Barron's Making the Case for Gold

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unclescrooge
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Re: Barron's Making the Case for Gold

Post by unclescrooge » Thu Oct 11, 2018 5:17 pm

MP123 wrote:
Tue Oct 02, 2018 7:52 pm
permport wrote:
Tue Oct 02, 2018 7:45 pm
Watty wrote:
Tue Oct 02, 2018 7:42 pm
arcticpineapplecorp. wrote:
Tue Oct 02, 2018 5:21 pm
gold has risen over very long periods of time at the rate of inflation. An ounce of gold bought a fine tailored toga 2000 years ago and today it will buy you the equivalent fine tailored men's suit.
When looking at the long term return of gold you also need to include the holding costs.

For example the GLD ETF has an expense ratio of 0.40%. Over 50 years that would reduce your holding by about 18%. If your ancient ancester started out with 1000 gold coins 2000 years ago you would only have a third of a gold coin left today after paying the expenses for 2000 years.
Or you could just buy gold bullion and not pay any holding costs. :|
Well, you'd still need a tin can and a backyard to bury it in. Or at least a mattress to hide it under. So there might be a few holding costs. :happy
Or you could choose another ETF and pay less than half the stated expense of GLD.

alter
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Re: Barron's Making the Case for Gold

Post by alter » Thu Oct 11, 2018 6:19 pm

alfaspider wrote:
Thu Oct 11, 2018 7:28 am
alter wrote:
Wed Oct 10, 2018 4:52 pm
alfaspider wrote:
Wed Oct 10, 2018 2:57 pm
alter wrote:
Fri Oct 05, 2018 3:05 pm
Gold is great as a store of value. It has had the same relative buying power since the Roman Empire, not many things, if any, can say the same about retaining its value across thousands of years and the rise and fall of empires. As an investment...not so much. Buy it if you think the currency you are buying it with will rapidly lose it's value.
Really? Looking at the last ~100 years shows that the buying power of gold has varied by as much as a factor of 10 within a time period of around 20 years relative to the dollar.


While I have no idea what an ounce of gold bought 1,000 years ago, I think it's fairly safe to surmise that the value fluctuated similarly based on regional economies and current events. Remember how the Spanish conquistadors messed up the gold market in South and Central America when they arrived?
Yep really. Never claimed it didn't fluctuate in price. Back then an ounce of gold would by a fine suit and it does today too. Not interested in the last 100 years, whether it would fluctuate. Point is, gold will be worth something long after the US empire ends at which point your stock certificates and dollar bills are worthless. Not that you'll care what it's worth in another thousand years, but that was my point, is that it retains it's value
The "fine suit" thing is completely silly. It's totally bogus as an example of stable value. A "fine suit" could be a $300 Men's Warehouse special that is at least 100% wool, or it could be the finest bespoke Saville Row suit costing $10,000.+ There are times when an ounce of gold only bought the Men's Warehouse special and times when it could get you into a mid-range Armani. Who knows what constituted a "fine suit" 1,000 years ago.

There's also no guarantee that gold will always be worth something. Historically, there have been cultures that did not place much value on gold, and it's totally possible that future cultures might similarly ignore it. There is some intrinsic value for industrial purposes (mostly electronics), but that likely would put gold not too far off from copper (currently under $3/oz) in a society without a special cultural affection for the metal.

My point of picking this bone is that if you want to hold gold because your portfolio visualizer backtesting shows it helps with your asset allocation, knock yourself out. Fine even if you just like the idea of holding something physical. But don't fall for the romance of a shiny metal. Emotional investing is rarely good investing.
It's really not that silly, it's a valid data point.

You saying that there is no guarantee that gold will always be worth something is a far more flimsy argument than me saying there is no guarantee that the S&P500 will always be worth something. I have much more empirical and centuries-long worth of evidence that gold holds its value than you have that the S&P500 or any other index fund denominated in US dollars holds its value.

You also apparently did not even read my post where I said gold isn't so good as an investment. Please read what I say before putting words in my mouth.

Jiu Jitsu Fighter
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Re: Barron's Making the Case for Gold

Post by Jiu Jitsu Fighter » Thu Oct 11, 2018 6:44 pm

jalbert wrote:
Thu Oct 11, 2018 2:19 pm
If a govt with large gold reserves has trouble meeting debt obligations, it may well choose to sell off gold to raise hard cash rather than printing money to deal with the debt. That’s the whole point and role of having substantial gold reserves to partially back a currency. What would that do to the price of gold in the midst of a crisis? Probably cause it to collapse. The point is that gold is an unreliable hedge against unpredictable events.
Similar to when the UK sold their gold in the early 2000s? Oh wait, that was when a spectacular bull market started for gold.

The US selling gold to meet obligations would indicate a lack of confidence in US treasuries. If this unlikely scenario played out, it's difficult to believe that the price of gold would plummet when the so called "risk-free" US treasuries are called into question. Perhaps the Yen would be the new riskless asset. I find that hard to believe.

ralph124cf
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Re: Barron's Making the Case for Gold

Post by ralph124cf » Thu Oct 11, 2018 7:08 pm

cheezit wrote:
Tue Oct 02, 2018 8:11 pm
As a naive investor, I have a question: how does gold work as a hedge against purposeful rapid debasement of the USD? The last time the government decided to debase the currency overnight, they just confiscated all of everyone's gold, paid them in USD, and went ahead debasing the currency. Holding gold, whether it was 10% of your assets or 100%, provided no benefit. What prevents this scenario from playing out again?
You are absolutely correct that law abiding citizens lost out. HOWEVER, I am confident that there was MASSIVE, quiet, civil disobedience in this country by everybody that thought that they could get away with it.

There is very little evidence of this, of course, because very few people care to keep records of their financial crimes.

Ralph

jalbert
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Re: Barron's Making the Case for Gold

Post by jalbert » Thu Oct 11, 2018 7:32 pm

By that time how would selling 8,000 tons of gold (~$300bil at today's prices) be a material part of dealing with the problem,
If a person or entity is short on funds to make a loan payment, they need to raise cash to make one or more payments, not repay the entire loan. The US govt needs to be able to make treasury security coupon payments and return principal for maturing bonds, not suddenly repay the entire $15T at the first hint of finances being tight.
Risk is not a guarantor of return.

alfaspider
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Re: Barron's Making the Case for Gold

Post by alfaspider » Fri Oct 12, 2018 8:16 am

alter wrote:
Thu Oct 11, 2018 6:19 pm
alfaspider wrote:
Thu Oct 11, 2018 7:28 am
alter wrote:
Wed Oct 10, 2018 4:52 pm
alfaspider wrote:
Wed Oct 10, 2018 2:57 pm
alter wrote:
Fri Oct 05, 2018 3:05 pm
Gold is great as a store of value. It has had the same relative buying power since the Roman Empire, not many things, if any, can say the same about retaining its value across thousands of years and the rise and fall of empires. As an investment...not so much. Buy it if you think the currency you are buying it with will rapidly lose it's value.
Really? Looking at the last ~100 years shows that the buying power of gold has varied by as much as a factor of 10 within a time period of around 20 years relative to the dollar.


