Is there any reason a buy-and-hold investor would buy gold?

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jastevenson
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Is there any reason a buy-and-hold investor would buy gold?

Post by jastevenson » Sat Apr 15, 2017 2:27 pm

When you invest in a index fund, the premise is that you own a piece of a company. So long-term growth in the size and profit of a company results in a higher stock price when

Gold rises and falls in value, but the value seems to change based more on things like political climate and global security rather than something more tangible like profit growth (e.g., gold prices rises during a war).

So is there any reason for a long term investor to buy gold?

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David Jay
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by David Jay » Sat Apr 15, 2017 2:48 pm

Gold often moves differently than equity, so gold can reduce portfolio volatility. If you are not worried about volatility, you are correct that commodities are strictly speculative investments, commodities have no growth function like earnings and dividends.
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by itstoomuch » Sat Apr 15, 2017 2:52 pm

Yes, there is.
But from this point, the issue becomes political and deep economics.
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by heyyou » Sat Apr 15, 2017 3:43 pm

The best investments for you, are whatever will help you stay the course during the inevitable stock market crashes. Gold suits some for that reason, but not everyone, since gold does not do well most of the time. Taylor would say "There are many roads to Dublin."

My experience with gold is that I was too young for the boom years, and its price is noticeably susceptible to influence from the derivatives markets. Long term, my owning a few shares of ten thousand businesses has been good enough for early retirement. Yes, the grass always looks greener on the other side of the fence, but that is just my greed coloring my perceptions. I hope you find what suits you.

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by GLState » Sat Apr 15, 2017 3:51 pm

Yes there are reasons for long-term investors to buy gold. Search the forum for Permanent Portfolio for one point of view. Go to the Portfolio Visualizer website and create a 60/40 stock/bond portfolio and a 50,40,10 stock/bond/gold portfolio. You'll find that the addition of gold will give a bit better return, with less volatility, and smaller drawdowns (I used from 1972 till now for dates) .
Personally, I don't own gold. I don't understand what utility gold has to remain valuable in the future. Warren Buffett's thoughts on gold ownership resonate with me ... http://www.minyanville.com/trading-and- ... 2/id/44617

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by Ron » Sat Apr 15, 2017 4:40 pm

Sure there is; ring finger left hand.

Hopefully, it's a long term "investment" :P ...

- Ron

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by willthrill81 » Sat Apr 15, 2017 4:42 pm

jastevenson wrote:When you invest in a index fund, the premise is that you own a piece of a company. So long-term growth in the size and profit of a company results in a higher stock price when

Gold rises and falls in value, but the value seems to change based more on things like political climate and global security rather than something more tangible like profit growth (e.g., gold prices rises during a war).

So is there any reason for a long term investor to buy gold?
I hold enough physical gold that if the entire financial markets collapsed, I'd have enough to hopefully get through to the other side.

From a strict investment perspective, it might make some sense to hold a small portion of a portfolio in gold to reduce volatility, which increases safe withdrawal rates. Go to Portfolio Charts to see its historic performance when used this way.
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reriodan
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by reriodan » Sat Apr 15, 2017 4:50 pm

In case there is zombie apocalypse and somehow gold doesn't lose it's value as well, then maybe you could buy food.

Gold never made sense to me and it is CERTAINLY not an investment.

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by beardsworth » Sat Apr 15, 2017 5:04 pm

If you go to that search box at the top of the Bogleheads page, and enter "gold," you'll be amazed at the number of times this has been discussed previously. :)

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by NiceUnparticularMan » Sat Apr 15, 2017 5:12 pm

Well, there are people who look at backtesting, which tends to start in the 1970s. That happens to be the period in which the Bretton Woods system was collapsing, which predictably led to a prolonged period of appreciation of gold in USD, right when all sorts of other bad things were happening. So these backtests say holding gold can be helpful.

If you think that is a repeatable event, maybe you will be persuaded by those backtests to hold some gold. If, like me, you think that particular data is not predictive for obvious reasons, then you may not be persuaded.

For apocalypse purposes, my plan is to hold exotic spices. Hopefully I have enough warning to clear out the local supermarkets.

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by willthrill81 » Sat Apr 15, 2017 5:54 pm

NiceUnparticularMan wrote:Well, there are people who look at backtesting, which tends to start in the 1970s. That happens to be the period in which the Bretton Woods system was collapsing, which predictably led to a prolonged period of appreciation of gold in USD, right when all sorts of other bad things were happening. So these backtests say holding gold can be helpful.

