WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
LeftCoastIV
Posts: 765
Joined: Wed May 01, 2019 7:19 pm

WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by LeftCoastIV »

WSJ article: https://www.wsj.com/articles/this-shoul ... lead_pos10

Interesting article in the WSJ on gold performance this year, during a period of high inflation. This year has challenged the belief that gold is a safe inflation hedge, or at least that it's more complicated than that. For example, inflation leads to a government response (notably Fed rate hikes), which in turn increases the yields on Treasuries, which in turn makes treasuries more attractive as they pay interest versus gold that is strictly a commodity.
User avatar
vineviz
Posts: 14921
Joined: Tue May 15, 2018 1:55 pm
Location: Baltimore, MD

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by vineviz »

Thanks for the link. This year has come as no surprise to people familiar with the evidence on gold, since it has always been more of a currency hedge than an inflation hedge.

And not a particularly reliable one in either case over the short run.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
User avatar
nisiprius
Advisory Board
Posts: 48485
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by nisiprius »

Gold spiked in the absence of inflation circa 2002-2012. It may sound like sour grapes and it was certainly a good problem for gold owners, but gold spiking in the absence of inflation makes gold unpredictable and not having the reliable connection with inflation that some advocates suggest.

And the elephant in the room is the period around 1920, the highest inflation in the history of the CPI despite the dollar being pegged to gold. Gold and the dollar both lost half their purchasing power.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
rossington
Posts: 1296
Joined: Fri Jun 07, 2019 2:00 am
Location: Florida

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by rossington »

LeftCoastIV wrote: Mon Sep 19, 2022 6:44 am WSJ article: https://www.wsj.com/articles/this-shoul ... lead_pos10

Interesting article in the WSJ on gold performance this year, during a period of high inflation. This year has challenged the belief that gold is a safe inflation hedge, or at least that it's more complicated than that. For example, inflation leads to a government response (notably Fed rate hikes), which in turn increases the yields on Treasuries, which in turn makes treasuries more attractive as they pay interest versus gold that is strictly a commodity.
Couldn't read the article due to the paywall, but do we know for a fact that gold traders and retail gold investors are selling gold to buy Treasuries?
Or is gold simply a victim of the this year's "nowhere to hide"/no confidence scenario?
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
User avatar
Forester
Posts: 2375
Joined: Sat Jan 19, 2019 1:50 pm
Location: UK

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by Forester »

Gold is one of best performing assets this year if priced in the Euro, Sterling, Yen and Aussie Dollar. This year's star asset has been the US Dollar.
Amateur Self-Taught Senior Macro Strategist
User avatar
Chief_Engineer
Posts: 167
Joined: Wed Jan 15, 2014 8:32 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by Chief_Engineer »

Since real yields have increased, doesn't it make sense that gold would not perform as well? Gold has an expected real return of 0%. Long TIPS are now well above 1% real. Gold is a less attractive inflation hedge in comparison.

Does this make sense? This is the first time I've thought of gold in this way.
alluringreality
Posts: 1059
Joined: Tue Nov 12, 2019 9:59 am

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by alluringreality »

Chief_Engineer wrote: Tue Sep 20, 2022 8:56 am Since real yields have increased, doesn't it make sense that gold would not perform as well?
Paul Krugman has essentially suggested a similar line of thought.

"gold price isn't driven by inflation, but by real interest rates -- the return on alternative assets."
https://twitter.com/paulkrugman/status/ ... 39200?s=20

"Gold prices have generally moved with real interest rates (shown inverted), NOT fears of collapse or inflation"
https://twitter.com/paulkrugman/status/ ... 05?lang=en

August 2020: "Gold is high because bond yields are so low"
https://twitter.com/paulkrugman/status/ ... 10273?s=20
45% US Indexes, 25% Ex-US Indexes, 30% Fixed Income - Buy & Hold
strummer6969
Posts: 604
Joined: Tue Dec 15, 2020 10:59 am

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by strummer6969 »

I never see much discussion about it but the capital gains tax rate on gold isn't very appealing either. 28% :| It's probably a better investment if you live in certain other countries. It's been terrible in the U.S.
robertfromtx
Posts: 29
Joined: Wed Jan 01, 2020 4:19 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by robertfromtx »

Chief_Engineer wrote: Tue Sep 20, 2022 8:56 am Since real yields have increased, doesn't it make sense that gold would not perform as well? Gold has an expected real return of 0%. Long TIPS are now well above 1% real. Gold is a less attractive inflation hedge in comparison.

Does this make sense? This is the first time I've thought of gold in this way.
Certainly makes sense to me. Comparing gold prices to treasury yields around 1980, I see that the peak in gold prices coincided with a pop (upward) in treasury yields. Gold prices were killed for the next 20 years.

