Precious Metals Poll

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

Precious Metals Intentions

I don't have PMs in my AA, and I don't plan to add any
168
42%
I don't have PMs in my AA, and I don't plan to add any
168
42%
I have PMs, and plan to keep allocation where it is.
30
8%
I have PMs, and plan to keep allocation where it is.
30
8%
I have PMs, but am considering reducing allocation.
4
1%
 
Total votes: 400

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ccbwc
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Precious Metals Poll

Post by ccbwc »

I'm interested in Diehards' intentions regarding precious metals ("PMs"):
Chip Plumb
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shadowrings
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Post by shadowrings »

If memory serves me correctly this early morn, I've got apprx 5-7% sitting in one PM fund and one PM fund only.

VGPMX Vanguard's PM & Mining Fund.

And I wouldn't want it in any other :P

regards,
vickie
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Post by indexfundfan »

I have VGPMX too, with an allocation of 5%. I added PM equity in 2002.
My signature has been deleted.
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DaleMaley
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Post by DaleMaley »

I have a 6% allocation to Rowe Price New Era (PRNEX) which includes gold mining, oil, aluminum, etc.

I have no plans to change this allocation, want to have around 5% of portfolio invested in "hard assets" or inflation resistant asset class.
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Post by BrianTH »

I don't have any special allocation to precious metals, and I generally think one can get more efficient inflation hedges.
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DRiP Guy
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Post by DRiP Guy »

Deciding on this when I considered it for my portfolio, I was torn between the advice (even in "Four Pillars") that says having a little bit (trace elements of minerals? he he) helps with diversification, and the message I learned even earlier, "if you don't understand it, don't buy it."

I understand what they are chemically and physically, but the way the markets for these work stumps me, i.e. how to value 'em properly, so I demur to those wiser than me.
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Post by Socrativestor »

2.5% VGPMX

P.S. I would distinguish between "Precious Metals" (PM) and "Precious Metals Equities" (PME). It is possible for example to own actual gold, silver, etc. (PM) -- including now through ETFs. Bernstein et al are talking about owning PME -- and is what the poll actually seems to be about. VGPMX is PME.
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Post by zhiwiller »

I took it to mean precious metals and not PMEs.

If the poll meant PMEs, I would imagine there should be an option for "market weight" or "whatever is in my value funds" or whatever.
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Meaning of Precious Metals

Post by ccbwc »

I should have been clearer. By PM's, I meant both precious metals, precious metals ETFs and/or precious metals funds, but not PM equities that might just be held through a general equity funds.
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Random Musings
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Post by Random Musings »

Not to really recommend PM's - but here's the recent Hussman weekly summary that has a commentary about gold (near the end of his commentary). Essentially, he believes the risk/reward with respect to gold today favors the reward based on history - but remember, past history is not indicative of future performance.

http://www.hussman.net/wmc/wmc070312.htm

RM
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RM

Post by ccbwc »

Thanks for alerting me to this commentary.

Regards,
Chip Plumb
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Post by ccbwc »

Thank to everyone who responded to this poll. I have found the results so far to be very interesting.

Regards
Chip Plumb
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Post by pjstack »

I have six bullion coins (2 US Eagles, Two Krugerrands, & two Canadian Maple Leaf(s)). Does that count?
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ccbwc
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Post by ccbwc »

That counts
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Post by Drain »

I introduced PME into my allocation in 1998 after reading Bill Bernstein's arguments for it, and I haven't changed my mind about it. Gold stocks comprise about 4 percent of my retirement portfolio.

Oh, and pjstack...your location is my birthplace. That makes you cool. :-)
Darin
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Bump up

Post by ccbwc »

I wanted to bump this poll up because I would like to reference the results in a future editorial. I'd like to get as many responses as possible.

Thanks to all who have responded.

Chip
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Post by mptfan »

I responded in the affirmative because 1) I own a total market index fund which would include commodity stocks, and 2) I own a small amount of gold and silver bullion coins, mostly as a hobby.
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My allocations

Post by tacitus7 »

Hello Chip,

I have a 5% target allocation to the Vanguard Precious Metals Mutual Fund, and a 5% allocation to Gold bullion.

For those interested, I think conversation #57483 at the other site had a lot of interesting posts on the topic of gold in general and on gold as an investment. There are some good links to articles in some of those posts IMHO.

all the best,
Joe E.
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Post by fishnskiguy »

VG's PMM fund keeps growing like springtime asparagus. You whack it back one morning and the next day it's ready for another harvest.

