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

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

Post by TheTimeLord » Mon Apr 17, 2017 11:33 pm

rattlenap wrote:Take it from someone who owned gold in the past. I bought it back in 2001 when the spot price was below $300 an ounce and sold it later on in the decade at I think $850 at spot price. It only goes up in value when people think the sky is falling. Trust me on this! The timing of when I did buy it was just pure luck. I was simply at the right place at the right time. Now if I ever get back into it, this will be the only asset that I ever time the market on. At $1200 an ounce, forget it. I will wait until after 2025 to see where the price and even then I might not even bother. So I would strongly encourage you people to stay out of it for now. You're better off putting that money into stocks and bonds.
Bummer to selling a $1,000 early.
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reformed.trader
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by reformed.trader » Mon Apr 17, 2017 11:35 pm

NiceUnparticularMan wrote:
reformed.trader wrote:The government holds around 250MM ounces of gold. They would benefit.
How? They could probably buy a lot more gold if they suddenly offered $25000 per ounce. What they wouldn't necessarily be able to do is sell any of their old gold at $26000 per ounce.

To me this is like saying if I want to be rich and I own a used Honda Civic, all I have to do is buy another used Honda Civic for $9M, and then try to sell my old Honda Civic for $10M. The first part is easy. The second part not so much. Just because I am a buyer at $9M, that doesn't make anyone else also become a buyer at $10M.

And in fact if I regret it, and try to sell my second Honda Civic back at just $9M, I probably won't get that either. The best I could maybe do is announce I will buy a THIRD Honda Civic at $9M, and try to sell the second one at $8.9M, and that buyer will then turn around and sell it to me for $9M . . . but how is this profiting me again?
Assuming rates have spiked and the government/businesses are having issues rolling over or servicing debt, your suggestion of typical QE/lower rates will probably be tried. But given the size of debt and the feds balance sheet, new tools may be required. How long the rest of the world will sit around while their reserves are devalued is the question. Will they continue to hold and add to their dollar reserves or will the flows stop and reverse? I think it could turn into a panic pretty quickly.
Again, I don't understand how you think giving a random windfall to gold investors helps. By hypothesis (I don't necessarily agree with this, but that's the hypothesis) the government needs to devalue its debt payments. This is going to devalue USD-denominated instruments. This will or will not cause a panic among investors in USD-dominated instruments, including holders of those instruments as reserves (although really that is just a small portion of the overall group of people you could panic).

I guess you could be thinking central banks with lots of gold would be kept happy. The Chinese, for example, are purportedly holding a lot of gold, which under this plan they can suddenly sell to the Treasury at a massive profit in USD. They know this windfall to gold holders will ultimately somewhat devalue those USD, but probably not so much that they can't first use those USD to buy all sorts of really useful stuff. In other words, it helps if the helicopter only drops money on your house, because even if that ends up being inflationary, it is because you suddenly have a lot more money to spend on real stuff.

But nothing would stop them from both taking their windfall courtesy of the U.S. Treasury and also backing out of their USD-denominated reserves, knowing inflation was coming. And if inflation isn't coming--the Chinese got a windfall from the U.S. Treasury, no one wants to buy all our shiny new Chinese gold at a price that would profit us, and we still have the same debts to pay.
The fed is buying and selling. Not the treasury.

A windfall to gold investors helps because the gold investors are the governments and CBs, the very entities that will be in trouble.

China could turn their gold reserves into USDs at a profit, but I don't see why they would trade an asset that stores consistent value overtime without counterparty risk in for one whos value deteriorates overtime and has counterparty risk at the exact same current value. Unless they needed to make a very large purchase immediately, this would be stupid. They already have plenty of USDs.