I do sometimes wonder if people mistake the bull run of gold in the 1970's as causal reaction to inflation, instead of it just being a combination of (1) pent up demand from returning to a legal ownership ability in the US (2) an average consensus that gold was a good investment as a memory from the Great Depression.

I'm young, but my father has told me that in the 1970's people were suggesting he invest in gold instead of buying farmland (he's a farmer). I just don't think anyone is saying that today. (p.s. he bought land and did very well)
User avatar
arcticpineapplecorp.
Posts: 12035
Joined: Tue Mar 06, 2012 8:22 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by arcticpineapplecorp. »

It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
User avatar
vineviz
Posts: 14921
Joined: Tue May 15, 2018 1:55 pm
Location: Baltimore, MD

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by vineviz »

Chief_Engineer wrote: Tue Sep 20, 2022 8:56 am Since real yields have increased, doesn't it make sense that gold would not perform as well? Gold has an expected real return of 0%. Long TIPS are now well above 1% real. Gold is a less attractive inflation hedge in comparison.
Except it is NOT a reliable inflation hedge even when real yields are low.

The underlying dependence is more with USD strength and weakness. Gold functions more like a currency hedge than an inflation hedge, though in my experience investors with reasonable international equity diversification already have a reasonably diversified currency exposure and don't need an explicit gold allocation.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Robot Monster
Posts: 4199
Joined: Sun May 05, 2019 11:23 am

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by Robot Monster »

Yeah, I see Goldman recommended gold as a currency hedge a couple years ago...

"Goldman Warns Dollar’s Role as World Reserve Currency Is at Risk...Goldman recommends investors keep buying gold and boosted forecasts."
https://www.bloomberg.com/news/articles ... nd=premium
User avatar
arcticpineapplecorp.
Posts: 12035
Joined: Tue Mar 06, 2012 8:22 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by arcticpineapplecorp. »

Robot Monster wrote: Tue Sep 20, 2022 10:37 am Yeah, I see Goldman recommended gold as a currency hedge a couple years ago...

"Goldman Warns Dollar’s Role as World Reserve Currency Is at Risk...Goldman recommends investors keep buying gold and boosted forecasts."
https://www.bloomberg.com/news/articles ... nd=premium
because Goldman makes money as long as you're buying and selling things they're recommending you buy and sell:
Global Markets Business

Global Markets consists of services for Goldman's clients that buy or sell financial products, raise funding, and manage risk. Goldman functions as a market maker in this division. The company makes markets in the areas of fixed income, equity, currency, and commodity products. This segment also consists of activities in the futures and options markets.

Global markets brought in $21.2 billion in net revenues in 2020 for Goldman, its largest contributing business segment

Source: https://www.investopedia.com/articles/m ... -money.asp
As Nedsaid wrote: "A fool and his money are good for business."
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
Robot Monster
Posts: 4199
Joined: Sun May 05, 2019 11:23 am

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by Robot Monster »

arcticpineapplecorp. wrote: Tue Sep 20, 2022 10:44 am
Robot Monster wrote: Tue Sep 20, 2022 10:37 am Yeah, I see Goldman recommended gold as a currency hedge a couple years ago...

"Goldman Warns Dollar’s Role as World Reserve Currency Is at Risk...Goldman recommends investors keep buying gold and boosted forecasts."
https://www.bloomberg.com/news/articles ... nd=premium
because Goldman makes money as long as you're buying and selling things they're recommending you buy and sell:
Global Markets Business

Global Markets consists of services for Goldman's clients that buy or sell financial products, raise funding, and manage risk. Goldman functions as a market maker in this division. The company makes markets in the areas of fixed income, equity, currency, and commodity products. This segment also consists of activities in the futures and options markets.

Global markets brought in $21.2 billion in net revenues in 2020 for Goldman, its largest contributing business segment

Source: https://www.investopedia.com/articles/m ... -money.asp
As Nedsaid wrote: "A fool and his money are good for business."
Not trying to push Goldman. Just saying it appears they buy into the idea that gold functions as a currency hedge.
User avatar
arcticpineapplecorp.
Posts: 12035
Joined: Tue Mar 06, 2012 8:22 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by arcticpineapplecorp. »

Robot Monster wrote: Tue Sep 20, 2022 10:58 am
arcticpineapplecorp. wrote: Tue Sep 20, 2022 10:44 am
Robot Monster wrote: Tue Sep 20, 2022 10:37 am Yeah, I see Goldman recommended gold as a currency hedge a couple years ago...

