6:21 pm

Every option has its risks. I think just choosing one is less than ideal. You can do a little bit of all of the options and reduce your risk.
User avatar
rmelvey
 
Posts: 403
Joined: Sat Sep 18, 2010 6:17 pm

Re: Gold

Postby TO39 » Thu May 16, 2013 6:23 pm

technovelist wrote:
TO39 wrote:
technovelist wrote:I'm not sure of the definition of "gold bug", but I do keep a significant proportion of my assets in gold. I'm not too concerned about this drop, as I expect the price to continue its decade-long rise as soon as all of the weak hands have been shaken out. None of the reasons for that rise have gone away; in fact, they have intensified.



Not too significant a portion I hope


About 70%.
My average cost basis is about $500/oz.



I think I would lower that 70%
TO39
 
Posts: 191
Joined: Fri Mar 14, 2008 11:01 am

Re: Gold

Postby rr2 » Thu May 16, 2013 6:26 pm

technovelist wrote:
TO39 wrote:
technovelist wrote:I'm not sure of the definition of "gold bug", but I do keep a significant proportion of my assets in gold. I'm not too concerned about this drop, as I expect the price to continue its decade-long rise as soon as all of the weak hands have been shaken out. None of the reasons for that rise have gone away; in fact, they have intensified.



Not too significant a portion I hope


About 70%.
My average cost basis is about $500/oz.

technovelist,
If you don't mind I have a couple of questions.

-- Are you in the accumulation phase?
-- Do you continue to buy Gold still to keep your allocation to 70%?
-- What does your remaining 30% contain?

Just curious... Thanks.
rr2
 
Posts: 978
Joined: Wed Nov 19, 2008 11:04 pm

Re: Gold

Postby technovelist » Thu May 16, 2013 6:48 pm

rr2 wrote:
technovelist wrote:
TO39 wrote:
technovelist wrote:I'm not sure of the definition of "gold bug", but I do keep a significant proportion of my assets in gold. I'm not too concerned about this drop, as I expect the price to continue its decade-long rise as soon as all of the weak hands have been shaken out. None of the reasons for that rise have gone away; in fact, they have intensified.



Not too significant a portion I hope


About 70%.
My average cost basis is about $500/oz.

technovelist,
If you don't mind I have a couple of questions.

-- Are you in the accumulation phase?
-- Do you continue to buy Gold still to keep your allocation to 70%?
-- What does your remaining 30% contain?

Just curious... Thanks.


1. I'm technically still in the accumulation phase, but haven't added significantly to my investment holdings for the past several years. I'm sort of in a holding pattern until I have more clarity as to my life path down the road.

2. Whenever I have additional funds I generally buy Central Fund of Canada (CEF), which is sort of a mutual fund that holds almost exclusively physical gold and silver.

3. Most of the other 30% is a Swiss franc fixed annuity that has a guaranteed 2% interest rate. That was pretty laughable when I bought it a number of years ago, but now looks pretty good. I might add more to that but don't want to increase my counterparty risk by having too much of my money with one institution that might have trouble paying their guaranteed rate.
In theory, theory and practice are identical. In practice, they often differ.
technovelist
 
Posts: 1070
Joined: Wed Dec 30, 2009 10:02 pm

Re: Gold

Postby wesleymouch » Thu May 16, 2013 7:28 pm

i own gold as a hedge and have not sold it. If it falls outside my bands I will buy more. there is way to value gold. It usually trades at 16x the price of oil. At 10x the price it is cheap. At 20 x the price it is expensive. Therefore we can see that gold is fairly priced at todays level.
wesleymouch
 
Posts: 237
Joined: Wed Dec 05, 2012 3:24 pm

Re: Gold

Postby rr2 » Thu May 16, 2013 7:46 pm

[quote="technovelist"][/quote]

Thank you for the answers.
rr2
 
Posts: 978
Joined: Wed Nov 19, 2008 11:04 pm

Re: Gold

Postby donaldfair71 » Thu May 16, 2013 7:53 pm

Ged wrote:
technovelist wrote:Have you read the GLD ETF's prospectus? I have, and you could drive an armored truck through the loopholes they have written into it to protect them if the gold turned up missing.