While I have no idea what an ounce of gold bought 1,000 years ago, I think it's fairly safe to surmise that the value fluctuated similarly based on regional economies and current events. Remember how the Spanish conquistadors messed up the gold market in South and Central America when they arrived?
Yep really. Never claimed it didn't fluctuate in price. Back then an ounce of gold would by a fine suit and it does today too. Not interested in the last 100 years, whether it would fluctuate. Point is, gold will be worth something long after the US empire ends at which point your stock certificates and dollar bills are worthless. Not that you'll care what it's worth in another thousand years, but that was my point, is that it retains it's value
The "fine suit" thing is completely silly. It's totally bogus as an example of stable value. A "fine suit" could be a $300 Men's Warehouse special that is at least 100% wool, or it could be the finest bespoke Saville Row suit costing $10,000.+ There are times when an ounce of gold only bought the Men's Warehouse special and times when it could get you into a mid-range Armani. Who knows what constituted a "fine suit" 1,000 years ago.

There's also no guarantee that gold will always be worth something. Historically, there have been cultures that did not place much value on gold, and it's totally possible that future cultures might similarly ignore it. There is some intrinsic value for industrial purposes (mostly electronics), but that likely would put gold not too far off from copper (currently under $3/oz) in a society without a special cultural affection for the metal.

My point of picking this bone is that if you want to hold gold because your portfolio visualizer backtesting shows it helps with your asset allocation, knock yourself out. Fine even if you just like the idea of holding something physical. But don't fall for the romance of a shiny metal. Emotional investing is rarely good investing.
It's really not that silly, it's a valid data point.

You saying that there is no guarantee that gold will always be worth something is a far more flimsy argument than me saying there is no guarantee that the S&P500 will always be worth something. I have much more empirical and centuries-long worth of evidence that gold holds its value than you have that the S&P500 or any other index fund denominated in US dollars holds its value.

You also apparently did not even read my post where I said gold isn't so good as an investment. Please read what I say before putting words in my mouth.
But my point is that the suit anecdote not actually a meaningful datapoint. A suit isn't a meaningful measure of value. If your goal is always to preserve value, gold really isn't a great way to do it because it is a very volatile holding.

As to whether the S&P 500 will always be worth something- If the S&P 500 is ever worth nothing in my lifetime, then investments and money are the least of my worries, as that implies the complete collapse of the U.S. economy and probably the government. At that point, I'd want a bunker and canned goods- not a shiny metal.

JackoC
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Re: Barron's Making the Case for Gold

Post by JackoC » Fri Oct 12, 2018 1:17 pm

jalbert wrote:
Thu Oct 11, 2018 7:32 pm
By that time how would selling 8,000 tons of gold (~$300bil at today's prices) be a material part of dealing with the problem,
If a person or entity is short on funds to make a loan payment, they need to raise cash to make one or more payments, not repay the entire loan. The US govt needs to be able to make treasury security coupon payments and return principal for maturing bonds, not suddenly repay the entire $15T at the first hint of finances being tight.
I think the bigger point you're ignoring suggested in my post and more succinctly by Jiu Jitsu Fighter is the implication for the dollar's value if there's any question about the US paying back the $15T (much bigger probably by the time, if ever, that question becomes a market focus). That would overwhelm any effect of selling 5% of the world's above ground gold supply (US reserves approximately).

Your point could be valid in normal times. Say, in normal times, the US simply decides it's a 'barbarous relic' to hold gold reserves and announces it will gradually sell them: negative for gold though negligible in terms of the long term US fiscal problem because so small. Lots of things are negative/positive for gold in normal times, it bounces around more or less aimlessly most of the time.

But in the midst of a crisis over how the US can possibly pay what the market at some point might recognize as unpayable debt (at expected real value), without some sizable diminution in real value, the prospect of a few 1,000 tons of gold being sold to cover a tiny % of that is going to be completely overshadowed by the prospect of deliberate inflation on the 10's of trillions to lower its real value and thus make it possible to pay.

jalbert
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Re: Barron's Making the Case for Gold

Post by jalbert » Fri Oct 12, 2018 7:34 pm

I think the bigger point you're ignoring suggested in my post and more succinctly by Jiu Jitsu Fighter is the implication for the dollar's value if there's any question about the US paying back the $15T (much bigger probably by the time, if ever, that question becomes a market focus). That would overwhelm any effect of selling 5% of the world's above ground gold supply (US reserves approximately).
It is easy to construct narratives to justify a position, but we don’t know how it would play out.
Risk is not a guarantor of return.

columbia
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Re: Barron's Making the Case for Gold

Post by columbia » Sun Oct 14, 2018 3:29 pm

FOX Business channel is currently airing a “Buy gold, at cost!” infomercial.

The stoking of fear is one of the reasons why I (and many others) am so suspicious of the general idea. To each their own, however - I don’t care how others decide spend their money.

All Seasons
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Re: Barron's Making the Case for Gold

Post by All Seasons » Sun Oct 14, 2018 7:33 pm

Some additional perspective. I think much of the reason why gold is disliked by many in the traditional investment community is because of the common paradigms and ways of thinking that are taught in economic academia. It wasn't always that way.

More specifically, the time value of money is frequently cited as being the central concept of finance. An asset is worth whatever the future cash flows it produces are, discounted to the present by an appropriate rate. Gold, as a result, doesn't seem to have value as per this test.

A few points on this. First, an asset that doesn't produce cash flow also doesn't possess counterparty risk. Stocks, bonds, options, etc. -- all of these traditional assets have counterparty risk. Gold doesn't. It's unique in that aspect as far as portfolio insurance is concerned. Gold actually goes a step further than even dollars, in that even dollars have counterparty risk (the government and central banks). And as we've learned from history, sometimes governments throw their hands up in the air and invalidate the old currency in favour of something new. Gold, for the most part, has its value dictated by the market rather than this coercion.

Also, gold doesn't produce cash flow because gold is money. A self-referencing asset if you will. It has been for thousands of years because humanity and the markets settled on it through trial and error. Compared to other elements and materials it's very ideal. It's rare but not too rare. It doesn't corrode or rust. It's not poisonous or radioactive. Governments can't print it. It's rarity is enforced by nature, not artificially like bitcoin. It's fungible. It's durable, but not so durable that it's onerously difficult to work with. It's beautiful and desirable. It doesn't get "used up" or truly consumed. The industrial uses are enough to put a floor on the price, but not so much that the commodity uses overwhelm the monetary effects on its price. It's really ideal.

The $100 bill in your pocket doesn't produce cash flow either -- because it's money. However it's a poorer form of money, what with it losing value and being printable ad infinitum. The cash in your chequing account with interest to offset the loss in value? Not really money in the purest sense because that cash is actually an unsecured liability of the bank. You are effectively the bank's creditor. That's why you earn a return on your account, because you're taking on counterparty risk, however small it may be. As we learned in 2008, sometimes those bank risks come home to roost.