"Goldman Warns Dollar’s Role as World Reserve Currency Is at Risk...Goldman recommends investors keep buying gold and boosted forecasts."
https://www.bloomberg.com/news/articles ... nd=premium
because Goldman makes money as long as you're buying and selling things they're recommending you buy and sell:
Global Markets Business

Global Markets consists of services for Goldman's clients that buy or sell financial products, raise funding, and manage risk. Goldman functions as a market maker in this division. The company makes markets in the areas of fixed income, equity, currency, and commodity products. This segment also consists of activities in the futures and options markets.

Global markets brought in $21.2 billion in net revenues in 2020 for Goldman, its largest contributing business segment

Source: https://www.investopedia.com/articles/m ... -money.asp
As Nedsaid wrote: "A fool and his money are good for business."
Not trying to push Goldman. Just saying it appears they buy into the idea that gold functions as a currency hedge.
i know you're not pushing goldman. i'm making a point that goldman will push/pull whatever it thinks will make them money because they've convinced their clients to buy/sell whatever they say. "It's difficult to get a man to understand something when his salary depends upon his not understanding it."--Upton Sinclair
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
User avatar
vineviz
Posts: 14921
Joined: Tue May 15, 2018 1:55 pm
Location: Baltimore, MD

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by vineviz »

arcticpineapplecorp. wrote: Tue Sep 20, 2022 12:04 pm i know you're not pushing goldman. i'm making a point that goldman will push/pull whatever it thinks will make them money because they've convinced their clients to buy/sell whatever they say. "It's difficult to get a man to understand something when his salary depends upon his not understanding it."--Upton Sinclair
It's doubtful that many of Goldman's clients NEED an additional currency hedge, but that doesn't mean their analysis of how gold behaves is wrong.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
JayB
Posts: 445
Joined: Sat May 28, 2022 9:57 am

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by JayB »

strummer6969 wrote: Tue Sep 20, 2022 9:47 am I never see much discussion about it but the capital gains tax rate on gold isn't very appealing either. 28% :| It's probably a better investment if you live in certain other countries. It's been terrible in the U.S.
28% is the maximum capital gains rate for collectibles like gold. These gains are taxed as if they are ordinary income, subject to a 28% cap.
User avatar
snackdog
Posts: 2124
Joined: Wed Nov 12, 2014 3:57 am

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by snackdog »

Have you read what Buffett says about Gold?
dh
Posts: 598
Joined: Sun Mar 13, 2011 8:01 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by dh »

snackdog wrote: Tue Sep 20, 2022 8:19 pm Have you read what Buffett says about Gold?
+1
I was going to write the exact same question.
strummer6969
Posts: 604
Joined: Tue Dec 15, 2020 10:59 am

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by strummer6969 »

JayB wrote: Tue Sep 20, 2022 7:52 pm
strummer6969 wrote: Tue Sep 20, 2022 9:47 am I never see much discussion about it but the capital gains tax rate on gold isn't very appealing either. 28% :| It's probably a better investment if you live in certain other countries. It's been terrible in the U.S.
28% is the maximum capital gains rate for collectibles like gold. These gains are taxed as if they are ordinary income, subject to a 28% cap.
That is true. It would depend on your tax bracket. I guess I was just speaking for myself.
heyyou
Posts: 4315
Joined: Tue Feb 20, 2007 3:58 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by heyyou »

Of course gold has not grown, I bought some this spring.
JBTX
Posts: 9953
Joined: Wed Jul 26, 2017 12:46 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by JBTX »

Being we are US centric here we tend to think in our own US bubble. But turns out gold is largely driven by global supply and demand, and disproportionately by emerging markets

https://www.barrons.com/articles/BL-FUNDSB-11924

Seems to me these US based interest rate explanations, real or otherwise, could be problematic and would only hold “all else equal”
Poe22
Posts: 190
Joined: Thu Sep 15, 2022 1:21 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by Poe22 »

Apart from the tax issue, is it fair to say that gold's value lies

a) in its low correlation to other asset classes, such as stocks and bonds?
b) Thus leading to less volatility and higher sharpe ratios of portfolios when added in a reasonable size (5-15%)?
c) Higher safe withdrawal rates?
d) Higher risk adjusted returns?
Last edited by Poe22 on Wed Sep 21, 2022 2:54 am, edited 3 times in total.
Capster1
Posts: 89
Joined: Thu Jun 24, 2021 11:34 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by Capster1 »

strummer6969 wrote: Tue Sep 20, 2022 9:47 am I never see much discussion about it but the capital gains tax rate on gold isn't very appealing either. 28% :| It's probably a better investment if you live in certain other countries. It's been terrible in the U.S.
I would think the term “buy and hold” applies to gold more so than anything else. Never sell it, that way you never have to pay that 28%.
User avatar
vineviz
Posts: 14921
Joined: Tue May 15, 2018 1:55 pm
Location: Baltimore, MD