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

Post by NiceUnparticularMan » Mon Apr 17, 2017 11:48 pm

reformed.trader wrote:Politically unattractive to literally print money and probably not legal either.
And where is the Treasury getting the money to buy a bunch of gold at $25000 per ounce?
Also it would be highly inflationary as the holders of USDs would sell their dollars for real assets in the economy like real estate and commodities.
If it isn't inflationary, how is it reducing our debt service?
Why not rather have that rush move into gold?
What exactly are you imagining here?

If the Treasury offers to pay $25000 per ounce for gold, there will be a rush to sell gold to the Treasury at that price. There will likely also be intermediaries, who buy gold in one place for, say, $24000, then sell it to the Treasury for $25000.

But if at some point the Treasury says, OK, no more buying at $25000, now we want to sell it all back at $26000 . . . what do you think happens at that point?

No one will buy it. Other people will say, "You can buy my gold for a mere $25000, you don't have to pay the U.S. Treasury $26000." Other will go lower still, and eventually the price of gold will go way back down. And the Treasury will have taken a huge loss.

Of course maybe this will all be inflationary too, so maybe that well reduce our debt service. But that's the only way it would help.
The people and entities who consume a fraction of what they produce (billionaires and sovereigns like the oil states etc) would love a stable store of value with no counterparty risk like gold. Same goes for governments and CBs. No need or desire for them to convert to USDs. Gold would be superior for savers.
Again, I don't really understand what you are imagining here.

Everyone is selling as much gold to the Treasury as they can at the $25000 price. To guarantee we would keep buying at that price, we'd need to be ready to spend up to around $145 trillion (I think I did that math right). I probably wouldn't rely on the U.S. Treasury getting that far, and moreover, even if they did it would be massively inflationary. So what I want to do is get to the Treasury with my gold as quick as possible, get my $25000 per ounce, then spend my USD on something real. If I try to hold onto my gold, even if it does remain convertible into $25000 per ounce indefinitely, its real value is going to be crashing as the real value of the USD is crashing. So the longer I wait to sell to the Treasury, the less valuable my windfall will become.

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

Post by NiceUnparticularMan » Tue Apr 18, 2017 12:06 am

reformed.trader wrote:The fed is buying and selling. Not the treasury.
I thought the Federal Government owns the U.S. bullion reserves.

But anyway, it doesn't matter. Even assuming the Fed could legally buy gold at $25000 per ounce, there is still no one else who would buy it at $26000 per ounce.
A windfall to gold investors helps because the gold investors are the governments and CBs, the very entities that will be in trouble.
I thought the scenario was the U.S. government was in trouble. We are hypothetically having trouble servicing our debt. How does providing a gold windfall to other governments solve that problem? As I noted before, if we are ultimately going to devalue our debt, nothing will stop them from taking that gold windfall and also participating in selling off USD-denominated reserves.

Anyway, maybe 15% or so of the gold in the world is in the form of reserves held outside the United States. So, approximately 85% of your windfall isn't even reaching your target.
China could turn their gold reserves into USDs at a profit, but I don't see why they would trade an asset that stores consistent value overtime without counterparty risk in for one whos value deteriorates overtime and has counterparty risk at the exact same current value. Unless they needed to make a very large purchase immediately, this would be stupid. They already have plenty of USDs.
I just explained that. They've got gold that will be worth $25000 per ounce in Year 1. It will also be worth $25000 per ounce in Year 10--assuming we never run out of USD to buy gold at this price. Unfortunately, by Year 10, undoubtedly $25000 will be worth a lot less than it was back in Year 1.

So the Chinese, and everyone else who can get to the Treasury/Fed fast enough, will get their $25000 then turn around and spend it on something real. If they wait, the value of their gold windfall will be rapidly declining in real value.

In other words, you've just turned gold into something both ridiculously more valuable, and also rapidly declining in real value from that sudden new value. So, everyone with gold and any sense sells as soon as possible.