If you think that is a repeatable event, maybe you will be persuaded by those backtests to hold some gold. If, like me, you think that particular data is not predictive for obvious reasons, then you may not be persuaded.
You don't have to look at 1970s data to see value in holding gold in the withdrawal phase. From 2000 to now, a portfolio with 45% TSM / 45% TBM / 10% gold had a higher return and lower volatility than a 50/50 portfolio using the 4% plus CPI withdrawal method. Granted, this is only one period, but it demonstrates that even fairly recent data indicate that gold could have been helpful to retirees.
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by nisiprius » Sat Apr 15, 2017 6:02 pm

I don't own any gold (except my 10K wedding ring).

Because gold is quite volatile, if you are going to hold gold at all, it certainly would make sense to hold it as a long-term investment. The Permanent Portfolio (which I don't like and don't use personally) is in fact a buy-and-hold portfolio. As currently formulated (it's evolved and changed over the years) it is 25% each cash, long-term Treasury bonds, stocks (quite possibly in the form of an S&P 500 index fund?), and gold (metal or equivalent, not gold mining stocks), rebalanced as appropriate. It is always presented by its advocates as a buy-and-hold portfolio.
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by stlutz » Sat Apr 15, 2017 6:04 pm

The supply of gold is relatively fixed.

Suppose investors collectively decide that they want to hold 5% of their portfolios in gold. Over time, other investments (i.e. stocks/bond) appreciate 100%. If investors want to continue holding 5% in gold, then the price of gold *must* increase by 100%. On the other hand, if investors decide they now only want to hold 2.5% in gold, well then the price of gold will stay flat while everything else is going up.

I don't hold any gold, but don't have any particular objection to doing so as part of a diversified portfolio.

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by lack_ey » Sat Apr 15, 2017 6:06 pm

willthrill81 wrote:
NiceUnparticularMan wrote:Well, there are people who look at backtesting, which tends to start in the 1970s. That happens to be the period in which the Bretton Woods system was collapsing, which predictably led to a prolonged period of appreciation of gold in USD, right when all sorts of other bad things were happening. So these backtests say holding gold can be helpful.

If you think that is a repeatable event, maybe you will be persuaded by those backtests to hold some gold. If, like me, you think that particular data is not predictive for obvious reasons, then you may not be persuaded.
You don't have to look at 1970s data to see value in holding gold in the withdrawal phase. From 2000 to now, a portfolio with 45% TSM / 45% TBM / 10% gold had a higher return and lower volatility than a 50/50 portfolio using the 4% plus CPI withdrawal method. Granted, this is only one period, but it demonstrates that even fairly recent data indicate that gold could have been helpful to retirees.
That is very unsurprising given that the return of gold 2000-present was a lot higher than the return for stocks (and the return for bonds).

If you assume a significantly positive real return for gold going forward, of course it makes sense in portfolio construction, especially if bonds are priced for around 0 real return. At lower levels it is less obvious. I mean that in the sense of not arguing strongly for or against.

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by TX_Man » Sat Apr 15, 2017 6:23 pm

My portfolio is 5% precious metals. I like the added diversity.

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by NiceUnparticularMan » Sat Apr 15, 2017 6:29 pm

willthrill81 wrote:You don't have to look at 1970s data to see value in holding gold in the withdrawal phase. From 2000 to now . . . .
That's cherry-picking another date that happens to favor gold.

What happens if you look at 2010, 1990, or 1980?

Because there is no fundamental reason for gold to be as valuable as it is, whether it helps or hurts to hold it is extremely sensitive to which date you pick. And which sort of date are we in right now? I have no clue, which is more than reason enough for me to stay away.

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by NiceUnparticularMan » Sat Apr 15, 2017 6:33 pm

stlutz wrote:The supply of gold is relatively fixed.
There is a lot of gold in the oceans, asteroids, and so on.
Suppose investors collectively decide that they want to hold 5% of their portfolios in gold.
Suppose someone comes up with a Bitcoin idea that actually works well enough to replace gold as the dominant non-fiat currency?

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by jimb_fromATL » Sat Apr 15, 2017 7:06 pm

Here is a chart I was experimenting with a while back that seems to me to illustrate why you don't buy gold as a long term investment.

The symbol "GOLDPRICE" was made up from the yearly changes in the closing price of gold each year, to compare with the yearly total gains for the mutual funds. This is before any expenses of buying or selling, and does not include buying a backhoe to use bury it in your backyard.