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by vineviz »

Poe22 wrote: Wed Sep 21, 2022 1:45 am Apart from the tax issue, is it fair to say that gold's value lies

a) in its low correlation to other asset classes, such as stocks and bonds?
b) Thus leading to less volatility and higher sharpe ratios of portfolios when added in a reasonable size (5-15%)?
c) Higher safe withdrawal rates?
d) Higher risk adjusted returns?
No.

a) is probably true but the other three points don't necessarily follow from that.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Hydromod
Posts: 907
Joined: Tue Mar 26, 2019 10:21 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by Hydromod »

vineviz wrote: Wed Sep 21, 2022 6:17 am
Poe22 wrote: Wed Sep 21, 2022 1:45 am Apart from the tax issue, is it fair to say that gold's value lies

a) in its low correlation to other asset classes, such as stocks and bonds?
b) Thus leading to less volatility and higher sharpe ratios of portfolios when added in a reasonable size (5-15%)?
c) Higher safe withdrawal rates?
d) Higher risk adjusted returns?
No.

a) is probably true but the other three points don't necessarily follow from that.
I would say that a) is probably true, and it's probably true that leads to less portfolio volatility. But sharpe ratios also depend on returns, which tend to be dragged down by gold. So the stated conclusions don't necessarily follow.
User avatar
abuss368
Posts: 27332
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by abuss368 »

vineviz wrote: Wed Sep 21, 2022 6:17 am
Poe22 wrote: Wed Sep 21, 2022 1:45 am Apart from the tax issue, is it fair to say that gold's value lies

a) in its low correlation to other asset classes, such as stocks and bonds?
b) Thus leading to less volatility and higher sharpe ratios of portfolios when added in a reasonable size (5-15%)?
c) Higher safe withdrawal rates?
d) Higher risk adjusted returns?
No.

a) is probably true but the other three points don't necessarily follow from that.
Hi Vince -

What are your thoughts regarding gold and commodities from a portfolio construction aspect?

Is there a place for this asset class is a low cost and diversified investment portfolio?

Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
HicksSt
Posts: 23
Joined: Sun Sep 15, 2013 6:30 am

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by HicksSt »

Hi Vince -

What are your thoughts regarding gold and commodities from a portfolio construction aspect?

Is there a place for this asset class is a low cost and diversified investment portfolio?

Best.
Tony
You might want to look into the philosophy behind the Permanent Portfolio, if you have not already.
User avatar
vineviz
Posts: 14921
Joined: Tue May 15, 2018 1:55 pm
Location: Baltimore, MD

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by vineviz »

Hydromod wrote: Wed Sep 21, 2022 6:46 am
vineviz wrote: Wed Sep 21, 2022 6:17 am
Poe22 wrote: Wed Sep 21, 2022 1:45 am Apart from the tax issue, is it fair to say that gold's value lies

a) in its low correlation to other asset classes, such as stocks and bonds?
b) Thus leading to less volatility and higher sharpe ratios of portfolios when added in a reasonable size (5-15%)?
c) Higher safe withdrawal rates?
d) Higher risk adjusted returns?
No.

a) is probably true but the other three points don't necessarily follow from that.
I would say that a) is probably true, and it's probably true that leads to less portfolio volatility. But sharpe ratios also depend on returns, which tend to be dragged down by gold. So the stated conclusions don't necessarily follow.
Indeed, and generally speaking unless gold has a HIGHER expected return than bonds it's not likely to improve sustainable withdrawal rates for a retiree.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
treecat
Posts: 28
Joined: Sun Jan 09, 2022 5:44 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by treecat »

As of August, gold was at least doing better than stocks/bonds... 1/1/22 to 8/31/22 returns via PV:

Code: Select all

VT     -17.67%  (world stock)
TIP     -8.59%  (interm. TIPS)
VFITX   -8.26%  (interm. treasuries)
GLD     -6.84%  (gold)
SGOV    +0.34%  (near-cash)
DBC    +23.77%  (commodities futures)
In my portfolio the proportion of gold ETF actually increased during 2022 just because it did better than the stocks/bonds that comprise most of the rest. Doesn't fulfill the promise of pro-gold people but could be worse...
cheezit
Posts: 462
Joined: Sat Jul 14, 2018 7:28 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by cheezit »

robertfromtx wrote: Tue Sep 20, 2022 10:00 am I do sometimes wonder if people mistake the bull run of gold in the 1970's as causal reaction to inflation, instead of it just being a combination of (1) pent up demand from returning to a legal ownership ability in the US (2) an average consensus that gold was a good investment as a memory from the Great Depression.
I don't understand what you mean wrt. #2 - if you held gold during the Great Depression, you took a bath when the government seized it all, gave you USD in return, and then immediately devalued the dollar giving you a 40% haircut (from $20.67/oz with convertibility to $35/oz and without convertibility).