Our IPS calls for PMM to be 8% of our equity allocation. Today it's at 12%, even though we have rebalanced out thirteen times in the last five years.

The fund has beaten the pants off the metal itself.

Chris
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Like pjstack

Post by frose2 »

Like pjstack, I have a tiny hoard of gold coins, all from before World War I. Their face value is comically low; the face value of one is now worth about $2, and the face values of the others are worth on the order of billionths of a dollar.
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Post by pjstack »

Frose2, if you don't know the actual gold content, I have a book of world coins that has that info.

If you private message me (I don't quite know how that works), I'll be glad to look them up. I would need the country and the denomination.

Regards.
pjstack
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Post by AzRunner »

I bought three Krugerrands and a bag of silver coins back in the mid-80s. This makes up a negligible portion of my portfolio -- I've just held them as insurance, in case everything else goes to hell. I'm starting to think about selling them just because the price of precious metals is relatively high right now. Selling won't make a difference to me, one way or the other - thus my ambivalence.

Norm
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Thanks

Post by ccbwc »

Thanks for all the responses so far.

This will be very helpful.

Chip
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Joss
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Post by Joss »

I have physical gold in the bank. I have targetted not a % of total but an absolute $ amount, which I have now reached. Therefore, I expect the value of my PM will decrease over time as a % of total.
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Post by Drain »

Joss wrote:I have physical gold in the bank. I have targetted not a % of total but an absolute $ amount, which I have now reached. Therefore, I expect the value of my PM will decrease over time as a % of total.
That's interesting. On what grounds did you choose the dollar amount? Is it roughly the minimum you'd need to be self-sufficient for some amount of time?
Darin
johndcraig

Post by johndcraig »

Newly discovered hoard :)

By coincidence, my wife just showed me her silver coins that she collected about 30 years ago. She has 18 Kennedy half dollars from the 60’s, and 7 Eisenhower dollars from the early ‘70’s. What’s been her CAGR on her $16 investment? :).

John
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Post by pjstack »

According to this site,
http://www.coinflation.com/
the metal value of your coins is:
Kennedy half 1964 = $5
Kennedy half 1965 to 1970 = $2
after 1970, face value.

Dimes 1964 and before = $1
After 1964, face value.

Ike dollars 1971 to 1976 = $4.36 IF they are the 40% silver proofs. Regular clad coins are face value.
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Post by Joss »

Drain wrote:That's interesting. On what grounds did you choose the dollar amount? Is it roughly the minimum you'd need to be self-sufficient for some amount of time?
It's a subjective amount that would be sufficient to survive financially a massive inflation, a near complete social collapse (near complete because gold coins wouldn't be very effective to fend off hords of cannibals), or to leave the country, leaving everything behind and not be a complete destitute on the other side of the border.

In the meantime it also acts as an easily converted cash reserve and an inflation hedge.
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Post by Drain »

Joss wrote:
Drain wrote:That's interesting. On what grounds did you choose the dollar amount? Is it roughly the minimum you'd need to be self-sufficient for some amount of time?
It's a subjective amount that would be sufficient to survive financially a massive inflation, a near complete social collapse (near complete because gold coins wouldn't be very effective to fend off hords of cannibals), or to leave the country, leaving everything behind and not be a complete destitute on the other side of the border.

In the meantime it also acts as an easily converted cash reserve and an inflation hedge.
Cool. Do you have it hidden somewhere (you don't have to say where), or are you keeping it with a financial institution?
Darin
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Post by Joss »

In a bank.
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Bump up

Post by ccbwc »

There have been several recent threads about gold. I wanted to bump up my poll to see if I could generate any new responses.

Thanks,
Chip Plumb
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Post by YDNAL »

I wear precious metals! 8)
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Post by stratton »

Do you think any of those gold foil covered chocolate "gold" coins would attract any gold bugs? :P

Paul
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Post by YDNAL »

Not if they are frozen and you keep flipping them. :shock:
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Post by BigBird »

Is uranium a precious metal?
BB
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Post by Ted Valentine »

BigBird wrote:Is uranium a precious metal?
I dunno but I love me some yellow cake!
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Post by stratton »

Is uranium a precious metal?
It's considered energy. And yes it's very popular with some of the alternative investment crowd. Based on Valuethinker investing in Canadian tar sands he's someone who would probably look at uranium.