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

Post by reformed.trader » Tue Apr 18, 2017 12:34 am

NiceUnparticularMan wrote:
reformed.trader wrote:Politically unattractive to literally print money and probably not legal either.
And where is the Treasury getting the money to buy a bunch of gold at $25000 per ounce?
Also it would be highly inflationary as the holders of USDs would sell their dollars for real assets in the economy like real estate and commodities.
If it isn't inflationary, how is it reducing our debt service?
Why not rather have that rush move into gold?
What exactly are you imagining here?

If the Treasury offers to pay $25000 per ounce for gold, there will be a rush to sell gold to the Treasury at that price. There will likely also be intermediaries, who buy gold in one place for, say, $24000, then sell it to the Treasury for $25000.

But if at some point the Treasury says, OK, no more buying at $25000, now we want to sell it all back at $26000 . . . what do you think happens at that point?

No one will buy it. Other people will say, "You can buy my gold for a mere $25000, you don't have to pay the U.S. Treasury $26000." Other will go lower still, and eventually the price of gold will go way back down. And the Treasury will have taken a huge loss.

Of course maybe this will all be inflationary too, so maybe that well reduce our debt service. But that's the only way it would help.
The people and entities who consume a fraction of what they produce (billionaires and sovereigns like the oil states etc) would love a stable store of value with no counterparty risk like gold. Same goes for governments and CBs. No need or desire for them to convert to USDs. Gold would be superior for savers.
Again, I don't really understand what you are imagining here.

Everyone is selling as much gold to the Treasury as they can at the $25000 price. To guarantee we would keep buying at that price, we'd need to be ready to spend up to around $145 trillion (I think I did that math right). I probably wouldn't rely on the U.S. Treasury getting that far, and moreover, even if they did it would be massively inflationary. So what I want to do is get to the Treasury with my gold as quick as possible, get my $25000 per ounce, then spend my USD on something real. If I try to hold onto my gold, even if it does remain convertible into $25000 per ounce indefinitely, its real value is going to be crashing as the real value of the USD is crashing. So the longer I wait to sell to the Treasury, the less valuable my windfall will become.
Treasury isn't buying, the fed(and other major CBs) is. It would be a coordinated effort among the major CBs to solve a global debt/inflation problem.

I never said it wouldn't be inflationary.

I don't think there would be a rush to sell gold from the major players. If you have USDs as a store of value, as they major players do, why turn your gold in for paper? The CBs would be doing all this because they have no other option. They couldn't turn around and say its worth $1000 again only to see their government's balance sheet crumble. The new number would be a floor to an asset that moves in line with inflation/debt. Why go to paper?

The Fed wouldn't need to purchase that much gold, markets would balance. As I said before, gold price wouldn't be a constant. As an individual government/CB needs capital or needs to devalue, they print money in their own currency and buy gold. If they want to slow inflation, they sell gold to soak up currency. Its a prefect mechanism.

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

Post by reformed.trader » Tue Apr 18, 2017 12:39 am

NiceUnparticularMan wrote:
reformed.trader wrote:The fed is buying and selling. Not the treasury.
I thought the Federal Government owns the U.S. bullion reserves.

But anyway, it doesn't matter. Even assuming the Fed could legally buy gold at $25000 per ounce, there is still no one else who would buy it at $26000 per ounce.
A windfall to gold investors helps because the gold investors are the governments and CBs, the very entities that will be in trouble.
I thought the scenario was the U.S. government was in trouble. We are hypothetically having trouble servicing our debt. How does providing a gold windfall to other governments solve that problem? As I noted before, if we are ultimately going to devalue our debt, nothing will stop them from taking that gold windfall and also participating in selling off USD-denominated reserves.

Anyway, maybe 15% or so of the gold in the world is in the form of reserves held outside the United States. So, approximately 85% of your windfall isn't even reaching your target.
China could turn their gold reserves into USDs at a profit, but I don't see why they would trade an asset that stores consistent value overtime without counterparty risk in for one whos value deteriorates overtime and has counterparty risk at the exact same current value. Unless they needed to make a very large purchase immediately, this would be stupid. They already have plenty of USDs.
I just explained that. They've got gold that will be worth $25000 per ounce in Year 1. It will also be worth $25000 per ounce in Year 10--assuming we never run out of USD to buy gold at this price. Unfortunately, by Year 10, undoubtedly $25000 will be worth a lot less than it was back in Year 1.