So, why should gold be valuable despite what people like Buffett say? Because gold is straight up money. The original and authentic money whose value is determined by an invisible hand and not a coercive one.
The market portfolio is always a legitimate portfolio.

TheAccountant
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Re: Barron's Making the Case for Gold

Post by TheAccountant » Sun Oct 14, 2018 7:48 pm

Gold is historically an awful investment but it goes along nicely with tin foil hat collections.

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arcticpineapplecorp.
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Re: Barron's Making the Case for Gold

Post by arcticpineapplecorp. » Sun Oct 14, 2018 8:30 pm

All Seasons wrote:
Sun Oct 14, 2018 7:33 pm
Also, gold doesn't produce cash flow because gold is money. A self-referencing asset if you will. It has been for thousands of years because humanity and the markets settled on it through trial and error. Compared to other elements and materials it's very ideal. It's rare but not too rare. It doesn't corrode or rust. It's not poisonous or radioactive. Governments can't print it. It's rarity is enforced by nature, not artificially like bitcoin. It's fungible. It's durable, but not so durable that it's onerously difficult to work with. It's beautiful and desirable. It doesn't get "used up" or truly consumed. The industrial uses are enough to put a floor on the price, but not so much that the commodity uses overwhelm the monetary effects on its price. It's really ideal.

The $100 bill in your pocket doesn't produce cash flow either -- because it's money. However it's a poorer form of money, what with it losing value and being printable ad infinitum. The cash in your chequing account with interest to offset the loss in value? Not really money in the purest sense because that cash is actually an unsecured liability of the bank. You are effectively the bank's creditor. That's why you earn a return on your account, because you're taking on counterparty risk, however small it may be. As we learned in 2008, sometimes those bank risks come home to roost.

So, why should gold be valuable despite what people like Buffett say? Because gold is straight up money. The original and authentic money whose value is determined by an invisible hand and not a coercive one.
Interesting post. In reference to the parts above that I copied, you're right in that the dollars in my wallet don't produce cash flow. That's why I keep very little in my wallet. More of my cash is in a bank account that earns interest, so it is producing cash flow isn't it? Sure maybe less than the rate of inflation, but if I have gold in my wallet (or pocket) or the bank (safe deposit) it's not earning any cash flow, unlike the dollars I put in the bank.

In addition, it's very simple to move dollars to my bank or Vanguard (to purchase investments). I think my bank and/or Vanguard would look at me strangely if I tried giving (exchanging) them gold for money in the bank and/or investments at Vanguard.

So there's a middle person with gold that does not exist with cash. It's direct payment that is accepted and you don't have to find out what the spot price of cash is (and lose a % in commission for buy/sell spreads). Cash is king that way. It's easily convertible, unlike gold where you have to find a dealer, know a fair price you should get, etc. Why add additional layers of complexity that simply aren't needed?

To use Gold as a medium of exchange is cumbersome. If you don't think so listen to this podcast (Planet Money Episode 286 Libertarian Summer camp): https://www.npr.org/sections/money/2017 ... ummer-camp
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

hdas
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Re: Barron's Making the Case for Gold

Post by hdas » Sun Oct 21, 2018 12:42 am

CME pamphlet explaining the advantages of futures over ETF’s for prospective gold speculators

https://activetrader.cmegroup.com/docum ... utures.pdf

GRP
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Re: Barron's Making the Case for Gold

Post by GRP » Sun Oct 21, 2018 5:15 am

Some lovely quotes for you folks.

"Gold and silver are the only substances, which have been, and continue to be, the universal currency of civilized nations. It is not necessary to enumerate the well-known properties which rendered them best fitted for a general medium of exchange. They were used, not only as ornaments and objects of luxury, but also for that particular purpose, from the earliest times. We learn from the most ancient and authentic of records, that Abraham was rich in cattle, in silver, and in gold; that he purchased a field for as much money as it is worth, and in payment weighed four hundred shekels of silver, current (money) with the merchant. And when we see that nations, differing in language, religion, habits, and on almost every subject susceptible of doubt, have, during a period of near four thousand years, agreed in one respect; and that gold and silver have, uninterruptedly to this day, continued to be the universal currency of the commercial and civilized world, it may safely be inferred, that they have also been found superior to any other substance in that permanency of value, which is the most necessary attribute of a circulating medium, in its character of the standard, that regulates the payment of debts, and the performance of contracts."
- Albert Gallatin, Longest-serving Treasury secretary


"Money is gold, and nothing else."
- J.P. Morgan

ignition
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Re: Barron's Making the Case for Gold

Post by ignition » Sun Oct 21, 2018 6:02 am

GRP wrote:
Mon Oct 01, 2018 10:18 pm
Pelerus wrote:
Mon Oct 01, 2018 9:36 pm
am wrote:
Mon Oct 01, 2018 9:18 pm
Is 10% gold really going to help a mostly stock portfolio when the next disaster hits? I stay away from these little 5-10% bets because they don’t make much difference other than add complexity.
As a matter of fact, from 1987 to 2017 it did.

https://www.bloomberg.com/amp/news/arti ... good-hedge

Over that time period, a 55/35/10 stock/bond/gold portfolio outperformed a 60/40 portfolio by 55 basis points per year.
Exactly. Not only do modest allocations to gold boost portfolio performance in nominal times as you've said, they also offer disaster protection against the unthinkable.

Gold isn't some kind of religion or anything, it's just a tool. I don't get why people have such a problem with it. It's not like 10% is betting the farm on economic apocalypse. Gold could be a lifesaver at best, but even at its worst it has been a nice little stabilizer.
In most time periods, a modest allocation to gold didn't boost performance. Maybe in a few cherry-picked time periods. In fact it didn't outperform in even the 1987-2017 period (https://www.portfoliovisualizer.com/bac ... 5&Gold2=10). Not sure how they calculated that.

Also, how do they offer disaster protection?
GRP wrote:
Wed Oct 03, 2018 6:23 pm
wolf359 wrote:
Wed Oct 03, 2018 6:08 pm
GRP wrote:
Mon Oct 01, 2018 5:58 pm
There's always a case for gold. In fact, it should form the core of everyone's portfolio as a form of universal money -- just in case. 10% or so core holding in gold should be at the heart of any investor's assets.
Please don't take this question the wrong way, but if gold is universal money, how exactly does one spend it?

I know how to spend cash, or use credit cards. How do I spend gold? I cannot exchange it for food, or utilities, pay my mortgage, or otherwise use it the way I'd expect to use money.

If it's simply a store of money, then why gold and not any other non-depreciating hard asset like commodities, or real estate?

Gold doesn't seem to be very practical or functional as money, unless I'm using it wrong.

I've explored holding gold, and the closest I might get is the GOLD ETF. Why is it practical or desireable to hold actual physical gold as money? How do I even use it as money?
Right, definitely not taking it the wrong way. Always happy to discuss.

Here's my take, which people are free to disagree with.