As for the US Treasury reserves, when was the last time they were audited? Of course the government would NEVER lie to us about anything important!

None of which has anything to do with the investment performance of gold over the last decade...


The best projection of gold performance over time is that it will match inflation. One ounce of gold buys a nice suit today, and will continue to do so in the future. I need better performance than that.


This is one of the reasons I hold gold. Why I like Gold and Silver:

1. It does not correlate well to my other holdings (Domestic Index, Int. Index, REIT Index, Bond Index)
2. I hold relatively low % in fixed income for a 32 year old (15%), and gold/silver can (not does, but can) work as a wealth preserver should we see another 2008-like dive (which, as a 32 year old, I will see at least once more).
3. Some people choose to use a small % of their portfolios in speculative investments. I choose to use Gold because, at worst, over my next 30-40 years it will hold with inflation in my opinion. But there are also certain times (such as about 2001-2011) where it can go insane. It may drop and stay at $500 for a 20 year stretch (in which my inflation-pacing idea is incorrect) in my next 30 years, in which I will add to it. It may also bottom at $1000 and jump to $4000 in the next 10 years. I will sell some.

I put approximately 24% of my total income into stocks/bonds in my tax-advantaged accounts, and will only add to that as I grow older. I only put into gold what I understand could be EXTREMELY volatile for a long time, and sit collecting no income or growing at all. High opportunity cost? Probably. But it helps me sleep at night.
donaldfair71
 
Posts: 109
Joined: Wed Mar 06, 2013 5:15 pm

Re: Gold

Postby Browser » Thu May 16, 2013 7:56 pm

wesleymouch wrote:i own gold as a hedge and have not sold it. If it falls outside my bands I will buy more. there is way to value gold. It usually trades at 16x the price of oil. At 10x the price it is cheap. At 20 x the price it is expensive. Therefore we can see that gold is fairly priced at todays level.

I've invested in gold for at least the last 10 years. Before that, I thought it was goofy but I guess I changed my mind just in time for the big run up. After having studied it and thought about it for a great deal of time, I have to say that I'm of the opinion that there is no way to "value" gold in any fundamental sense. The price is mostly driven by sentiment -- you can see that there have been two multiyear periods during which the financial and economic factors became unglued and gold became an attractive alternative: 1972-1980 and 2002-2011. If any asset screams to be managed with a momentum strategy, it is gold. You would have done quite well, for example, using a moving average strategy which would have kept you in gold for most of the time since 2002. And you would have done quite well by getting out of gold when it crossed decisively below it's 200-day MA back in 2012. Rather than throwing good money after bad by continuing to "rebalance" by buying more gold, I'd consider staying out until if and when it crosses back above the 200-day MA. I personally haven't gotten out of gold, which I probably should have, but I don't plan to add to my holdings while it stays below the MA. I'll wait until the momentum shifts back to positive, if it does, before committing any more funds.
If we have data, let’s look at data. If all we have are opinions, let’s go with mine. – Jim Barksdale
Browser
 
Posts: 2794
Joined: Wed Sep 05, 2012 5:54 pm

Re: Gold

Postby rmelvey » Thu May 16, 2013 8:00 pm

Another thing to keep in mind is that gold is not that terribly expensive when priced in terms of other commodities. Comparing a raw commodity (gold) to a basket of finished goods and services that changes over time (CPI), is kind of an apples to oranges comparison. In terms of copper or oil, gold is not a crazy parabolic bubble.

If you want to make the argument that commodities in general are a bubble than that is totally different, but to isolate gold is missing the bigger picture.
User avatar
rmelvey
 
Posts: 403
Joined: Sat Sep 18, 2010 6:17 pm

Re: Gold

Postby momar » Thu May 16, 2013 8:50 pm

I don't own gold. If my house is robbed, someone might take it.