So the Chinese, and everyone else who can get to the Treasury/Fed fast enough, will get their $25000 then turn around and spend it on something real. If they wait, the value of their gold windfall will be rapidly declining in real value.

In other words, you've just turned gold into something both ridiculously more valuable, and also rapidly declining in real value from that sudden new value. So, everyone with gold and any sense sells as soon as possible.
Probably not worth continuing this, its going no where.

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

Post by NiceUnparticularMan » Tue Apr 18, 2017 1:10 am

reformed.trader wrote:Treasury isn't buying, the fed(and other major CBs) is. It would be a coordinated effort among the major CBs to solve a global debt/inflation problem.
OK, but everything I have noted applies to them collectively. They randomly give a windfall to gold investors. Gold investors sell to them as quickly as they can, for as long as the window is open. If CBs ever try to sell gold, no one will buy at their inflated prices so now they have taken a massive loss. How does this help them?
I never said it wouldn't be inflationary.
Indeed, if it is not inflationary, it doesn't help with debt service. But there is no need to do this in order to produce inflation, and it would be far more helpful to simply buy back debt at inflated prices, rather than buy gold at inflated prices and hope that helps a few debt-holders offset their panic at watching their bonds devalue. Buying back debt at inflated prices targets exactly who you need to target.
The new number would be a floor to an asset that moves in line with inflation/debt.
No, it would be a ceiling to an asset that will now rapidly decrease in real value.

If the central banks of the world fix what they will pay for gold in nominal terms, at an inflated price, that will create general inflation. As I explained before, that means the longer you wait to cash in your gold windfall, the less it is going to be worth, as general inflation reduces the value of that windfall. That's precisely because you pegged the price of gold so far above its free-floating price. It therefore has only downside.
Why go to paper?
You would go gold to paper to real assets as fast as you could. The longer you wait, the less valuable your windfall.
The Fed wouldn't need to purchase that much gold, markets would balance.
What markets? You just destroyed the existing markets, as everyone stops selling to anyone but the Fed (and other central banks) as long as this windfall lasts. That's what happens when you set the window price so far above the free-floating price--you become the only buyer until the window closes.
As I said before, gold price wouldn't be a constant.
Wait, when did you say that? I thought you were pegging the price of gold at this massively inflated level, and guaranteeing you would buy at that price. That will be the price until you eliminate that guarantee.
As an individual government/CB needs capital or needs to devalue, they print money in their own currency and buy gold.
Again, this is going to cause those governments to lose money. If they actually need more money, this doesn't help them. You can't sell your first Civic for $10 million just because you decide to buy a second Civic for $9 million.

So this is a way to inject more money into the system, but not profitably, and arbitrarily in terms of who gets that money. There is no reason to drop helicopter money on gold holders, and if it is bond holders you are worried about spooking, why not just buy their bonds at inflated prices, rather than give a windfall to gold holders?

And that's really the bottomline. If you need to devalue in order to improve your debt service, you have to "print" money and give it to someone. If you are concerned about existing bond-holders being spooked by devaluation, you can give some of that money to them, through buying back debt at inflated prices.

Gold has no justifiable place in this plan. Buying gold at inflated prices is one of many way to "print" money and give it to someone, but it is an arbitrary group of people to give it to. If the theory is that there is going to be some correlation between gold investors and existing bond-holders, then you might as well stop messing around and just give bond-holders that money directly.

As for the idea of using a gold peg to slow inflation--that only works if you peg the price of gold BELOW the free-floating rate, not above it. That's a whole separate discussion, but there are good reasons why governments stopped using that as a means of controlling inflation (it was capricious, sometimes ineffective, and sometimes deflationary).