Notice the long time that gold prices lagged the market mutual funds from the mid 90s until the crash of 2008 . Of course if you had a working crystal ball, you could have made some money if you knew exactly when to buy and when to sell during the crash.

Image

--more--
  • The geometric mean -- or CAGR (Compound Annual Growth Rate) -- for GOLDPRICE for a single lump sum for 27 years from 1990 through 2016 has been 3.98%. A lump sum of $10,000 would have grown to $28,701.

    Perhaps more meaningful for investing periodically such as in an IRA or 401(k), the APY ( CAGR) for dollar-cost-averaging in GOLDPRICE with periodic investments has been 5.93%. Investing $2,000 at the beginning of each year would give you $133,536 by the end of 2016.
For comparison, here's total annual gains for the S&P 500 before any expenses. And you don't have to bury it in the backyard.
  • The geometric mean -- or CAGR (Compound Annual Growth Rate) -- for S&P500 for a single lump sum for 27 years from 1990 through 2016 has been 9.39%. A lump sum of $10,000 would have grown to $112,886.

    Investing periodically such as in an IRA or 401(k), the APY ( CAGR) for dollar-cost-averaging in S&P500 with periodic investments has been 8.72%. Investing $2,000 at the beginning of each year would give you $213,561 by the end of 2016.
Here's a summary of the gee-whiz data above and some other funds:

27 years 1990 - 2016
GOLDPRICE: 27 yr lump sum APY= 3.982%; $10,000 lump 27 years = $28,701. DCA APY= 5.931%; $2000/yr 27yr = $133,536.
S&P500: 27 yr lump sum APY= 9.392%; $10,000 lump 27 years = $112,886. DCA APY= 8.725%; $2000/yr 27yr = $213,561.
VWELX: 27 yr lump sum APY= 9.366%; $10,000 lump 27 years = $112,169. DCA APY= 8.928%; $2000/yr 27yr = $221,168.
VWINX: Lump sum APY= 9.028%; $10,000 lump 27 years = $103,176. DCA APY= 8.089%; $2000/yr 27yr = $191,562.
VGSTX: 27 yr lump sum APY= 8.499%; $10,000 lump 27 years = $90,471. DCA APY= 7.883%; $2000/yr 27yr = $184,957.
VEIPX: 27 yr lump sum APY= 9.48%; $10,000 lump 27 years = $115,367. DCA APY= 9.4%; $2000/yr 27yr = $239,973.

GOLDPRICE = year end gold price -- no expenses
S&P500 = Unadjusted S&P500 -- no expenses
VWELX = VG Wellington
VWINX = VG Wellesley
VGSTX = VG Star fund
VEIPX = Vanguard Equity-Income Fund

jimb

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by willthrill81 » Sat Apr 15, 2017 7:49 pm

NiceUnparticularMan wrote:
willthrill81 wrote:You don't have to look at 1970s data to see value in holding gold in the withdrawal phase. From 2000 to now . . . .
That's cherry-picking another date that happens to favor gold.

What happens if you look at 2010, 1990, or 1980?
With each of those starting years, the portfolio with 10% gold had lower volatility than the one without it. Granted, the total returns were lower, but if you're looking at this strictly in terms of returns, then you should be 100% stocks all the time. There can be significant value in reducing a portfolio's volatility, particularly in the withdrawal phase. That's why 100% stock portfolios have had higher historic failures with regard to withdrawals than those with a smaller stock allocation; the benefit primarily comes from the reduction in volatility. This aspect is not adequately understood by most IMHO.
NiceUnparticularMan wrote:Because there is no fundamental reason for gold to be as valuable as it is
It is valuable because people have placed value on it for the entirety of recorded human history. It has aesthetic value and industrial value.
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by JoMoney » Sat Apr 15, 2017 10:43 pm

I have a gold dental crown, and some gold plated audio cables. I have very little need/use for gold, even as decoration I find it kind of gaudy.
For investment purposes, I can think of other places I'd rather put my money.
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by Pajamas » Sat Apr 15, 2017 11:31 pm

Yes, gold is extremely useful during periods of extreme inflation or complete collapse of a currency from any cause. It is a universal money that is easily exchanged for the local currency. In the 1970s to very early 80s, there was a high rate of inflation in the U.S. and gold coins were a common investment and topic of conversation and very fashionable as jewelry. In countries like India, very high-karat gold jewelry is a common store of wealth for people of all classes and is bought and sold by the gram.