Instead I own and store fine bespoke suits, which don't need to be locked up and can be readily exchanged for 1 oz of gold at any time.
"Index funds have a place in your portfolio, but you'll never beat the index with them." - Words of wisdom from a Fidelity rep
User avatar
momar
 
Posts: 1359
Joined: Sun Nov 13, 2011 1:51 pm

Re: Gold

Postby Clive » Thu May 16, 2013 9:19 pm

but to isolate gold is missing the bigger picture

Indeed.

Compare for instance a third each in LTT, 2-year T and gold, with 100% 5-year T from 1974 - 2012 inclusive (i.e. ignoring the first couple of years when gold was in effect IPO'd and 'finding its level') and

8.3% annualised, 9.6% standard deviation for the three-way blend
8% annualised and 6.8% standard deviation for 5-year T.

Generally tracking each other somewhat closely, but with the three-way pulling ahead in the first third of years, lagging in the second third, and pulling ahead again in the last third.

At 16% gold, 42% in each of STT and LTT, the variance is much smaller.

Add 30% SCV, combine the STT/LTT into a 5-year-T bullet, and 30% SCV, 10% gold, 60% 5-year-T NON REBALANCED nigh on tracked a Coffee House portfolio since 1974 (rebalancing reduced the volatility further).

Just count gold as a undated zero coupon inflation bond and be done. Include or exclude it as you see fit and mIx it with other bonds as you deem to be appropriate. Stocks can also be measured from a bond-like perspective (undated variable coupon bond, with the yield = earnings yield).

If you're inclined to add to longer dated TIPS, then you might be prepared to extend out further ... into gold. If you're inclined to shorten down term, then you might want to reduce/sell gold.
Clive
 
Posts: 1086
Joined: Sat Jun 13, 2009 6:49 am

Re: Gold

Postby TO39 » Thu May 16, 2013 9:49 pm

Clive said

Compare for instance a third each in LTT, 2-year T and gold, with 100% 5-year T from 1974 - 2012 inclusive (i.e. ignoring the first couple of years when gold was in effect IPO'd and 'finding its level') and

This is ( I hope) what a morningstar growth chart looks like for his comparison . I could only go back to 1992

http://quote.morningstar.com/fund/chart ... %2C0%22%7D

I would like to see a chart going back longer

edited to add. I used CEF as a gold substitute
TO39
 
Posts: 191
Joined: Fri Mar 14, 2008 11:01 am

Re: Gold

Postby Imperabo » Thu May 16, 2013 9:55 pm

momar wrote:I don't own gold. If my house is robbed, someone might take it.

Instead I own and store fine bespoke suits, which don't need to be locked up and can be readily exchanged for 1 oz of gold at any time.


Ha! That almost justified the time I spent reading a gold thread.
User avatar
Imperabo
 
Posts: 1062
Joined: Fri Aug 29, 2008 2:00 am

Re: Gold

Postby TO39 » Thu May 16, 2013 9:56 pm

TO39
 
Posts: 191
Joined: Fri Mar 14, 2008 11:01 am

Re: Gold

Postby LH » Thu May 16, 2013 11:29 pm

I would posit:

To deal intellectually with any issue you have to strip out the content free talk

Gold bug
Barberous relic

Etc. in this case.

People who hold gold, are not bugs.

..... Etc. if gold is a barberous relic, fort knox should be sold, and emptied of the relic, and quit wasting money guarding it, I mean how stupid is that? Just sell it? Heh, don't hold your breath. Won't happen.


Ok enough blather about straw men and red herrings.


Gold has
1) volatility - a heck of a lot, like it will jump up 4-5 times in value(ditto fall 5 time vale) in 10 years or less even
2) good correlation

Put that behavior in a portfolio, buy and hold, rebalance.

It's a no brainer portfoliowise.