Paul
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Post by nisiprius »

Precious metals are not part of Vanguard's target retirement fund or any of their LifeStrategies funds, and they're not part of Fidelity's Freedom (target retirement date) funds. Malkiel doesn't mention them in "A Random Walk Down Wall Street."

That tells me they're not currently considered by ordinary run-of-the-mill investment advisors to be a standard part of a prudent portfolio.

I don't know enough about any narrow sector to consider investing in it. It's bound to be more volatile than a broad-based index. Assuming the efficient market theory is correct, in order for it to be a wise move, I have to think something different about precious metals than most of the market does and I have to be right and most of the market has to be wrong. Since I don't spend forty or more hours a week digging into serious research, the only way I can be right when most of the market is wrong is through plain dumb luck.

Nope, all of my retirement money is going into collectible Pez dispensers and equestrian velocity comparison research wager receipts.
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Post by Index Fan »

If I had a large portfolio, I would keep a small allocation in PME. But my portfolio is modest so I don't :)
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Post by leftthread »

VGPMX, 4%.
johndcraig

Post by johndcraig »

I don’t intend to hold gold.

The simple reason that I don’t hold gold is that I don’t understand it. I think I have a pretty good idea how the market reacts to gold, but I’m not sure that the market understands it either.

As I understand it the market holds gold as a safe asset in the event of a calamity or decline in the dollar. As long as the market views gold in this way it will continue to perform well in those circumstances. On the other hand, since gold does not have intrinsic value (other than as jewelry or dental) at some point the current market disposition might well change. So I’ll follow Buffett’s advice and stay away from something I don’t understand (Buffett doesn’t like gold either). As far as other PM go, they seem to have a higher ratio of commodity value to emotional value, but I’ll stay away from those as well because they also have some emotional value content similar to gold.

John
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Post by BigFoot48 »

Someone once said that an ounce of gold would, in all eras, buy a fine men's suit.

That doesn't sound like an investment to me.
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Post by craigr »

BigFoot48 wrote:Someone once said that an ounce of gold would, in all eras, buy a fine men's suit.

That doesn't sound like an investment to me.
One dollar in 1913 would only buy $0.04 worth of stuff today. One dollar in 1970 would only buy $0.20 worth of stuff today. So I'd happily take a gold coin in payment over dollars!

Gold is a store of value. It represents tradable human effort in a very small and portable package. There's nothing really more magical about it.

Gold as an "investment" needs to be understood. It's not an investment if you just buy it and bury it in your backyard. You need to use it as part of a rebalanced portfolio. If you're not going to be willing to sell it when it goes up and buy it when it goes down then it offers 0% real return. So you need to follow your rebalancing targets.

Harry Browne explained gold's position the best in my opinion. Gold is the second most popular form of wealth and money in the world. Only the dollar is used more. Any time the dollar is being threatened with inflation or other crisis people go to gold to store their money. I'd say that this is true even with the emergence of the Euro but this is debatable today.

Despite all the things you hear about gold being just another commodity you need to remember that banks still store a bunch of the stuff. Some of them sold off quite a bit but it still didn't stop other banks from buying it. So I hear the arguments about it just being another commodity, yet the same people who say these things still aren't willing to part with their share of it. It seems like a duplicitous argument to me.

I am admittedly not a veteran gold investor. However I have found that the process of gold investing is something like this:

Gold is a pretty shiny metal. When things are going well nobody really wants it and I'll be happy to buy some from them at a good price. When things are going badly they seem to want more of it really fast and then I'll happily sell it back to them at a much higher price. I then wait for the process to repeat so I can buy it back again and do it all over.

Gold is really not a commodity. It has no real industrial purpose. However it does have this history as money and wealth that goes back a really long time. Think about it, when you go to see an exhibition of the Pharaohs' you don't marvel at their paper treasure! So I'm willing to accept that I may not understand why people think gold is so precious, but I am willing to bow to history and accept that it is whether I think it is logical or not.
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Post by SpringMan »

I hold 3% VGPMX in an IRA and 3% VGENX in a taxable account. Some folks in this forum say if you can't hold 5% in a fund it is not worth holding. However, nobody can explain why this 5% rule makes sense other than to keep the total number of funds lower (simplification). From a total return standpoint the 5% rule makes no sense, in my opinion.