If you doubt its value, research why countries still hold large gold reserves. You can see in the chart posted above its long-term value as money compared to the U.S. dollar. The dollar maintained its value only as long as it was linked to gold.
Last edited by Pajamas on Sat Apr 15, 2017 11:40 pm, edited 2 times in total.

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by NiceUnparticularMan » Sat Apr 15, 2017 11:35 pm

willthrill81 wrote:With each of those starting years, the portfolio with 10% gold had lower volatility than the one without it.
Depends on where you imagine taking it from. You start with a 50/50 portfolio in 2010, you get 8.57% CAGR, 6.21% Stdev. Making it 45/45/10 gets you 8.01% and 6.10%. Yeah, Stdev is lower, but experienced folks are already going to see the following coming--that looks like a bad return tradeoff for such a small reduction in volatility. And sure enough, if you instead look at 45/55, you get 8.07% and 5.58%. So if you didn't like the Stdev of the 50/50, you were much better off shifting to 45/55, rather than including gold.

Same deal with 1990. 50/50 is 8.12%/7.59%. 45/45/10 is 7.87%/7.10%. 45/55 is 7.94%/6.95%. You are better off again using more bonds, not gold, to lower volatility.

1980 I can't use TBM, so I will shift to Intermediate Treasuries. 50/50 is 9.89%/8.32%. 45/45/10 is 9.28%/7.89%. 45/55 is 9.71%/7.75%. Again, more bonds beats gold.

You can do all this with things like Sharpe Ratios too. The bottom line is in 1980, 1990, and 2010, adding gold would have hurt you in contrast to just using stocks and bonds. If you think otherwise, it is because you are not looking at the right alternative bond allocation to beat your gold proposal on your preferred dimension.
It is valuable because people have placed value on it for the entirety of recorded human history. It has aesthetic value and industrial value.
There is very little doubt its aesthetic and industrial value alone would result in a far lower price today. The price is being inflated by people treating it as a store of additional value, but nothing supports that value other than conventions ad psychology, and those are subject to change and whim.

Of course if that effect stopped or diminished, gold would still end up with some value. But investors in gold at today's prices would take a large loss.

And given that our little study just proved out of the last 5 decade starting points (1970, 1980, 1990, 2000, 2010), including gold was harmful in 3 out of those 5 . . . I don't see the case for taking on all that risk.

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by NiceUnparticularMan » Sat Apr 15, 2017 11:45 pm

Pajamas wrote:Yes, gold is extremely useful during periods of extreme inflation or complete collapse of a currency from any cause.
These days there are many other ways to hedge against those risks besides gold, using assets which are actually productive.

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by unclescrooge » Sat Apr 15, 2017 11:55 pm

NiceUnparticularMan wrote:
willthrill81 wrote:You don't have to look at 1970s data to see value in holding gold in the withdrawal phase. From 2000 to now . . . .
That's cherry-picking another date that happens to favor gold.

What happens if you look at 2010, 1990, or 1980?

Because there is no fundamental reason for gold to be as valuable as it is, whether it helps or hurts to hold it is extremely sensitive to which date you pick. And which sort of date are we in right now? I have no clue, which is more than reason enough for me to stay away.
Couldn't you use that logic to stay away from stocks and bonds as well?

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by NiceUnparticularMan » Sun Apr 16, 2017 6:29 am

unclescrooge wrote:Couldn't you use that logic to stay away from stocks and bonds as well?
If I understand your question, then yes to the extent you are relying solely on backtesting, but no when you only use backtesting to supplement a more fundamental sort of analysis.

Backtesting can be used to identify specific allocations that would have done great at certain times--with the benefit of hindsight. In fact we are thinking small here: with backtesting we can identify portfolios invested in single stocks that would have done great at certain times. Or we could be talking about investing in certain baseball cards. Or even better--timing programs where we shift from one asset to another. And so on. Buy low is easy with the benefit of hindsight!

But of course the problem is we can't invest in the past. We have to invest now, and we don't know for sure what will happen in the future. to the assets available now at the prices available now.

I take the OP to be articulating an approach which starts with understanding why certain assets have an EXPECTED return, not just an observed historical return. Stocks are ownership shares in companies that themselves own productive assets. The use of those productive assets is expected to generate returns to the owners of their assets in the future. Bonds are contracts which promise payment in the future in return for funds given up today. Those are expected to generate returns to compensate the purchasers for the use of those funds before repayment. And so on.