Gold is universal money in both time and geography. Geographically so because you can go to pretty much any country in the world and exchange said gold for the local currency and spend it. There is a worldwide spot price that even one-man shops in huts in South Africa refer to via cell phones. They trade whatever currency for gold that individual gold panners collect and come to them with. They just weigh it out. Most people of course won't have to deal like that, and likely be in a first world dealer's shop. Be that as it may, gold is universal geographically.

People may object and say "Yeah, but I can also do that in U.S. dollars! And it's even easier! The U.S. dollar is the world's reserve currency!" Sure, but that's where the time aspect comes in. Gold has been money for thousands of years. The U.S. dollar has been around for a fraction of that time and has done nothing but lose value in that time. (While gold has maintained purchasing power more or less) People often forget that before WWI, the pound sterling was the world's reserve currency. Look what happened to it. The same could happen to the U.S. dollar. Who knows? Either way, gold clearly has stood the test of time in a way that nothing else has.

My 2 cents is all. :sharebeer
Yes, cash has lost value over time but what if you put it in a bank account/short term T-bills instead of under your mattress?

All Seasons
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Re: Barron's Making the Case for Gold

Post by All Seasons » Sun Oct 21, 2018 6:22 am

ignition wrote:
Sun Oct 21, 2018 6:02 am
GRP wrote:
Mon Oct 01, 2018 10:18 pm
Pelerus wrote:
Mon Oct 01, 2018 9:36 pm
am wrote:
Mon Oct 01, 2018 9:18 pm
Is 10% gold really going to help a mostly stock portfolio when the next disaster hits? I stay away from these little 5-10% bets because they don’t make much difference other than add complexity.
As a matter of fact, from 1987 to 2017 it did.

https://www.bloomberg.com/amp/news/arti ... good-hedge

Over that time period, a 55/35/10 stock/bond/gold portfolio outperformed a 60/40 portfolio by 55 basis points per year.
Exactly. Not only do modest allocations to gold boost portfolio performance in nominal times as you've said, they also offer disaster protection against the unthinkable.

Gold isn't some kind of religion or anything, it's just a tool. I don't get why people have such a problem with it. It's not like 10% is betting the farm on economic apocalypse. Gold could be a lifesaver at best, but even at its worst it has been a nice little stabilizer.
In most time periods, a modest allocation to gold didn't boost performance. Maybe in a few cherry-picked time periods. In fact it didn't outperform in even the 1987-2017 period (https://www.portfoliovisualizer.com/bac ... 5&Gold2=10).
Your example actually shows the portfolio with gold did outperform. It has higher risk-adjusted performance. The non-gold portfolio had a higher ending balance for that time period, but the risk/return ratio wasn’t as good.
The market portfolio is always a legitimate portfolio.

ignition
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Re: Barron's Making the Case for Gold

Post by ignition » Sun Oct 21, 2018 6:29 am

All Seasons wrote:
Sun Oct 21, 2018 6:22 am
ignition wrote:
Sun Oct 21, 2018 6:02 am
GRP wrote:
Mon Oct 01, 2018 10:18 pm
Pelerus wrote:
Mon Oct 01, 2018 9:36 pm
am wrote:
Mon Oct 01, 2018 9:18 pm
Is 10% gold really going to help a mostly stock portfolio when the next disaster hits? I stay away from these little 5-10% bets because they don’t make much difference other than add complexity.
As a matter of fact, from 1987 to 2017 it did.

https://www.bloomberg.com/amp/news/arti ... good-hedge

Over that time period, a 55/35/10 stock/bond/gold portfolio outperformed a 60/40 portfolio by 55 basis points per year.
Exactly. Not only do modest allocations to gold boost portfolio performance in nominal times as you've said, they also offer disaster protection against the unthinkable.

Gold isn't some kind of religion or anything, it's just a tool. I don't get why people have such a problem with it. It's not like 10% is betting the farm on economic apocalypse. Gold could be a lifesaver at best, but even at its worst it has been a nice little stabilizer.
In most time periods, a modest allocation to gold didn't boost performance. Maybe in a few cherry-picked time periods. In fact it didn't outperform in even the 1987-2017 period (https://www.portfoliovisualizer.com/bac ... 5&Gold2=10).
Your example actually shows the portfolio with gold did outperform. It has higher risk-adjusted performance. The non-gold portfolio had a higher ending balance for that time period, but the risk/return ratio wasn’t as good.
The original statement said it outperformed by 55 basis points. Instead it underperformed by 31 basis points. Yes, the sharpe ratio is 0.01 higher but that wasn't the claim.

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linenfort
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Re: Barron's Making the Case for Gold

Post by linenfort » Sun Oct 21, 2018 12:48 pm

hdas wrote:
Mon Oct 08, 2018 3:49 pm
Gold can't catch a break.....down 1% when stocks are collapsing, the 'Barbaric Relic' has a lot ground to recover before the momentum guys get interested. H
Barbarous
bogleheads, don't knock state lotteries. They helped defund the mafia.

hdas
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Re: Barron's Making the Case for Gold

Post by hdas » Sun Oct 21, 2018 1:14 pm

A nice article related: The Rise and Fall of a Barbarous Relic: The Role of Gold in the International Monetary System

Link:https://www.nber.org/papers/w6436
In this paper we analyze the changing role of gold in the international monetary system, in particular the persistence of gold holdings by monetary authorities for 20 years following the breakdown of the Brettone Woods system system and the Second Amendment to the Articles of Agreement of the International Monetary Fund which severed the formal link to gold. We stress four points. First, the gold-exchange standard was a recent arrangement that emerged only around 1900 in response to a set of historically-specific factors which also help to account for it smooth operation. How long those factors would have continued to support it will never be known, due to a great war and then a great depression. Second, a system which relied on inelastically supplied precious metal and elastcially suppled foreign exchange to meet the the world economy's demand for reserves was intrinsically fragile, prone to confidence problems, and a transmission belt for policy mistakes. Third, network externalities, statutory restrictions and habit all contributed to the persistence of the practice of holding gold reserves. But the hold of even factors as powerful as these inevitably weakens with time and the effects of their erosion are reinforced by the rise of international capital mobility, which increases the ease of holding other forms of reserves, both unborrowed and borrowed, and by the shift to greater exchange-rate flexibility, which according to our results diminishes the demand for reserves in general. Fourth and finally, network externalities, in conjunction with central bankers' collective sense of responsibility for the stability of the price of what remains an important reserve asset, suggest that the same factors which have long held in place the practice of holding gold reserves, when they come unstuck, may become unstuck all at once.

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permport
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Re: Barron's Making the Case for Gold

Post by permport » Sun Oct 21, 2018 4:13 pm

GRP wrote:
Sun Oct 21, 2018 5:15 am
Some lovely quotes for you folks.