I suppose that if you market timed perfectly - buying gold in August 1929, and using it to buy real estate with the transactions closing in March of 1933 - you would have come out the other side swimmingly, but you can say the same about a lot of things.
Poe22
Posts: 190
Joined: Thu Sep 15, 2022 1:21 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by Poe22 »

vineviz wrote: Wed Sep 21, 2022 8:18 am Indeed, and generally speaking unless gold has a HIGHER expected return than bonds it's not likely to improve sustainable withdrawal rates for a retiree.
I too don't like the fact that gold's not a productive asset. So I also agree that it's the wrong thing to own for a multi-decade accumulation phase. But in retirement, living off your portfolio? Not so sure.

What if we indeed entered a decade of stock & bond underperformance? The benefit of adding gold and maybe commodities to a portfolio in small amounts might be that you can withdraw your income from that part when stocks & bonds tank.

Gold as protection against the loss of purchasing power (reflected in real interest rates), and commodities (and/or REITs) as inflation hedge?

Btw, I do not agree with the assumption that holding a diversified stock portfolio is a very good inflation protection per se. We all know that market cap funds are growth-heavy. I believe SCV can't help either, because it's highly correlated to the total stock market compared to gold/commodities.
Last edited by Poe22 on Wed Sep 21, 2022 9:44 am, edited 4 times in total.
Maverick3320
Posts: 979
Joined: Tue May 12, 2015 2:59 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by Maverick3320 »

alluringreality wrote: Tue Sep 20, 2022 9:21 am
Chief_Engineer wrote: Tue Sep 20, 2022 8:56 am Since real yields have increased, doesn't it make sense that gold would not perform as well?
Paul Krugman has essentially suggested a similar line of thought.

"gold price isn't driven by inflation, but by real interest rates -- the return on alternative assets."
https://twitter.com/paulkrugman/status/ ... 39200?s=20

"Gold prices have generally moved with real interest rates (shown inverted), NOT fears of collapse or inflation"
https://twitter.com/paulkrugman/status/ ... 05?lang=en

August 2020: "Gold is high because bond yields are so low"
https://twitter.com/paulkrugman/status/ ... 10273?s=20

"The growth of the Internet will slow drastically, as the flaw in 'Metcalfe's law'–which states that the number of potential connections in a network is proportional to the square of the number of participants–becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's."

-Paul Krugman, 1998
Robot Monster
Posts: 4199
Joined: Sun May 05, 2019 11:23 am

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by Robot Monster »

Maverick3320 wrote: Wed Sep 21, 2022 9:39 am
alluringreality wrote: Tue Sep 20, 2022 9:21 am
Chief_Engineer wrote: Tue Sep 20, 2022 8:56 am Since real yields have increased, doesn't it make sense that gold would not perform as well?
Paul Krugman has essentially suggested a similar line of thought.

"gold price isn't driven by inflation, but by real interest rates -- the return on alternative assets."
https://twitter.com/paulkrugman/status/ ... 39200?s=20

"Gold prices have generally moved with real interest rates (shown inverted), NOT fears of collapse or inflation"
https://twitter.com/paulkrugman/status/ ... 05?lang=en

August 2020: "Gold is high because bond yields are so low"
https://twitter.com/paulkrugman/status/ ... 10273?s=20

"The growth of the Internet will slow drastically, as the flaw in 'Metcalfe's law'–which states that the number of potential connections in a network is proportional to the square of the number of participants–becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's."

-Paul Krugman, 1998
Well, Krugman said that quote "was a thing for the Times magazine’s 100th anniversary, written as if by someone looking back from 2098, so the point was to be fun and provocative, not to engage in careful forecasting; I mean, there are lines in there about St. Petersburg having more skyscrapers than New York, which was not a prediction, just a thought-provoker."
Business Insider link
User avatar
vineviz
Posts: 14921
Joined: Tue May 15, 2018 1:55 pm
Location: Baltimore, MD

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by vineviz »

Poe22 wrote: Wed Sep 21, 2022 9:18 am What if we indeed entered a decade of stock & bond underperformance? The benefit of adding gold and maybe commodities to a portfolio in small amounts might be that you can withdraw your income from that part when stocks & bonds tank.
Again, you need a relatively high expected real return for gold in order to tilt the odds in your favor. Otherwise, it's just as likely to make such a decade worse as it is to make it better.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Fremdon Ferndock
Posts: 1021
Joined: Fri Dec 24, 2021 11:26 am

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by Fremdon Ferndock »

Unlike stocks, the longer you hold gold the less benefit it delivers. High returns are spotty and limited to short time periods. If you happen to hit one of the those time periods, good for you. It is NOT a great buy-and-hold investment.