Exactly what will those return in the future? We don't know. But it is reasonable to invest in them to the extent we have reasons to believe they will generate such returns. Backtesting then might help us understand a bit better how things can work out in different situations, and maybe help guide us into different strategies to address certain risks. For example, note we keep producing the result that 50/50 portfolios tend to have higher returns but also higher volatility than 45/55 portfolios. That's a familiar tradeoff between stocks and bonds, and it helps guide our portfolio design when dealing with cases in which volatility could be a real concern (such as withdrawal portfolios with substantial fixed withdrawal targets).

But all this isn't telling us why stocks and bonds are expected to generate returns in the first place.

So before we get to backtesting, what is the fundamental case for gold? There really isn't any reason to believe it is going to generate a return. And to the extent it has served as a "store of value," that is a risky bet because for various reasons that effect could stop or at least diminish. So we might just stop there.

But then the backtesters come along, and say but hey, look, gold would have helped in 1970 and 2000. But it wouldn't have helped in 1980, 1990, and 2010. This is not exactly a surprise--an asset which doesn't produce returns but serves as a store of value in a capricious way is likely going to do that, sometimes helping and sometimes hurting. So this isn't really telling us something about gold we didn't already know, and it is not in fact improving the case for holding it.

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by Dottie57 » Sun Apr 16, 2017 7:11 am

NiceUnparticularMan wrote:
For apocalypse purposes, my plan is to hold exotic spices. Hopefully I have enough warning to clear out the local supermarkets.
Exotic = Supermarkey? :?:

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by WolfgangPauli » Sun Apr 16, 2017 7:27 am

Charlie Munger, Warren Buffett's better half in the partnership said it best:

"I think gold is a great thing to sew into your garments if you're a Jewish family in Vienna in 1939, but I think civilized people don't buy gold. They invest in productive businesses."

See article / Link here: https://seekingalpha.com/article/563301 ... t-buy-gold
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by harvestbook » Sun Apr 16, 2017 7:32 am

Gold is just Bitcoin that you can make teeth out of.

Let's not pretend it's not volatile. it's highly volatile--it only gives the illusion of stability when other asset classes, especially stocks, are even MORE volatile. If it's such a great and fine property, then why are all the gold dealers so happy to sell it to you for fiat dollars?

And picture that perfect world when your hoarding is supposed to pay off, a beautiful doomsday scenario where you bring out your gold bars to buy a loaf of bread. There's really no world in which gold is truly an intrinsic, highly desirable possession just by its nature--its utility is fairly limited. To say it's been valued "throughout human history" is baloney, because plenty of cultures cared nothing for gold, or used it simply for frivolous decorative purposes, until trader nations came along and wanted it. It was created as an asset class from whole cloth--it didn't naturally exist like a money tree. In that sense, it's as fiat as any other form of currency or value storage. Ultimately, it's a faith system.

That said, own it if you want. It's not like dozens of gold miners aren't waiting to crank it out by the ton when it hits $2K an ounce. But I'd be happy to trade you 100 Shaquille O'Neal rookie cards for a Golden eagle!
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by 22twain » Sun Apr 16, 2017 7:38 am

WolfgangPauli wrote:Charlie Munger, Warren Buffett's better half in the partnership said it best:

"I think gold is a great thing to sew into your garments if you're a Jewish family in Vienna in 1939, [...]"
Some of those refugees used rare postage stamps instead, because they were lighter and less conspicuous. :wink:
harvestbook wrote:Gold is just Bitcoin that you can make teeth out of.
Bitecoin! 8-)
Last edited by 22twain on Sun Apr 16, 2017 7:44 am, edited 2 times in total.
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by thevigilante » Sun Apr 16, 2017 7:43 am

JoMoney wrote:I have a gold dental crown, and some gold plated audio cables. I have very little need/use for gold, even as decoration I find it kind of gaudy.
Most of my gold is tied up in the tech sector.

Gaudy decoration, jewelry, and modest return on investment doesn't suit me. But you know what does? My motherboard. You'll find almost all of the gold in my house behind the screen I'm looking at now. (Almost all because I believe the wife has a 14k gold ring worth a few dozen dollars, and I have an antique family heirloom watch from my great uncle that is 14k gold plated and maybe has value around $300, if I'm lucky.)

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by DaftInvestor » Sun Apr 16, 2017 8:30 am

There is no valid reason.
My favorite Warren Buffet quote on this:

"The problem with commodities is that you are betting on what someone else would pay for them in six months. The commodity itself isn't going to do anything for you….it is an entirely different game to buy a lump of something and hope that somebody else pays you more for that lump two years from now than it is to buy something that you expect to produce income ..."