"Gold and silver are the only substances, which have been, and continue to be, the universal currency of civilized nations. It is not necessary to enumerate the well-known properties which rendered them best fitted for a general medium of exchange. They were used, not only as ornaments and objects of luxury, but also for that particular purpose, from the earliest times. We learn from the most ancient and authentic of records, that Abraham was rich in cattle, in silver, and in gold; that he purchased a field for as much money as it is worth, and in payment weighed four hundred shekels of silver, current (money) with the merchant. And when we see that nations, differing in language, religion, habits, and on almost every subject susceptible of doubt, have, during a period of near four thousand years, agreed in one respect; and that gold and silver have, uninterruptedly to this day, continued to be the universal currency of the commercial and civilized world, it may safely be inferred, that they have also been found superior to any other substance in that permanency of value, which is the most necessary attribute of a circulating medium, in its character of the standard, that regulates the payment of debts, and the performance of contracts."
- Albert Gallatin, Longest-serving Treasury secretary


"Money is gold, and nothing else."
- J.P. Morgan
Interesting that Gallatin's use of the phrase "universal currency" is pretty much exactly the phrase you used. It really puts the role of gold in monetary history into stark perspective.

The more I think about it, the more I'm coming to the conclusion that gold and silver are universal money perhaps due to civilization's pure pragmatism. They are the 2 substances settled upon as money because there really isn't anything intrinsically superior.
Buy right and hold tight.

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linenfort
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Re: Barron's Making the Case for Gold

Post by linenfort » Mon Oct 22, 2018 1:01 pm

permport wrote:
Sun Oct 21, 2018 4:13 pm
The more I think about it, the more I'm coming to the conclusion that gold and silver are universal money perhaps due to civilization's pure pragmatism. They are the 2 substances settled upon as money because there really isn't anything intrinsically superior.
A Chemist Explains Why Gold Beat Out Lithium, Osmium, Einsteinium ...
November 19, 2010 Morning Edition TRANSCRIPT
https://www.npr.org/sections/money/2011 ... insteinium
bogleheads, don't knock state lotteries. They helped defund the mafia.

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Re: Barron's Making the Case for Gold

Post by alfaspider » Mon Oct 22, 2018 4:14 pm

GRP wrote:
Sun Oct 21, 2018 5:15 am
Some lovely quotes for you folks.

"Gold and silver are the only substances, which have been, and continue to be, the universal currency of civilized nations [/b]

"Money is gold, and nothing else."
- J.P. Morgan
Try showing up at your favorite major retailer and attempt to pay in gold or silver. I strongly suspect assertions that "gold is money" will fall on deaf ears.

It's also interesting that both those quotes come from a bit of a "golden era" of gold when effectively all American and European currencies were freely exchangeable for gold or silver by law and at a rate that was publicly known. While precious metals might have been usable as a medium of exchange prior to the 17th-18th centuries, the exchange rate would have likely varied considerably depending on the location, quantity, and who was doing the exchanging. The 19th century was also an era where the idea of fiat currency was still in its relative infancy and abuse was rife. During Gallatin's era, banks would issue their own paper currency, which was only worth something as long as the bank was still around (and the relatively unregulated banks were quite prone to failure). The 19th century was an era where monetary policy was a hot-button political issue (consider the "Cross of Gold" speech by Williams Jennings Bryan). Thus, rather than timeless quotes, these are quotes anchored in a particular sociopolitical context that gets lost when you consider them in isolation.

All Seasons
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Re: Barron's Making the Case for Gold

Post by All Seasons » Mon Oct 22, 2018 5:28 pm

alfaspider wrote:
Mon Oct 22, 2018 4:14 pm
GRP wrote:
Sun Oct 21, 2018 5:15 am
Some lovely quotes for you folks.

"Gold and silver are the only substances, which have been, and continue to be, the universal currency of civilized nations [/b]

"Money is gold, and nothing else."
- J.P. Morgan
Try showing up at your favorite major retailer and attempt to pay in gold or silver. I strongly suspect assertions that "gold is money" will fall on deaf ears.

It's also interesting that both those quotes come from a bit of a "golden era" of gold when effectively all American and European currencies were freely exchangeable for gold or silver by law and at a rate that was publicly known. While precious metals might have been usable as a medium of exchange prior to the 17th-18th centuries, the exchange rate would have likely varied considerably depending on the location, quantity, and who was doing the exchanging. The 19th century was also an era where the idea of fiat currency was still in its relative infancy and abuse was rife. During Gallatin's era, banks would issue their own paper currency, which was only worth something as long as the bank was still around (and the relatively unregulated banks were quite prone to failure). The 19th century was an era where monetary policy was a hot-button political issue (consider the "Cross of Gold" speech by Williams Jennings Bryan). Thus, rather than timeless quotes, these are quotes anchored in a particular sociopolitical context that gets lost when you consider them in isolation.
I don’t understand why people think that going to any country in the world and exchanging your gold for local currency is so hard.

It takes like 5 minutes.

Seriously, this whole chestnut that people resort to of “Try paying your restaurant bill in gold!” is ridiculous and misses the point of gold being a monetary asset.
The market portfolio is always a legitimate portfolio.

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Re: Barron's Making the Case for Gold

Post by hdas » Tue Oct 23, 2018 4:19 am

Gold is up 40 bucks or ~3.3% since the start of this thread. At the same time stocks down ~5.5%

columbia
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Re: Barron's Making the Case for Gold

Post by columbia » Tue Oct 23, 2018 5:26 am

If one were planning to buy gold today:

What do you know about the expected future value of that gold over the next 30 years, that the market doesn’t know?

I think I know the answer to that question, if you substituted “the S&P500” for gold; I have no idea how to answer it, as stated.

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Re: Barron's Making the Case for Gold

Post by alfaspider » Tue Oct 23, 2018 7:51 am

All Seasons wrote:
Mon Oct 22, 2018 5:28 pm
alfaspider wrote:
Mon Oct 22, 2018 4:14 pm
GRP wrote:
Sun Oct 21, 2018 5:15 am
Some lovely quotes for you folks.

"Gold and silver are the only substances, which have been, and continue to be, the universal currency of civilized nations [/b]

"Money is gold, and nothing else."
- J.P. Morgan
Try showing up at your favorite major retailer and attempt to pay in gold or silver. I strongly suspect assertions that "gold is money" will fall on deaf ears.

It's also interesting that both those quotes come from a bit of a "golden era" of gold when effectively all American and European currencies were freely exchangeable for gold or silver by law and at a rate that was publicly known. While precious metals might have been usable as a medium of exchange prior to the 17th-18th centuries, the exchange rate would have likely varied considerably depending on the location, quantity, and who was doing the exchanging. The 19th century was also an era where the idea of fiat currency was still in its relative infancy and abuse was rife. During Gallatin's era, banks would issue their own paper currency, which was only worth something as long as the bank was still around (and the relatively unregulated banks were quite prone to failure). The 19th century was an era where monetary policy was a hot-button political issue (consider the "Cross of Gold" speech by Williams Jennings Bryan). Thus, rather than timeless quotes, these are quotes anchored in a particular sociopolitical context that gets lost when you consider them in isolation.
I don’t understand why people think that going to any country in the world and exchanging your gold for local currency is so hard.