According to Portfolio Visualizer, here are the rolling returns since 1972:

1 year 9.77%
3 years 7.14%
5 years 6.31%
7 years 6.01%
10 years 5.26%
15 years 5.02%
"Risk is what’s left over when you think you’ve thought of everything." ~ Morgan Housel
homebuyer6426
Posts: 1439
Joined: Tue Feb 07, 2017 8:08 am

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by homebuyer6426 »

Does anyone else get bothered by the recent trend in news article titles of "<statement>. Here's <shorter statement>."?

It's so ubiquitous these days, they must have done a focus group to find that it gets more clicks. Kind of feels like they are talking to you like a kid though.

Regarding gold, the best time to load up on it seems to be during a prolonged period of low inflation/market stability. You get a lot of people disappointed with it because they're buying it in a highly reactive way when inflation has already started ramping up. By then the price is already high. Buy gold when things are stable. In between stock downturns and stock reckless exuberance. That being said, I wouldn't hold more than a small amount.
65% Total Stock Market | 30% Consumer Staples | 5% Short Term Reserves
alluringreality
Posts: 1059
Joined: Tue Nov 12, 2019 9:59 am

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by alluringreality »

Maverick3320 wrote: Wed Sep 21, 2022 9:39 am -Paul Krugman, 1998
I really have zero idea if you actually have any sort of reasonable point. Models generally amount to simplifications. In the realm of economics or finance, it's possible that past behavior may not predict the future. I consider his take on gold more reasonable than some others I've read, so I wouldn't have expected rising rates to increase the price of gold, yet I also see no reason to consider his positions infallible.
https://www.nytimes.com/2022/07/21/opin ... ation.html
45% US Indexes, 25% Ex-US Indexes, 30% Fixed Income - Buy & Hold
JackoC
Posts: 4088
Joined: Sun Aug 12, 2018 11:14 am

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by JackoC »

Chief_Engineer wrote: Tue Sep 20, 2022 8:56 am Since real yields have increased, doesn't it make sense that gold would not perform as well? Gold has an expected real return of 0%. Long TIPS are now well above 1% real. Gold is a less attractive inflation hedge in comparison.

Does this make sense? This is the first time I've thought of gold in this way.
I think that makes a lot of sense as *one* driver of gold's price, with the slight modification that the expected real return of gold (though never directly observable) probably isn't a constant at 0% but rather tends to fall when real bond yields fall and rise when real bond yields rise. Which means the inverse for the gold price, it tends to rise when real bond yields decline and fall when real bond yields rise (like recently).

But it's one driver and doesn't make other explanations wrong. It's also apparent that gold to some degree behaves like a currency, so when the price of almost every other 'real' currency is lower in USD terms like recently it's not surprising to see gold's value in USD also is. Of course, that's also partly related to the first point: higher USD real rates are one reason the dollar is stronger.

Also as was mentioned gold has global supply/demand dynamics that don't directly depend on US rates or the foreign exchange value of USD (demand as a store of wealth in India, big new mining projects or extraction technology, etc). The rate argument also would be a global one but by and large big moves in global rates are in the same direction.

I'd expect the actual inflation protection property of gold, to the extent it exists, to play out over time as the price level increases. It wouldn't be surprising if it was drowned out most of the time short term by the factors above or others.

I believe gold is best justified as a small allocation for very bad times, not necessarily a return to a savage state of nature where, as totally anti-gold people often point out, you might have to worry more about not drowning or frying, defending yourself and so forth. Rather, for when things are still basically orderly but much crappier (unreliable local currency, weak property rights and rule of law, etc.), the situation a lot of the world's population lives with normally. Argentina not Somalia IOW, without the USD (or perhaps EUR) which fills at least part of that role for those people now. If I thought that was impossible in the US I wouldn't have any gold. I have a bit.
abc132
Posts: 1351
Joined: Thu Oct 18, 2018 1:11 am

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by abc132 »

I think you need to commit to an expected real return if you invest in gold, and to acknowledge and consider that it's price has a speculative component.

Historically expected return is around 0% real, but since 1970 it has been more like 4-6% real.

The speculative nature of gold means it will be difficult to predict gold prices in advance, despite storing some fundamental value.

2022-2052 could be 0% real, -4 to -6% real, or 4 to 6% real.