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by NiceUnparticularMan » Sun Apr 16, 2017 8:43 am

Dottie57 wrote:Exotic = Supermarkey? :?:
That's the genius of the plan. Local supermarkets are full of spices from all sorts of different countries. In an apocalyptic scenario where global supply chains are cut, new supply of those spices will be very difficult to obtain. And yet people will undoubtedly value the contribution even small amounts of spices can make to diversifying the otherwise boring range of flavors that will be available locally. And yet you can store large quantities in small spaces with minimal maintenance.

That's why being a spice merchant was once an extremely lucrative trade. It helped build the Venetian and Ottoman empires, and inspired exploration of alternative trade routes that led to the "discovery" of the Americas by Europeans. And now it is all just sitting there in a supermarket, waiting for the person with foresight to seize that opportunity.

And of course lots of other people may be raiding the gun stores and jewelry stores, potentially even killing each other. I'm hoping if I time it right, few people will be competing for my spices.

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by WolfgangPauli » Sun Apr 16, 2017 8:47 am

One other great quote about making money in Gold. The merchants who hung around gold mines in Colorado during the big gold rush used to say:

"It is easier to mine the miners than to mine the mine".

Today, those selling the gold are the merchants, the miners are the survivalists who think one day you will be able to walk into a store and cut up small pieces of gold to buy food, and the "gold" is actually US Currency.

I am always amazed at the selling gold commercials (Mostly on Fox News I find) saying how great Gold is. If they really thought gold was that great, why would they be selling it?
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by nisiprius » Sun Apr 16, 2017 10:24 am

JoMoney wrote:Image
To me, one of the most interesting things on the chart is the comparison between gold and Treasury bills. It's especially interesting because plain old ordinary interest-earning bank accounts behave quite similarly to Treasury bills (although I don't have really good sources for that, especially over long historical periods of time).

This is very important because people selling "investments" always like to blur over the distinction between "cash" in the sense of physical currency and "cash" in the sense of money in the bank.

Yes, it's foolish to keep your "cash" someplace where it doesn't earn interest, and the moths and dust of inflation will indeed corrupt it, but money in the bank isn't half bad if all you are seeking to do is preserve real value.

I think that you can say, very roughly, that the "U.S. Dollar" line shows what has happened with literal physical currency, but "Bills" shows what has happened with money in the bank. Notice that contrary to what's often said, cash in a bank (or, at least, in T-bills, with close to zero fluctuation) has kept up with inflation and earned a small positive--yes, small, but yes, positive--real return. On the basis of this chart, we see that gold has indeed shown the very-long-term stability, but very meaningful short-term instability... and that to my eyeball, anyway, T-bills (and thus, I think, money in the bank) has been a better investment than gold.
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by TheTimeLord » Sun Apr 16, 2017 10:35 am

Pajamas wrote:Yes, gold is extremely useful ........... or complete collapse of a currency from any cause. It is a universal money that is easily exchanged for the local currency.
Gold protects a domestically focused investor from extreme economic issues focused with the boundaries of their country. I believe it also has value during world wide recessionary events where there is extreme over capacity. That said I think holding gold is like playing the world slowest game of blackjack. But if someone wants to buy a few chips and play some hands who am I to object.
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by TheTimeLord » Sun Apr 16, 2017 10:41 am

WolfgangPauli wrote:Charlie Munger, Warren Buffett's better half in the partnership said it best:

"I think gold is a great thing to sew into your garments if you're a Jewish family in Vienna in 1939, but I think civilized people don't buy gold. They invest in productive businesses."

See article / Link here: https://seekingalpha.com/article/563301 ... t-buy-gold
http://fortune.com/2012/02/09/warren-bu ... and-bonds/
Image
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by siamond » Sun Apr 16, 2017 11:06 am

There is little discussion that gold is NOT a good investment per se, as explained in previous posts. Its only value is at the portfolio level, where it has demonstrably proven quite valuable in the past (since the early 70s), dampening portfolio overall volatility in recent crisis. Before that, the US dollar and gold were pegged together, so there is nothing much to say about it.

The point which disturbs me the most is that this effect (negative/low correlation) is clearly driven by investors psychology, and little more. My mother perceives gold as the ultimate refuge. She's in her 90s. I am in my 50s, and I am aware of gold, but I really don't see it as a refuge. When I asked my children (in their 20s) what they think of gold as an investment, I got blank stares, they had no idea why I was asking such inept question (notably coming from somebody advocating maximum diversification).