It takes like 5 minutes.

Seriously, this whole chestnut that people resort to of “Try paying your restaurant bill in gold!” is ridiculous and misses the point of gold being a monetary asset.
You can also easily exchange crude oil, copper, pork bellies, used iphones, loose cigarettes, or any number of commodities for local currencies in many major markets. The fact that there are many places to exchange gold is simply a reflection of the reasonably robust market for the commodity.

Daitokuji
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Re: Barron's Making the Case for Gold

Post by Daitokuji » Tue Oct 23, 2018 9:40 am

The value of gold is a vestigial remnant of past economics. Buffett, et. al. are correct. As a long term investment, it is a disaster. But just like bitcoin, beanie babies, baseball cards, you can trade it, it can gain value, etc.

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Re: Barron's Making the Case for Gold

Post by linenfort » Tue Oct 23, 2018 3:28 pm

Daitokuji wrote:
Tue Oct 23, 2018 9:40 am
Buffett, et. al. are correct.
You can't just say that and expect anyone to pay attention. It's like vineviz saying that Bogle is incorrect (on US-only versus international). There has to be an argument behind the statement. What are your reasons?
bogleheads, don't knock state lotteries. They helped defund the mafia.

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Re: Barron's Making the Case for Gold

Post by GRP » Fri Oct 26, 2018 8:32 pm

Some more quote fun to stir the pot. :twisted: :beer

"It's not sensible not to own gold... If you don't own gold, there is no sensible reason other than you don't know history or don't know economics."
- Ray Dalio

Excerpt here:

https://youtu.be/wK6mUl3YMwU

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permport
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Re: Barron's Making the Case for Gold

Post by permport » Sat Oct 27, 2018 2:47 pm

GRP wrote:
Fri Oct 26, 2018 8:32 pm
Some more quote fun to stir the pot. :twisted: :beer

"It's not sensible not to own gold... If you don't own gold, there is no sensible reason other than you don't know history or don't know economics."
- Ray Dalio

Excerpt here:

https://youtu.be/wK6mUl3YMwU
You're getting cheekier and cheekier with every post. :P
Buy right and hold tight.

JackoC
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Re: Barron's Making the Case for Gold

Post by JackoC » Sat Oct 27, 2018 3:12 pm

jalbert wrote:
Fri Oct 12, 2018 7:34 pm
I think the bigger point you're ignoring suggested in my post and more succinctly by Jiu Jitsu Fighter is the implication for the dollar's value if there's any question about the US paying back the $15T (much bigger probably by the time, if ever, that question becomes a market focus). That would overwhelm any effect of selling 5% of the world's above ground gold supply (US reserves approximately).
It is easy to construct narratives to justify a position, but we don’t know how it would play out.
The whole idea of some gold is 'we don't know'. But I think your previous point is still inherently weak. One major set of scenario's for gold is where markets recognize that US debt has become unpayable without a big real devaluation, before the US gets off the path toward that outcome, which it's now on. It very well might get off, I hope so. But if the US fiscal outlook were peachy rather than grim as it is now, that would be a much stronger argument against gold than 'we don't know how it will play out'. And *if* such a real devaluation becomes necessary (whether by deliberate high inflation or outright haircuts on debt repayments) the fact that the US govt sells its relatively small gold reserve at the same time, as one drop in the bucket of the solution, is hardly likely to contain the upside for gold much. Gold will explode in USD terms if the US ability to repay its debt at close to expected real value comes under broad market question, pretty much at all. That's not a 'narrative', that's common sense.

Whereas granted, if all continues to go not so badly and the US eventually sells its gold reserve, that will be bad for gold. But a small gold holding is for when things work out badly and the price explodes. It's small so you're a) not particularly betting things will work out really badly, and b) don't have to worry about it that much if things don't work out really badly. Some gold is tail risk protection that unlike out-of-the-money equity index put options doesn't necessarily cost you anything if things go well. Although, no free lunches, gold isn't (as) gteed to do very well in stock meltdowns as equity index put options. It's still IMO obviously very likely to do very well if US credit comes into serious question (not minor downgrades, not technical political shenanigans, but market recognition that the debt must be seriously devalued to be paid off).

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Re: Barron's Making the Case for Gold

Post by grayfox » Sun Oct 28, 2018 8:06 am

alfaspider wrote:
Tue Oct 23, 2018 7:51 am

You can also easily exchange crude oil, copper, pork bellies, used iphones, loose cigarettes, or any number of commodities for local currencies in many major markets. The fact that there are many places to exchange gold is simply a reflection of the reasonably robust market for the commodity.
Suppose you are in U.S. and will fly to Europe to buy a suit for $1,000. Which would you take?

Crude Oil: at $68 per 42 gal barrel, you would need about 15 barrels. Each barrel weighs close to 300 pounds. 4,500 pounds total. Impossible to bring on the plane.
Copper: at $2.73 per pound, you would need 366 pounds of copper. Checked baggage up to 50 pounds is allowed. You would have to ship it internationally. Fedex economy $988.20 from NY to Paris.
Pork Bellies: I don't know what pork bellies cost or how many pounds equal $1,000, but I'm sure they could not be stored indefinitely and have to be refrigerated.
Cigarettes: anywhere from $6 to $12 per pack. That would be 83 to 167 packs, or about 8 to 16 cartons. I don't think you would get through customs.
Used iPhones: Will be obsolete in no time. I have 10-year old computer that cost $3,000 and is not worth $50.

Gold: 1 troy ounce Gold coin that easily fits in your watch pocket is worth $1,235. Portable wealth (32.7mm diameter, 2.87mm thick). Lasts forever. Store of value.

Your proposal to use crude oil, pork bellies, cigarettes or used electronics makes the case for using Gold.
Last edited by grayfox on Sun Oct 28, 2018 8:36 am, edited 3 times in total.

hdas
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Re: Barron's Making the Case for Gold

Post by hdas » Sun Oct 28, 2018 8:18 am

Another interesting read:
Abstract
Is gold a hedge against sudden changes in stock and bond returns, or does it instead have a subtly different property, that of being a safe haven? This paper addresses these two interlinked questions. A safe haven is defined as a security that is uncorrelated with stocks and bonds in case of a market crash. This is counterpoised against a hedge, defined as a security that is uncorrelated with stocks or bonds on average. We study constant and time-varying relationships between stocks, bonds and gold in order to investigate the existence of a hedge and a safe haven. The empirical analysis examines US, UK and German stock and bond returns and their relationship with gold returns. We find that gold is a hedge against stocks on average and a safe haven in extreme stock market conditions. This finding suggests that the existence of a safe haven enhances the stability and resiliency of financial markets since it reduces investors' losses at times when a reduction is needed the most. A portfolio analysis further shows that the safe haven property is extremely short-lived so that an investor buying gold one day after a shock loses money.
Link: https://papers.ssrn.com/sol3/papers.cfm ... _id=952289

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Re: Barron's Making the Case for Gold

Post by alfaspider » Sun Oct 28, 2018 10:13 am

grayfox wrote:
Sun Oct 28, 2018 8:06 am
alfaspider wrote:
Tue Oct 23, 2018 7:51 am

You can also easily exchange crude oil, copper, pork bellies, used iphones, loose cigarettes, or any number of commodities for local currencies in many major markets. The fact that there are many places to exchange gold is simply a reflection of the reasonably robust market for the commodity.
Suppose you are in U.S. and will fly to Europe to buy a suit for $1,000. Which would you take?