Regards,
Best Wishes, SpringMan
johndcraig

Post by johndcraig »

Tempting, but I can’t get there
Gold is really not a commodity. It has no real industrial purpose. However it does have this history as money and wealth that goes back a really long time. Think about it, when you go to see an exhibition of the Pharaohs' you don't marvel at their paper treasure! So I'm willing to accept that I may not understand why people think gold is so precious, but I am willing to bow to history and accept that it is whether I think it is logical or not.
I am always looking for a hedge against a market or dollar downturn. For that reason I often have been tempted to buy gold for the reasons that you state; however, I’ve never been able to get past the fact that it does not seem logical. To me it seems not unlike riding the wave of gains in the late 90s – who cares why it works if it’s working.

John
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Post by craigr »

johndcraig wrote:I am always looking for a hedge against a market or dollar downturn. For that reason I often have been tempted to buy gold for the reasons that you state; however, I’ve never been able to get past the fact that it does not seem logical. To me it seems not unlike riding the wave of gains in the late 90s – who cares why it works if it’s working.
I certainly feel you are correct that you should never invest in anything you are uncomfortable with.

I always avoided gold ownership because of similar reasons. I just didn't find it logical. All the books I had read on indexing said I shouldn't own it as well.

What I did was sit down and do a lot of research into the issue. I read the overblown hyperbole of the gold bugs for gold and I read the arguments against it. I then went down the path of economics, money and history to understand it more. I wanted to know why people owned the stuff and what made it special. I found several good and not so good answers to the question.

What I finally concluded is that for better or for worse gold has served as money for a long time. It's just a store of the human effort to produce it. Because it is difficult to mine in large quantities, the effort to produce small amounts makes it worth more than producing, say, a ton of iron. Not only this, but it's referenced in just about every religious and historical text as a sign of wealth. It's interwoven into human nature, our religions, our mythology and our history.

I then noticed that the people who bad-mouth gold (central bankers and their economists) still own a lot of it. A whole lot of it. They'll talk badly about it but won't put their money where their mouth is (pardon the pun) and sell it all off. They still feel they need to keep some around despite their pleading that it isn't necessary. If gold is so useless, then why don't we just liquidate Fort Knox and turn it into a football stadium?

Then other central bankers like Greenspan still referenced gold from time to time in comparing their job to how gold behaves. I found it odd that we would build up this massive banking/monetary structure that isn't gold backed and then work so hard to have the paper money act as if it was gold (as Greenspan once proclaimed).

Finally, I looked at how governments treated the metal. They have confiscated it in the past. They made it illegal to own. They put restrictions on how much you can sell at once. They've dumped it on the markets to keep the price down artificially. Etc.

Everything I saw indicated that the whole idea that it is "just a commodity" is not true. It's more than just another commodity because it is handled so differently than other materials.

So in my journey studying this stuff I've come around. I'm certainly no gold bug, but I'm not afraid of it any longer. There is unfortunately a lot of bad information out there (both for and against). It's a useful asset if you understand what it is and what it isn't:

- It is volatile.
- It has a high speculative component.
- It performs well when your local currency is in a crisis.
- It also can do well when something very unexpected happens (but not always).
- It does poorly when the economy is doing well.
- It reacts strongly to high inflation.
- It's the only investment that will never drop to zero (unless they start making the stuff easily).
- You need to rebalance in and out of it to see a real return.
- Sometimes it does things for no apparent reason at all.

Yet, despite the above and because of its special history and place in economics, I'm not ready to ignore it altogether.

But I think you are following the smart strategy by not investing in anything you are uncomfortable with. That piece of advice I learned early on and it has saved me a lot of grief over the years.
johndcraig

Post by johndcraig »

Understanding gold
It's a useful asset if you understand what it is and what it isn't:

- It is volatile.
- It has a high speculative component.
- It performs well when your local currency is in a crisis.
- It also can do well when something very unexpected happens (but not always).
- It does poorly when the economy is doing well.
- It reacts strongly to high inflation.
- It's the only investment that will never drop to zero (unless they start making the stuff easily).
- You need to rebalance in and out of it to see a real return.
- Sometimes it does things for no apparent reason at all.
I believe I understand what gold has been and what it hasn’t been. That is what you describe above. What I don’t understand is the logic behind why it should continue to be those things. We hashed this out not long ago in a 200+ post M* thread.