It's a generational thing, my mother spent half of her life in a world where gold was literally hard money. I didn't, but I am aware of it. The next generation is not. So I find hard to believe that the investor psychology behind gold will last for long.

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by TheTimeLord » Sun Apr 16, 2017 11:18 am

siamond wrote:There is little discussion that gold is NOT a good investment per se, as explained in previous posts. Its only value is at the portfolio level, where it has demonstrably proven quite valuable in the past (since the early 70s), dampening portfolio overall volatility in recent crisis. Before that, the US dollar and gold were pegged together, so there is nothing much to say about it.

The point which disturbs me the most is that this effect (negative/low correlation) is clearly driven by investors psychology, and little more. My mother perceives gold as the ultimate refuge. She's in her 90s. I am in my 50s, and I am aware of gold, but I really don't see it as a refuge. When I asked my children (in their 20s) what they think of gold as an investment, I got blank stares, they had no idea why I was asking such inept question (notably coming from somebody advocating maximum diversification).

It's a generational thing, my mother spent half of her life in a world where gold was literally hard money. I didn't, but I am aware of it. The next generation is not. So I find hard to believe that the investor psychology behind gold will last for long.
Given there are actually a few reality shows on gold mining I doubt it is as unknown as you believe. More importantly in countries where banking systems are still evolving having a compact store of value or one you can wear is a huge advantage.
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by siamond » Sun Apr 16, 2017 11:27 am

TheTimeLord wrote:Given there are actually a few reality shows on gold mining I doubt it is as unknown as you believe. More importantly in countries where banking systems are still evolving having a compact store of value or one you can wear is a huge advantage.
And you really think that the majority of folks watching such shows are the next generation? I seriously doubt it. Anyhoo, I wasn't making a black & white statement, just a perception that things are shifting. Investors psychology is a fickle thing.

Granted, I was taking the perspective of an investor in a developed country, your second point is well taken. It actually kind of reinforces my point, which is that when gold is perceived as hard money, it makes sense to see negative correlation at play, but when this perception is lost, then I find hard to believe that the negative correlation will persist. Anyhoo, this was just a thought, not a hard proof by any mean. This gold topic is all about perceptions, no wonder we never reach any agreement in such threads!

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by TheTimeLord » Sun Apr 16, 2017 11:32 am

siamond wrote:
TheTimeLord wrote:Given there are actually a few reality shows on gold mining I doubt it is as unknown as you believe. More importantly in countries where banking systems are still evolving having a compact store of value or one you can wear is a huge advantage.
And you really think that the majority of folks watching such shows are the next generation? I seriously doubt it. Anyhoo, I wasn't making a black & white statement, just a perception that things are shifting. Investors psychology is a fickle thing.

Granted, I was taking the perspective of an investor in a developed country, your second point is well taken. It actually kind of reinforces my point, which is that when gold is perceived as hard money, it makes sense to see negative correlation at play, but when this perception is lost, then I find hard to believe that the negative correlation will persist. Anyhoo, this was just a thought, not a hard proof by any mean. This gold topic is all about perceptions, no wonder we never reach any agreement in such threads!
Given the most popular miners on the shows are younger and very active on social media I don't think it is grandpa and grandma that are watching. in fact gold mining is a sort of live off the land kind and barter thing that appeals to a lot of young people. Also physcial gold can't be hacked or electronically transferred out of your account. Still not a gold bug but don't see it dying off in my lifetime.
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by Dottie57 » Sun Apr 16, 2017 11:40 am

NiceUnparticularMan wrote:
Dottie57 wrote:Exotic = Supermarkey? :?:
That's the genius of the plan. Local supermarkets are full of spices from all sorts of different countries. In an apocalyptic scenario where global supply chains are cut, new supply of those spices will be very difficult to obtain. And yet people will undoubtedly value the contribution even small amounts of spices can make to diversifying the otherwise boring range of flavors that will be available locally. And yet you can store large quantities in small spaces with minimal maintenance.

That's why being a spice merchant was once an extremely lucrative trade. It helped build the Venetian and Ottoman empires, and inspired exploration of alternative trade routes that led to the "discovery" of the Americas by Europeans. And now it is all just sitting there in a supermarket, waiting for the person with foresight to seize that opportunity.

And of course lots of other people may be raiding the gun stores and jewelry stores, potentially even killing each other. I'm hoping if I time it right, few people will be competing for my spices.
While at the supermarket, grab Canned food, beans and rice , tp and other really valuable stuff. Not kidding.