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

Post by NiceUnparticularMan » Tue Apr 18, 2017 1:17 am

reformed.trader wrote:Probably not worth continuing this, its going no where.
I guess not. I'm sure it is a pleasant thought for gold investors to think that some day they will be the sole recipients of helicopter money as governments with high debt service are forced to devalue. But I have seen no reason given why choosing gold investors to receive that windfall would actually help governments safely devalue their debts more than giving that helicopter money to bond holders.

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

Post by CurlyDave » Tue Apr 18, 2017 2:12 am

NiceUnparticularMan wrote:...For apocalypse purposes, my plan is to hold exotic spices. Hopefully I have enough warning to clear out the local supermarkets.
My plan for the apocalypse is to have a still. I bet I get more takers for my vodka than for spices. Of course it is illegal to practice this art right now, but after the apocalypse that will not be a problem...

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

Post by reformed.trader » Tue Apr 18, 2017 7:34 am

NiceUnparticularMan wrote:
reformed.trader wrote:Probably not worth continuing this, its going no where.
I guess not. I'm sure it is a pleasant thought for gold investors to think that some day they will be the sole recipients of helicopter money as governments with high debt service are forced to devalue. But I have seen no reason given why choosing gold investors to receive that windfall would actually help governments safely devalue their debts more than giving that helicopter money to bond holders.
The thing is my scenario doesn't have to play out for ownership of gold to be prudent. If they drop helicopter money on bond holders, gold still wins. I hold gold because I don't know the future, but when I see something that can't last forever, I want insurance for when it stops.

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

Post by TheTimeLord » Tue Apr 18, 2017 9:12 am

I am missing the motivation for Central Banks to want gold to devalue. Also in all the talk of gold supply and the amount of gold that actually exists I haven't seen the salient point of extraction costs discussed. The amount of gold in existence is irrelevant if the cost to extract it exceeds its market value. I find it interesting that the U.S. and Germany are the 2 largest holders of the metal.
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by Snowjob » Tue Apr 18, 2017 10:41 am

TheTimeLord wrote:...I find it interesting that the U.S. and Germany are the 2 largest holders of the metal...
For all the theory that the physiological link to gold as money will die over time with the youth in this country post, it is interesting to come back to this. If the world eventually loses interest it would be the central banks that are on the hook for the biggest losses right? What share of the supply do central banks have in aggregate relative to private holdings (bullion / non jewelry) I would assume a disproportionate share. I guess in that light its hard to see it going away and its use as a universal payment medium is probably not going away either.

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

Post by willthrill81 » Tue Apr 18, 2017 10:48 am

Snowjob wrote:
TheTimeLord wrote:...I find it interesting that the U.S. and Germany are the 2 largest holders of the metal...
For all the theory that the physiological link to gold as money will die over time with the youth in this country post, it is interesting to come back to this. If the world eventually loses interest it would be the central banks that are on the hook for the biggest losses right? What share of the supply do central banks have in aggregate relative to private holdings (bullion / non jewelry) I would assume a disproportionate share. I guess in that light its hard to see it going away and its use as a universal payment medium is probably not going away either.
That's a good point.

If precious stones are just as effective means of payment and wealth storage as precious metals, then I wonder why the banks aren't hoarding diamonds and rubies. :wink:
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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

Post by NiceUnparticularMan » Tue Apr 18, 2017 10:52 am

reformed.trader wrote:The thing is my scenario doesn't have to play out for ownership of gold to be prudent. If they drop helicopter money on bond holders, gold still wins. I hold gold because I don't know the future, but when I see something that can't last forever, I want insurance for when it stops.
So gold MIGHT win. The value of any real asset should track increased inflation. Industrial commodity prices should too. But gold has a large component of capricious value which makes it unpredictable.