John
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Post by bearcat98 »

craigr wrote: Gold as an "investment" needs to be understood. It's not an investment if you just buy it and bury it in your backyard. You need to use it as part of a rebalanced portfolio. If you're not going to be willing to sell it when it goes up and buy it when it goes down then it offers 0% real return. So you need to follow your rebalancing targets.
This makes a lot of sense, in terms of how to make money on gold as an investment. Essentially, it's volitile over the long term, so there are lots of opportunities to buy low and sell high. Rebalancing your portfolio, keeping a set proportion or set value in gold, forces you to buy low and sell high by making it mathamatically impossible to do otherwise. If I had a lot of money, I'd probably do the same thing because it sounds fun and financially rewarding.

But to do this, don't you have to essentially disregard the fundamental reasons people own gold? People own gold because they believe it's a good store of value in uncertain times. If times are uncertain, the price goes up. But when the price goes up, that's the market valuing gold highly, and that's exactly when you sell. You're essentially betting that the market is wrong about the value of gold and that the price will come back down again.

Now, I happen to believe that this is true. To me, gold is a shiny metal that will be less valuable than a full tank of gas and a pantry full of canned food when times get bad. So, like I said, I would also be happy to sell my gold (if I had any) to those who thought gold was important.

But if you thought that gold really is a good store of value, and that the market consensus really is more right than wrong, isn't it sensible to bury it in the back yard and letting its relative position in your portfolio swell as gold climbs in value and inflation eats away at your bonds? Conversely, doesn't the automatic rebalancing approach to making money on gold guarantee that you'll be almost out of the stuff when it becomes really important to own (betting, essentially, that it'll never actually become really important to own)?
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Post by fishnskiguy »

Bearcat98;

Bingo! You nailed the conundrum.

Also, the trading and shipping cost of moving into and out of gold as it moves into and out of favor are going to eat you alive.

That's why we own VG's PME fund and NOT the metal as an asset class.

We hedge doomsday with a shotgun and ammo to hunt, fishing gear with which to fish, and a thirty day supply of canned and dried stuff that we consume in the normal course anyway.

Chris
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Post by craigr »

bearcat98 wrote:But to do this, don't you have to essentially disregard the fundamental reasons people own gold? People own gold because they believe it's a good store of value in uncertain times. If times are uncertain, the price goes up. But when the price goes up, that's the market valuing gold highly, and that's exactly when you sell. You're essentially betting that the market is wrong about the value of gold and that the price will come back down again.
You're not betting against the market. You're taking advantage of it.

When stocks go up in value and exceed your rebalance targets you sell them off. It's not that you're betting against the market, it's that you're taking advantage of a mechanical buy low sell high strategy. Same for bonds. Same for short-term reserves. Same for gold. Same for REITs.
Now, I happen to believe that this is true. To me, gold is a shiny metal that will be less valuable than a full tank of gas and a pantry full of canned food when times get bad. So, like I said, I would also be happy to sell my gold (if I had any) to those who thought gold was important.

But if you thought that gold really is a good store of value, and that the market consensus really is more right than wrong, isn't it sensible to bury it in the back yard and letting its relative position in your portfolio swell as gold climbs in value and inflation eats away at your bonds? Conversely, doesn't the automatic rebalancing approach to making money on gold guarantee that you'll be almost out of the stuff when it becomes really important to own (betting, essentially, that it'll never actually become really important to own)?
Many people equate gold ownership with hidden bunkers in the mountains of Montana. It is not just a proverbial doomsday asset. It has well-known inflation and unexpected event hedging attributes. If you're buying it to prepare for doomsday it probably won't be much use. But if you're buying it knowing that it's one part of a portfolio that works with your other investments then it can be useful.

The world gold market is huge. Someone somewhere at all times of the day is buying and selling the stuff. It can react to events (whether in the US or not) 24 hours a day seven days a week. I'm perfectly happy selling gold to someone in India who is panicked about what is going on in their part of the world. I'm also happy to sell gold to someone in Florida that is concerned about inflation. Not everything about gold ownership has to be surrounded by the doomsday mystique. With today's gold ETFs, owning it is quite easy and liquid without logistical problems.

As long as I'm maintaining my allocation to gold I won't sell it all out of my portfolio. Just as I wouldn't sell off all my stocks or bonds to 0%. If it got to the point where I thought holding onto the gold was a better deal than selling it then at least I have that option. For instance, if I saw a hyper-inflation in the US Dollar I probably wouldn't sell the stuff. But that is a remote possibility. The more likely situation is it will bounce up and down according to world events and I'll just rebalance into and out of it just as I do with stocks and bonds.
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