In 2052 it will seem obvious.
cheezit
Posts: 462
Joined: Sat Jul 14, 2018 7:28 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by cheezit »

abc132 wrote: Wed Sep 21, 2022 11:59 am 2022-2052 could be 0% real, -4 to -6% real, or 4 to 6% real.

In 2052 it will seem obvious.
Absolutely.

Look back twenty years from today, and gold returned a compounded average of +5.8% real/year over the period.
Look back to the previous twenty years, and gold had a real CAGR of -4.35% over the period.
Look back to the ten years prior to that, and gold had a real CAGR of +10.2% over the (shorter) period.

With possibly the exception of the 1972-1982 period (where the piper got paid for many years of capital imbalances from the final third of the Bretton-Woods era, during which the USD was widely acknowledged to be overvalued), I don't think those returns would have been widely predicted a priori - you have to make up stories to explain them after the fact.
Poe22
Posts: 190
Joined: Thu Sep 15, 2022 1:21 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by Poe22 »

JackoC wrote: Wed Sep 21, 2022 11:23 am I believe gold is best justified as a small allocation for very bad times, not necessarily a return to a savage state of nature where, as totally anti-gold people often point out, you might have to worry more about not drowning or frying, defending yourself and so forth. Rather, for when things are still basically orderly but much crappier (unreliable local currency, weak property rights and rule of law, etc.), the situation a lot of the world's population lives with normally. Argentina not Somalia IOW, without the USD (or perhaps EUR) which fills at least part of that role for those people now. If I thought that was impossible in the US I wouldn't have any gold. I have a bit.
Beautifully said :sharebeer
User avatar
retired@50
Posts: 10008
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by retired@50 »

rossington wrote: Tue Sep 20, 2022 12:08 am
LeftCoastIV wrote: Mon Sep 19, 2022 6:44 am WSJ article: https://www.wsj.com/articles/this-shoul ... lead_pos10

Interesting article in the WSJ on gold performance this year, during a period of high inflation. This year has challenged the belief that gold is a safe inflation hedge, or at least that it's more complicated than that. For example, inflation leads to a government response (notably Fed rate hikes), which in turn increases the yields on Treasuries, which in turn makes treasuries more attractive as they pay interest versus gold that is strictly a commodity.
Couldn't read the article due to the paywall, but do we know for a fact that gold traders and retail gold investors are selling gold to buy Treasuries?
Or is gold simply a victim of the this year's "nowhere to hide"/no confidence scenario?
In case the OP (or anyone else) cares, there is a viable workaround for linking a WSJ article.

See this post: viewtopic.php?p=6854078#p6854078

Regards,
This is one person's opinion. Nothing more.
User avatar
firebirdparts
Posts: 3842
Joined: Thu Jun 13, 2019 4:21 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by firebirdparts »

Poe22 wrote: Wed Sep 21, 2022 1:45 am Apart from the tax issue, is it fair to say that gold's value lies

a) in its low correlation to other asset classes, such as stocks and bonds?
b) Thus leading to less volatility and higher sharpe ratios of portfolios when added in a reasonable size (5-15%)?
c) Higher safe withdrawal rates?
d) Higher risk adjusted returns?
Answer a for sure, and THE REASON that a is true is that it’s a genuinely useful reserve. People are willing to treat it as valuable and that is fundamental to a reserve. I would also say if you’re backtesting, 90% of its value lies in the fact that it used to be $32. You have to be careful what you believe about it.

If you believe it’s unpredictable then I think you’re ok.
A fool and your money are soon partners
rossington
Posts: 1296
Joined: Fri Jun 07, 2019 2:00 am
Location: Florida

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by rossington »

retired@50 wrote: Wed Sep 21, 2022 2:28 pm
rossington wrote: Tue Sep 20, 2022 12:08 am
LeftCoastIV wrote: Mon Sep 19, 2022 6:44 am WSJ article: https://www.wsj.com/articles/this-shoul ... lead_pos10

Interesting article in the WSJ on gold performance this year, during a period of high inflation. This year has challenged the belief that gold is a safe inflation hedge, or at least that it's more complicated than that. For example, inflation leads to a government response (notably Fed rate hikes), which in turn increases the yields on Treasuries, which in turn makes treasuries more attractive as they pay interest versus gold that is strictly a commodity.
Couldn't read the article due to the paywall, but do we know for a fact that gold traders and retail gold investors are selling gold to buy Treasuries?
Or is gold simply a victim of the this year's "nowhere to hide"/no confidence scenario?
In case the OP (or anyone else) cares, there is a viable workaround for linking a WSJ article.