Crude Oil: at $68 per 42 gal barrel, you would need about 15 barrels. Each barrel weighs close to 300 pounds. 4,500 pounds total. Impossible to bring on the plane.
Copper: at $2.73 per pound, you would need 366 pounds of copper. Checked baggage up to 50 pounds is allowed. You would have to ship it internationally. Fedex economy $988.20 from NY to Paris.
Pork Bellies: I don't know what pork bellies cost or how many pounds equal $1,000, but I'm sure they could not be stored indefinitely and have to be refrigerated.
Cigarettes: anywhere from $6 to $12 per pack. That would be 83 to 167 packs, or about 8 to 16 cartons. I don't think you would get through customs.
Used iPhones: Will be obsolete in no time. I have 10-year old computer that cost $3,000 and is not worth $50.

Gold: 1 troy ounce Gold coin that easily fits in your watch pocket is worth $1,235. Portable wealth (32.7mm diameter, 2.87mm thick). Lasts forever. Store of value.

Your proposal to use crude oil, pork bellies, cigarettes or used electronics makes the case for using Gold.
All of these barter options are vastly inferior to just using my credit card to buy a suit.

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permport
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Re: Barron's Making the Case for Gold

Post by permport » Sun Oct 28, 2018 3:42 pm

alfaspider wrote:
Sun Oct 28, 2018 10:13 am
grayfox wrote:
Sun Oct 28, 2018 8:06 am
alfaspider wrote:
Tue Oct 23, 2018 7:51 am

You can also easily exchange crude oil, copper, pork bellies, used iphones, loose cigarettes, or any number of commodities for local currencies in many major markets. The fact that there are many places to exchange gold is simply a reflection of the reasonably robust market for the commodity.
Suppose you are in U.S. and will fly to Europe to buy a suit for $1,000. Which would you take?

Crude Oil: at $68 per 42 gal barrel, you would need about 15 barrels. Each barrel weighs close to 300 pounds. 4,500 pounds total. Impossible to bring on the plane.
Copper: at $2.73 per pound, you would need 366 pounds of copper. Checked baggage up to 50 pounds is allowed. You would have to ship it internationally. Fedex economy $988.20 from NY to Paris.
Pork Bellies: I don't know what pork bellies cost or how many pounds equal $1,000, but I'm sure they could not be stored indefinitely and have to be refrigerated.
Cigarettes: anywhere from $6 to $12 per pack. That would be 83 to 167 packs, or about 8 to 16 cartons. I don't think you would get through customs.
Used iPhones: Will be obsolete in no time. I have 10-year old computer that cost $3,000 and is not worth $50.

Gold: 1 troy ounce Gold coin that easily fits in your watch pocket is worth $1,235. Portable wealth (32.7mm diameter, 2.87mm thick). Lasts forever. Store of value.

Your proposal to use crude oil, pork bellies, cigarettes or used electronics makes the case for using Gold.
All of these barter options are vastly inferior to just using my credit card to buy a suit.
You are now changing the subject though. This particular exchange started when you put forth the argument that gold was, in essence, not materially different from copper, crude oil, pork bellies, etc. Grayfox, in a detailed explanation, pointed out why your assertion wasn't that robust.

Nobody was saying that any of these options is superior in terms of day-to-day convenience as a credit card.
Buy right and hold tight.

Valuethinker
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Re: Barron's Making the Case for Gold

Post by Valuethinker » Sun Oct 28, 2018 4:32 pm

https://faculty.fuqua.duke.edu/~charvey ... nstant.pdf

https://scholar.harvard.edu/files/manki ... little.pdf

https://www.nber.org/papers/w18706
The Golden Dilemma
Claude B. Erb, Campbell R. Harvey
NBER Working Paper No. 18706
Issued in January 2013
NBER Program(s):Asset Pricing, International Finance and Macroeconomics
While gold objects have existed for thousands of years, gold's role in diversified portfolios is not well understood. We critically examine popular stories such as 'gold is an inflation hedge'. We show that gold may be an effective hedge if the investment horizon is measured in centuries. Over practical investment horizons, gold is an unreliable inflation hedge. We also explore valuation. The real price of gold is currently high compared to history. In the past, when the real price of gold was above average, subsequent real gold returns have been below average consistent with mean reversion. On the demand side, we focus on the official gold holdings of many countries. If prominent emerging markets increase their gold holdings to average per capita or per GDP holdings of developed countries, the real price of gold may rise even further from today's elevated levels. In the end, investors face a golden dilemma: 1) embrace a view that 'those who cannot remember the past are condemned to repeat it' and the purchasing power of gold is likely to revert to its mean or 2) embrace a view that the emergence of new markets represent a structural change and 'this time is different'.
https://www.nber.org/papers/w18759
Gold Returns
Robert J. Barro, Sanjay P. Misra
NBER Working Paper No. 18759
Issued in February 2013
NBER Program(s):Monetary Economics, Economic Fluctuations and Growth, Asset Pricing, Public Economics
From 1836 to 2011, the average real rate of price change for gold in the United States is 1.1% per year and the standard deviation is 13.1%, implying a one-standard-deviation confidence band for the mean of (0.1%, 2.1%). The covariances of gold's real rate of price change with consumption and GDP growth rates are small and statistically insignificantly different from zero. These negligible covariances suggest that gold's expected real rate of return--which includes an unobserved dividend yield--would be close to the risk-free rate, estimated to be around 1%. We study these properties within an asset-pricing model in which ordinary consumption and gold services are imperfect substitutes for the representative household. Disaster and other shocks impinge directly on consumption and GDP but not on stocks of gold. With a high elasticity of substitution between gold services and ordinary consumption, the model can generate a mean real rate of price change within the (0.1%, 2.1%) confidence band along with a small risk premium for gold. In this scenario, the bulk of gold's expected return corresponds to the unobserved dividend yield (the implicit rental income from holding gold) and only a small part comprises expected real price appreciation. Nevertheless, the uncertainty in gold returns is concentrated in the price-change component. The model can explain the time-varying volatility of real gold prices if preference shocks for gold services are small under the classical gold standard but large in other periods particularly because of shifting monetary roles for gold.