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

Post by NiceUnparticularMan » Tue Apr 18, 2017 11:00 am

TheTimeLord wrote:I am missing the motivation for Central Banks to want gold to devalue.
As long as it is free-floating, their motivations are irrelevant. Central banks still held gold as it was devaluing in the 1980s and 1990s. But since it was now free-floating, so they didn't do anything about it.
Also in all the talk of gold supply and the amount of gold that actually exists I haven't seen the salient point of extraction costs discussed. The amount of gold in existence is irrelevant if the cost to extract it exceeds its market value.
Sure, but extraction costs are a variable subject to large change over time. including because of the introduction of new technologies. There is going to be a margin on top of extraction costs for other transactions costs, but if the cost of extraction drops such that combined cost is below market value, then market value could drop as well.

In fact, this is a headline just today:

http://www.dnaindia.com/scitech/report- ... nt-2406589

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

Post by NiceUnparticularMan » Tue Apr 18, 2017 11:12 am

Snowjob wrote:For all the theory that the physiological link to gold as money will die over time with the youth in this country post, it is interesting to come back to this. If the world eventually loses interest it would be the central banks that are on the hook for the biggest losses right?
You have to be careful about the notion of "loss" as it applies to central banks. If they aren't actually planning to sell bullion, and they are not using that bullion to set the value of their currency (i.e. it is free-floating), then the market value of that bullion in their currency doesn't have much relevance to them.

Again, we saw all that in the 1980s and 1990s. The real value of gold crashed, but the big central banks just let it happen.

Now if you are the central bank of a small country and might need to actually sell gold to get hard currency from other countries which you can use in international trade, you might care about the price of gold in those other currencies. But to hypothesize those central banks could do anything about that issue would be to imagine the flea on the tail is wagging the dog.
What share of the supply do central banks have in aggregate relative to private holdings (bullion / non jewelry) I would assume a disproportionate share. I guess in that light its hard to see it going away and its use as a universal payment medium is probably not going away either.
In 2011 according to the USGS, central bank holdings were estimated at 17.2% of total gold holdings. Other investment gold was estimated to be higher at 19.3%. Jewelry was about half (49.2%), industrial was about 12.1%.

I don't know what you mean by "see it going away", but as I have noted, since gold completed the transition to free-floating about 35 years ago, we have already seen a 20-year period in which central banks let it decline in real value by about 80% (more if you measure from actual peak to trough, not annual).

Probably wouldn't be helpful to have gold if they let that happen again.
Last edited by NiceUnparticularMan on Tue Apr 18, 2017 11:24 am, edited 1 time in total.

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

Post by NiceUnparticularMan » Tue Apr 18, 2017 11:21 am

willthrill81 wrote:That's a good point. If precious stones are just as effective means of payment and wealth storage as precious metals, then I wonder why the banks aren't hoarding diamonds and rubies. :wink:
Central bankers are not fantasizing about stuffing their pockets with large amounts of wealth and fleeing the country (well, hopefully not).

Of course some central banks have abandoned the whole idea--as I mentioned, the Canadians are now gold free. Other central banks never did it in the first place. I believe only around half (give or take) of countries have gold reserves.

Why the U.S. is still doing it is largely a matter of politics. People argue if we started selling gold, it would wreak havoc on world economies. This is probably an overblown concern, particularly if we did it gradually.

But no doubt, it would lower the market price of gold. And as we have somewhat seen here, this is one of those issues where even if most people would be vaguely fine with that, at least a substantial minority of people in the U.S. might very much care. That might well turn this into a single-issue voting episode for some people, and politicians tend to avoid those if at all possible.

Since there is no great obvious harm being done just by sitting on our bullion (it probably hurts industrial users, but as noted before they are just a small minority and most of them have much bigger costs anyway), there it sits.