See this post: viewtopic.php?p=6854078#p6854078

Regards,
Thanks for that.
So an OP has to share the link via their subscription before the rest of us can read it, correct?
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
WhiteMaxima
Posts: 2873
Joined: Thu May 19, 2016 5:04 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by WhiteMaxima »

Gold won't lay eggs. It's just sit there waiting for thief unless you pay security.
smooth_rough
Posts: 464
Joined: Sat Feb 12, 2022 1:14 pm

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by smooth_rough »

dh wrote: Tue Sep 20, 2022 8:48 pm
snackdog wrote: Tue Sep 20, 2022 8:19 pm Have you read what Buffett says about Gold?
+1
I was going to write the exact same question.
Both buffett and bogle said gold isn't efficient use of investment capital.
User avatar
retired@50
Posts: 10008
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by retired@50 »

rossington wrote: Wed Sep 21, 2022 3:13 pm
retired@50 wrote: Wed Sep 21, 2022 2:28 pm
rossington wrote: Tue Sep 20, 2022 12:08 am
LeftCoastIV wrote: Mon Sep 19, 2022 6:44 am WSJ article: https://www.wsj.com/articles/this-shoul ... lead_pos10

Interesting article in the WSJ on gold performance this year, during a period of high inflation. This year has challenged the belief that gold is a safe inflation hedge, or at least that it's more complicated than that. For example, inflation leads to a government response (notably Fed rate hikes), which in turn increases the yields on Treasuries, which in turn makes treasuries more attractive as they pay interest versus gold that is strictly a commodity.
Couldn't read the article due to the paywall, but do we know for a fact that gold traders and retail gold investors are selling gold to buy Treasuries?
Or is gold simply a victim of the this year's "nowhere to hide"/no confidence scenario?
In case the OP (or anyone else) cares, there is a viable workaround for linking a WSJ article.

See this post: viewtopic.php?p=6854078#p6854078

Regards,
Thanks for that.
So an OP has to share the link via their subscription before the rest of us can read it, correct?
Yes, the OP, assuming they are a WSJ subscriber, could use the "COPY FREE LINK" functionality mentioned in my post in the other thread.

Just in case you're interested, here's the proper link to the article in question in this thread.
Link: https://www.wsj.com/articles/this-shoul ... _permalink

Regards,
This is one person's opinion. Nothing more.
User avatar
retired@50
Posts: 10008
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by retired@50 »

LeftCoastIV wrote: Mon Sep 19, 2022 6:44 am WSJ article: https://www.wsj.com/articles/this-shoul ... lead_pos10

Interesting article in the WSJ ...
You should consider reviewing this post: viewtopic.php?p=6854078#p6854078 since it will teach you how to provide a link that will allow non-WSJ subscribers to actually skip the paywall for a single article. It will likely make for a better thread discussion of the article in question.

Regards,
This is one person's opinion. Nothing more.
rossington
Posts: 1296
Joined: Fri Jun 07, 2019 2:00 am
Location: Florida

Re: WSJ: "This Should Have Been a Great Year for Gold. Here’s Why It Isn’t."

Post by rossington »

retired@50 wrote: Wed Sep 21, 2022 5:01 pm
rossington wrote: Wed Sep 21, 2022 3:13 pm
retired@50 wrote: Wed Sep 21, 2022 2:28 pm
rossington wrote: Tue Sep 20, 2022 12:08 am
LeftCoastIV wrote: Mon Sep 19, 2022 6:44 am WSJ article: https://www.wsj.com/articles/this-shoul ... lead_pos10

Interesting article in the WSJ on gold performance this year, during a period of high inflation. This year has challenged the belief that gold is a safe inflation hedge, or at least that it's more complicated than that. For example, inflation leads to a government response (notably Fed rate hikes), which in turn increases the yields on Treasuries, which in turn makes treasuries more attractive as they pay interest versus gold that is strictly a commodity.
Couldn't read the article due to the paywall, but do we know for a fact that gold traders and retail gold investors are selling gold to buy Treasuries?
Or is gold simply a victim of the this year's "nowhere to hide"/no confidence scenario?
In case the OP (or anyone else) cares, there is a viable workaround for linking a WSJ article.

See this post: viewtopic.php?p=6854078#p6854078

Regards,
Thanks for that.
So an OP has to share the link via their subscription before the rest of us can read it, correct?
Yes, the OP, assuming they are a WSJ subscriber, could use the "COPY FREE LINK" functionality mentioned in my post in the other thread.

Just in case you're interested, here's the proper link to the article in question in this thread.
Link: https://www.wsj.com/articles/this-shoul ... _permalink

Regards,
Thanks! Got to read it now.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
Post Reply