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by Stormbringer » Sun Apr 16, 2017 12:58 pm

Buying gold is basically going long on fear. That said, I find having a relatively small amount of precious metals to be comforting. Unless you are speculating by buying low and selling high, it isn't much of an investment. It's more a store of value, like an alternate currency with some inflation protection built in (like an I-bond?).
"Compound interest is the most powerful force in the universe." - Albert Einstein

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by NiceUnparticularMan » Sun Apr 16, 2017 1:24 pm

Buying gold specifically in 1965 and selling it specifically in 2012 would indeed make it look better than it has been on average.

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by Dirghatamas » Sun Apr 16, 2017 1:32 pm

22twain wrote:
harvestbook wrote:Gold is just Bitcoin that you can make teeth out of.
Bitecoin! 8-)
I just snorted my morning coffee out my nose :annoyed That was good!

More seriously, always good to read Buffett: either read his shareholder letters or this condensed version: "Why stocks beat gold and bonds?"
http://fortune.com/2012/02/09/warren-bu ... and-bonds/

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by willthrill81 » Sun Apr 16, 2017 2:29 pm

siamond wrote:There is little discussion that gold is NOT a good investment per se, as explained in previous posts. Its only value is at the portfolio level, where it has demonstrably proven quite valuable in the past (since the early 70s), dampening portfolio overall volatility in recent crisis. Before that, the US dollar and gold were pegged together, so there is nothing much to say about it.
I can think of only two reasons why investors might reasonably want to own gold.

1. It might reduce a portfolio's volatility enough in the withdrawal phase to increase the safe withdrawal rate.
2. It might be 'insurance' against major economic crises IF physically held. Ask a Venezuelan if they would rather have currency or gold right now.

Neither of these are guaranteed. All roads carry risk, hence, my quote below.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by midareff » Sun Apr 16, 2017 3:25 pm

None... gold has no utility, produces nothing and is purely speculative. Outside of jewelry IMHO it is useless and certainly nothing I would invest in with any expectation of making money by dividends or capital gains.

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by halfnine » Sun Apr 16, 2017 3:41 pm

siamond wrote:
TheTimeLord wrote:Given there are actually a few reality shows on gold mining I doubt it is as unknown as you believe. More importantly in countries where banking systems are still evolving having a compact store of value or one you can wear is a huge advantage.
And you really think that the majority of folks watching such shows are the next generation? I seriously doubt it. Anyhoo, I wasn't making a black & white statement, just a perception that things are shifting. Investors psychology is a fickle thing.

Granted, I was taking the perspective of an investor in a developed country, your second point is well taken. It actually kind of reinforces my point, which is that when gold is perceived as hard money, it makes sense to see negative correlation at play, but when this perception is lost, then I find hard to believe that the negative correlation will persist. Anyhoo, this was just a thought, not a hard proof by any mean. This gold topic is all about perceptions, no wonder we never reach any agreement in such threads!
Growing up, living and working in America I saw little value in gold and also little value in a SWR of less then 4%. I've long since left and having lived and worked in a few places around the globe now see why gold has value and why an SWR of less then 4% can make sense. Maybe the USA continues as it has, maybe it doesn't, but I've decided that country risk is not for me.

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by reformed.trader » Sun Apr 16, 2017 5:59 pm

Of course there is, but only own as much as you understand. If(when imo) gold resumes the international monetary reserve, the price will go up 10x+. If you think the USD IMS will last a while longer, then maybe you have less exposure. But I think its crazy to have none.

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by JoMoney » Sun Apr 16, 2017 6:36 pm

nisiprius wrote:... To me, one of the most interesting things on the chart is the comparison between gold and Treasury bills. It's especially interesting because plain old ordinary interest-earning bank accounts behave quite similarly to Treasury bills (although I don't have really good sources for that, especially over long historical periods of time).
...
FWIW, Here's a link to a growth chart of the SBBI US 30 Day TBill TR next to Vanguard's Federal Money Market account.
MorningStar Chart Link
Not exactly a bank account, and it's not an inflation adjusted chart like the one above, but I think it demonstrates your point.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by Uncle Pennybags » Sun Apr 16, 2017 6:43 pm

Ron wrote:Sure there is; ring finger left hand.

Hopefully, it's a long term "investment" :P ...

- Ron
That was the worst "investment' I ever made. A better investment was buying a Rolex president, it is worth more as scrap than I paid for it. It still keeps perfect time so I'm long on my watch. :P

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