Now in isolation, it's nice to have in Iran, Cyprus, Argentina, etc. currently. Won't ever happen in us? Your guess is as good as mine.
User avatar
LH
 
Posts: 5488
Joined: Wed Mar 14, 2007 3:54 am

Re: Gold

Postby HenryPorter » Thu May 16, 2013 11:31 pm

Copper. Easy to get from banks in form of one cent coins. Can be acquired without any fanfare. Will hold face value and allows for speculation if copper goes up in price over the years or if the penny is halted in production permanently and becomes a collectible. I like precious metals too, but if they get to a floor on price, it will probably only happen when everybody swears them off for years. Owning them is easy we find. It is the knowing when to sell them that might be the trick.
HenryPorter
 
Posts: 129
Joined: Sat Dec 05, 2009 3:09 am

Re: Gold

Postby musbane » Fri May 17, 2013 12:03 am

Um, pennies aren't copper and haven't been for a long time...
musbane
 
Posts: 334
Joined: Sun Oct 26, 2008 12:14 pm

Re: Gold

Postby magician » Fri May 17, 2013 3:37 am

Elbowman wrote:
technovelist wrote:I'm not too concerned about this drop, as I expect the price to continue its decade-long rise
If I held an asset class that had maintained abnormally high returns for the last decade, I would be concerned, not comforted. Mean reversion and all.

Maybe the last decade is the start of the mean reversion, that gold returns have been below their true mean for a long time.

I trust that you're not suggesting that you know what the mean return is, are you? And that you know that the last decade's returns are above that level?
Simplify the complicated side; don't complify the simplicated side.
User avatar
magician
 
Posts: 1559
Joined: Mon May 02, 2011 2:08 am
Location: Yorba Linda, CA

Re: Gold

Postby LH » Fri May 17, 2013 4:30 am

I would expect gold to drop to around 800 Or less if economy does well, but I know my expectation doesn't mean anything
User avatar
LH
 
Posts: 5488
Joined: Wed Mar 14, 2007 3:54 am

Re: Gold

Postby Clive » Fri May 17, 2013 4:55 am

TO39 wrote:I would like to see a chart going back longer

Try this chart

Rule of thumb - change in price equals modified duration multiplied by change in yield.

Duration for a undated (and long dated) security (i.e. stocks and gold) is the inverse of the yield, which for stocks = PE. For short dated duration can be approximated to time to maturity.

If you assume gold has 0% longer term real yield then its nominal yield = % inflation, which might be targeted to be 2% (as per US, UK) = 50 duration (i.e. gold = volatile long dated inflation bond).

LTT's (conventional bonds) might average 5% yield = 20 duration, such that generally LTT's around 2.5 less volatile than gold. Assuming inflation bonds broadly = conventional bonds, and a STT/LTT barbell broadly similar to a bullet, then 70% TIPS, 30% gold broadly similar to a 5 year T fund (10 year T ladder). Of course expectations of future interest rates/inflation etc. may drive deviance of one or the other according to those expectations (longer term outlook) - present day valuations reflect the market wide consensus future expectations. As a broad average however, 20 stocks duration, 50 gold duration = 30% gold/70% stock ratio. 50-50 that with 5 year T bonds = 35% stocks, 15% gold, 50 5-year-T when based on SCV like volatility (less gold, more stock for TSM).

At the bottom of this page viewtopic.php?f=10&t=66790

Image

you get a feel for how adding gold to an otherwise all stock position can result in better risk adjusted rewards. But the efficient frontier isn't static, so that chart just reflects that particular time period. Over that time period around 50-50 stock/gold yielded the highest reward, as both of those achieved somewhat similar gains over that period. Over other periods that likely wouldn't be the case.

I would expect gold to drop to around 800 Or less if economy does well

With LTT conventional yields at around 0% real and a gold duration of 50, if LTT real yields rise to 2% real, then gold might halve and halve again from its $1800 highs - perhaps $450 (CPI time value adjusted). Stocks might gain 20% power 2 over the same period, so a 4x25 Permanent Portfolio with 25% in each might see the combined stock+gold 50 amount drop to 43. -7% portfolio decline less whatever the 50% bonds gain. The test being whether PP's might capitulate or not on seeing stocks +44%, PP barely breaking even over such a period. Had a PP'er rebalanced to reduce gold, add to stocks at around the $1800 gold high levels, then that might be more like a 15 gold, 35 stock allocation relative to initial amounts such that the reversal would be less painful, perhaps 50 having risen to 54 ( (35 stock x 1.44 ) + ( 0.15 gold x 0.25 ) = 54 ).