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permport
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Re: Barron's Making the Case for Gold

Post by permport » Sun Oct 28, 2018 4:53 pm

Valuethinker wrote:
Sun Oct 28, 2018 4:32 pm
https://faculty.fuqua.duke.edu/~charvey ... nstant.pdf

https://scholar.harvard.edu/files/manki ... little.pdf

https://www.nber.org/papers/w18706
The Golden Dilemma
Claude B. Erb, Campbell R. Harvey
NBER Working Paper No. 18706
Issued in January 2013
NBER Program(s):Asset Pricing, International Finance and Macroeconomics
While gold objects have existed for thousands of years, gold's role in diversified portfolios is not well understood. We critically examine popular stories such as 'gold is an inflation hedge'. We show that gold may be an effective hedge if the investment horizon is measured in centuries. Over practical investment horizons, gold is an unreliable inflation hedge. We also explore valuation. The real price of gold is currently high compared to history. In the past, when the real price of gold was above average, subsequent real gold returns have been below average consistent with mean reversion. On the demand side, we focus on the official gold holdings of many countries. If prominent emerging markets increase their gold holdings to average per capita or per GDP holdings of developed countries, the real price of gold may rise even further from today's elevated levels. In the end, investors face a golden dilemma: 1) embrace a view that 'those who cannot remember the past are condemned to repeat it' and the purchasing power of gold is likely to revert to its mean or 2) embrace a view that the emergence of new markets represent a structural change and 'this time is different'.
https://www.nber.org/papers/w18759
Gold Returns
Robert J. Barro, Sanjay P. Misra
NBER Working Paper No. 18759
Issued in February 2013
NBER Program(s):Monetary Economics, Economic Fluctuations and Growth, Asset Pricing, Public Economics
From 1836 to 2011, the average real rate of price change for gold in the United States is 1.1% per year and the standard deviation is 13.1%, implying a one-standard-deviation confidence band for the mean of (0.1%, 2.1%). The covariances of gold's real rate of price change with consumption and GDP growth rates are small and statistically insignificantly different from zero. These negligible covariances suggest that gold's expected real rate of return--which includes an unobserved dividend yield--would be close to the risk-free rate, estimated to be around 1%. We study these properties within an asset-pricing model in which ordinary consumption and gold services are imperfect substitutes for the representative household. Disaster and other shocks impinge directly on consumption and GDP but not on stocks of gold. With a high elasticity of substitution between gold services and ordinary consumption, the model can generate a mean real rate of price change within the (0.1%, 2.1%) confidence band along with a small risk premium for gold. In this scenario, the bulk of gold's expected return corresponds to the unobserved dividend yield (the implicit rental income from holding gold) and only a small part comprises expected real price appreciation. Nevertheless, the uncertainty in gold returns is concentrated in the price-change component. The model can explain the time-varying volatility of real gold prices if preference shocks for gold services are small under the classical gold standard but large in other periods particularly because of shifting monetary roles for gold.
Very interesting stuff. Time horizon may definitely help to explain differences in perspective and preferences for gold.

As someone who is wanting their portfolio to last indefinitely for the purposes of a family trust, this kind of empirical research actually encourages my continued holding of gold. For someone investing for just their own lifetime, the argument is much weaker.
Buy right and hold tight.

hicabob
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Re: Barron's Making the Case for Gold

Post by hicabob » Sun Oct 28, 2018 5:00 pm

MichCPA wrote:
Mon Oct 01, 2018 1:16 pm
Problem 1: Who cares about the Dow? It's not a good proxy of US stocks as a whole.

Dow actually has a pretty good correlation to the S+p 500 - dow gets bashed all the time but it was one of my first indexes when I saw the light so I get a little defensive :happy

https://finance.yahoo.com/chart/%5EGSPC ... In19fX0%3D

alfaspider
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Re: Barron's Making the Case for Gold

Post by alfaspider » Sun Oct 28, 2018 7:24 pm

permport wrote:
Sun Oct 28, 2018 3:42 pm
alfaspider wrote:
Sun Oct 28, 2018 10:13 am
grayfox wrote:
Sun Oct 28, 2018 8:06 am
alfaspider wrote:
Tue Oct 23, 2018 7:51 am

You can also easily exchange crude oil, copper, pork bellies, used iphones, loose cigarettes, or any number of commodities for local currencies in many major markets. The fact that there are many places to exchange gold is simply a reflection of the reasonably robust market for the commodity.
Suppose you are in U.S. and will fly to Europe to buy a suit for $1,000. Which would you take?

Crude Oil: at $68 per 42 gal barrel, you would need about 15 barrels. Each barrel weighs close to 300 pounds. 4,500 pounds total. Impossible to bring on the plane.
Copper: at $2.73 per pound, you would need 366 pounds of copper. Checked baggage up to 50 pounds is allowed. You would have to ship it internationally. Fedex economy $988.20 from NY to Paris.
Pork Bellies: I don't know what pork bellies cost or how many pounds equal $1,000, but I'm sure they could not be stored indefinitely and have to be refrigerated.
Cigarettes: anywhere from $6 to $12 per pack. That would be 83 to 167 packs, or about 8 to 16 cartons. I don't think you would get through customs.
Used iPhones: Will be obsolete in no time. I have 10-year old computer that cost $3,000 and is not worth $50.

Gold: 1 troy ounce Gold coin that easily fits in your watch pocket is worth $1,235. Portable wealth (32.7mm diameter, 2.87mm thick). Lasts forever. Store of value.

Your proposal to use crude oil, pork bellies, cigarettes or used electronics makes the case for using Gold.
All of these barter options are vastly inferior to just using my credit card to buy a suit.
You are now changing the subject though. This particular exchange started when you put forth the argument that gold was, in essence, not materially different from copper, crude oil, pork bellies, etc. Grayfox, in a detailed explanation, pointed out why your assertion wasn't that robust.

Nobody was saying that any of these options is superior in terms of day-to-day convenience as a credit card.
You are misstating my argument. Commodities are of course all unique, but my point was simply that gold is a commodity. If it were money, you wouldn’t need to convert it to money first before spending it.

Atgard
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Re: Barron's Making the Case for Gold

Post by Atgard » Sun Oct 28, 2018 8:22 pm

There are many arguments for and against gold I won't belabor. And I won't argue it's as easy to use as a credit card day-to-day... but it is trivially easy to exchange gold for local currency at good rates in most places in the world. Probably there are more areas that will accept gold than will accept your credit card, in fact. (Not to mention you may get stuck with CC foreign transaction fees and currency conversion fees if you use cash or card.) Every city in the U.S. has multiple gold dealers who will accept your gold and give you cash or check in minutes. Many banks in many countries around the world will literally buy & sell gold coins at the teller window. So it is literally as easy as walking in and depositing a gold coin into your bank account, like cash. The spot price is available on these magic cell phones 24/7.

Just because you haven't personally done it doesn't mean it's difficult or hard to access. It's like your non-investing friend who doesn't know how to buy stocks or open a brokerage account, it's just some big obstacle to them. "How do I buy VTI," "I can't buy groceries with VTI, etc." It's the same thing. For most people, trading cash for a gold coin at a bank or shop is easier than opening a 401k.

For those of you who still say it's too hard to buy lunch with your gold coin: let's go to lunch, I'll gladly take your gold coin and buy your lunch -- can't get any easier than that!

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