But all just a guess, a Euro/French crisis could change things overnight. I sold out of gold a couple of years back for around the current price. My speculative play at present is strengthening Japanese stocks, weakening Yen (via DXJ currency hedged Japanese stock ETF) as they print $75B/month. Japan was an outlier, with gold rising the least in Yen terms relative to other currencies - something they had to address. I've been holding that since early April when they announced their QE intent. Usually I'd 'sell in May..' for the summer break, but might keep this one going into June and beyond depending how well it continues to run (trailing 5% stop).
Clive
 
Posts: 1086
Joined: Sat Jun 13, 2009 6:49 am

Re: Gold

Postby wesleymouch » Fri May 17, 2013 9:27 am

I have developed a portfolio which i call the Wesley which consists of:
10% S&P/ 10% small cap value/ 10% EFA/ 15% gold / 50% 5 yr treasuries/ 5% cash
It has delivered a CAGR of 9.8 % from 1971 to 2012 with minimal drawdowns (40 of 42 years positive return and maximum loss of 3.9%.)
wesleymouch
 
Posts: 237
Joined: Wed Dec 05, 2012 3:24 pm

Re: Gold

Postby ofcmetz » Fri May 17, 2013 9:40 am

Very interesting thread. I understand those who own gold in specific amounts and rebalance back to their targeted asset percentage. I'll never understand owning 70% of of one's portfolio in a single commodity. This is just like betting most of your money on one stock or one piece of real estate

I suggest people read an old book called Panic on Wall Street: A history of America's Financial Disasters by Robert Sobel. This book chronicles the US financial disasters of 1792, 1837, 1857, 1865-1869, 1873, 1884, 1893-1895, 1901, 1907, 1914, 1929, and 1962. I only own precious metals in collectable coins, but I was fascinated by the role that gold played for good or bad in many of these disasters. This book can give serious gold investors a side by side history of gold and stock market speculation in the US.
Showing up at the donut shop at 5 am to get them hot out of the oil is an example of successful market timing.
User avatar
ofcmetz
 
Posts: 1738
Joined: Tue Feb 08, 2011 9:09 pm
Location: Louisiana

Re: Gold

Postby Clive » Fri May 17, 2013 10:06 am

The Behavior of Gold Under Deflation http://www.nowandfutures.com/d2/Behavio ... lation.pdf

Executive Summary

· Deflation is defined as falling levels of both economic activity and falling price levels on an absolute basis. The contraction of economic activity is generally preceded by an unsustainable boom period and is usually kicked off by an event which causes economic confidence to be lost. Deteriorating credit quality, the shift from capital growth to capital preservation, and the hoarding of capital are characteristics of most deflationary periods. Deflations typically end after crisis conditions force policymakers to enact large-scale inflationary policies designed to counteract deflationary conditions.

· In historic US deflations, individuals had the choice between paper currency or gold as hoarding
vehicles. The historical record demonstrates that loss of confidence in the issuer of paper currency is often a sufficient reason for individuals to choose gold over paper currency. We attach a detailed review of the behavior of gold under each US deflationary period since the Post-Jacksonian deflation of 1837-1843.

· In a prospective deflation, the existence of large foreign exchange reserves and a historic accumulation of financial assets means the magnitude of capital flowing to hoarding vehicles is large. With a limited pool of hoarding vehicles in today’s marketplace, prices of scarce hoarding vehicles would be bid up.

· Compared to widely available cash-substitutes, gold’s relative attractiveness boils down to relative credit quality. Competing against foreign currencies, the role of gold as a preferred hoarding vehicle will depend if deflation is limited to the US or spreads internationally. Under the global deflation scenario, foreign currencies would also be negatively impacted by deteriorating credit quality.

· Because of cultural conditioning, Americans may ignore gold as a currency alternative in the early
stages of deflation. Considering the importance of Asian investors to gold demand and the favorable cultural conditioning Asian cultures have towards gold, this may be a mistake. Asian investors may gravitate towards gold much earlier in a deflationary spiral, leaving American investors behind.
Clive
 
Posts: 1086
Joined: Sat Jun 13, 2009 6:49 am

Re: Gold

Postby 168gr » Fri May 17, 2013 11:49 am

Ged wrote:The best projection of gold performance over time is that it will match inflation. One ounce of gold buys a nice suit today, and will continue to do so in the future. I need better performance than that.

That's simply not true, even with some cursory fact checking. I don't know why people keep trotting out this suit vs gold fable.

I've bought more than a few quality suits in the last 20 years. An ounce of gold would have covered perhaps a third to half the cost during the 1990s.

What kind of 70s-style leisure "suits" were people buying for $300 in 1984? Are people who trade their Krugerrands for suits picking polyester one year and wool the next, or discount rack one year and custom tailored the next?
168gr
 
Posts: 42
Joined: Fri Nov 16, 2012 7:06 pm

Re: Gold

Postby Randomize » Fri May 17, 2013 11:59 am

Browser wrote:But if you have your gold in a bank's safety deposit box it is within reach of the bank and the government, violating my premise that you should ideally hold it out of reach if that is possible. You may be aware of the following:

By Executive Order Of The President of The United States, March 9, 1933.
By virtue of the authority vested in me by Section 5 (b) of the Act of October 6, 1917, as amended by Section 2 of the Act of March 9, 1933, in which Congress declared that a serious emergency exists, I as President, do declare that the national emergency still exists; that the continued private hoarding of gold and silver by subjects of the United States poses a grave threat to the peace, equal justice, and well-being of the United States; and that appropriate measures must be taken immediately to protect the interests of our people.
Therefore, pursuant to the above authority, I hereby proclaim that such gold and silver holdings are prohibited, and that all such coin, bullion or other possessions of gold and silver be tendered within fourteen days to agents of the Government of the United States for compensation at the official price, in the legal tender of the Government.
All safe deposit boxes in banks or financial institutions have been sealed, pending action in the due course of the law. All sales or purchases or movements of such gold and silver within the borders of the United States and its territories and all foreign exchange transactions or movements of such metals across the border are hereby prohibited.
Your possession of these proscribed metals and/or your maintenance of a safe deposit box to store them is known by the government from bank and insurance records. Therefore, be advised that your vault box must remain sealed, and may only be opened in the presence of an agent of the Internal Revenue Service.
By lawful order given this day, the President of the United States.
Franklin Roosevelt—March 9, 1933


In Roosevelt's defense, the gold hording was driving up the price of gold and, with the dollar pegged the gold standard, was thus driving up the value of the dollar. Keynes was shouting from the rooftops about sticky wages and deflation bringing down the economy so Roosevelt did what he needed to do to. They had tried changing the gold/dollar ratio in the past but frankly, all that did was validate and encourage the horders' behavior. Without the gold standard today, there's no *honest* reason that the government would ever repeat those actions.
Randomize
 
Posts: 210
Joined: Sun Aug 05, 2012 4:08 pm

Re: Gold

Postby wesleymouch » Fri May 17, 2013 12:19 pm

In the 1930s people held gold in safety deposit boxes. Today almost no Americans own gold. If the Govt wanted to confiscate gold they would take GLD, IAU, and other ETF gold not rummage through millions of safety deposit boxes to look for gold.
wesleymouch
 
Posts: 237
Joined: Wed Dec 05, 2012 3:24 pm

Re: Gold

Postby TO39 » Fri May 17, 2013 1:19 pm

Clive wrote:
TO39 wrote:I would like to see a chart going back longer

Try this chart

Thanks Clive, great chart
TO39
 
Posts: 191
Joined: Fri Mar 14, 2008 11:01 am

Next

Return to Investing - Theory, News & General

Who is online

Users browsing this forum: Applause, Bonhomie, feh, jstrazzere, Kalo, Taylor Larimore, uncertainty and 88 guests