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

Post by rattlenap » Tue Apr 18, 2017 6:38 pm

TheTimeLord wrote:
rattlenap wrote:Take it from someone who owned gold in the past. I bought it back in 2001 when the spot price was below $300 an ounce and sold it later on in the decade at I think $850 at spot price. It only goes up in value when people think the sky is falling. Trust me on this! The timing of when I did buy it was just pure luck. I was simply at the right place at the right time. Now if I ever get back into it, this will be the only asset that I ever time the market on. At $1200 an ounce, forget it. I will wait until after 2025 to see where the price and even then I might not even bother. So I would strongly encourage you people to stay out of it for now. You're better off putting that money into stocks and bonds.
Bummer to selling a $1,000 early.
I know, right. Yet I still made a 265% profit on a gamble that paid of in less then 10 years. However, I highly doubt I'd ever get that lucky with gold again.

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

Post by bayview » Tue Apr 18, 2017 7:40 pm

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

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

And of course lots of other people may be raiding the gun stores and jewelry stores, potentially even killing each other. I'm hoping if I time it right, few people will be competing for my spices.
Spices like pepper and thyme are also great for covering up the taste of slightly rancid meat! :beer Very useful in the post-apocalyptic world.

If I had a ton of extra money, I might buy some physical gold or silver. Since I don't, I don't.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

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

Post by NiceUnparticularMan » Wed Apr 19, 2017 6:22 am

bayview wrote:Spices like pepper and thyme are also great for covering up the taste of slightly rancid meat!
Even the zombies might like my cooking.

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

Post by Snowjob » Sun Apr 23, 2017 9:22 am

NiceUnparticularMan wrote:
Snowjob wrote:For all the theory that the physiological link to gold as money will die over time with the youth in this country post, it is interesting to come back to this. If the world eventually loses interest it would be the central banks that are on the hook for the biggest losses right?
You have to be careful about the notion of "loss" as it applies to central banks. If they aren't actually planning to sell bullion, and they are not using that bullion to set the value of their currency (i.e. it is free-floating), then the market value of that bullion in their currency doesn't have much relevance to them.

Again, we saw all that in the 1980s and 1990s. The real value of gold crashed, but the big central banks just let it happen.

Now if you are the central bank of a small country and might need to actually sell gold to get hard currency from other countries which you can use in international trade, you might care about the price of gold in those other currencies. But to hypothesize those central banks could do anything about that issue would be to imagine the flea on the tail is wagging the dog.
What share of the supply do central banks have in aggregate relative to private holdings (bullion / non jewelry) I would assume a disproportionate share. I guess in that light its hard to see it going away and its use as a universal payment medium is probably not going away either.
In 2011 according to the USGS, central bank holdings were estimated at 17.2% of total gold holdings. Other investment gold was estimated to be higher at 19.3%. Jewelry was about half (49.2%), industrial was about 12.1%.

I don't know what you mean by "see it going away", but as I have noted, since gold completed the transition to free-floating about 35 years ago, we have already seen a 20-year period in which central banks let it decline in real value by about 80% (more if you measure from actual peak to trough, not annual).

Probably wouldn't be helpful to have gold if they let that happen again.

Agree, the role of gold is mostly as a universal foreign reserve and probably more prized among EM countries than anything else. I didn't realize jewelry made up 50%. Crazy.

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

Post by Uncle Pennybags » Sun Apr 23, 2017 11:53 am

Snowjob wrote:I didn't realize jewelry made up 50%. Crazy.
It is a good way to hold "bullion" without holding bullion. I have a watch that is worth more as scrap than I paid for it.

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

Post by GratefulinNC » Sat Mar 10, 2018 1:08 pm

NiceUnparticularMan wrote:
Sat Apr 15, 2017 6:29 pm
willthrill81 wrote:You don't have to look at 1970s data to see value in holding gold in the withdrawal phase. From 2000 to now . . . .
That's cherry-picking another date that happens to favor gold.

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

Because there is no fundamental reason for gold to be as valuable as it is, whether it helps or hurts to hold it is extremely sensitive to which date you pick. And which sort of date are we in right now? I have no clue, which is more than reason enough for me to stay away.
Gold is NOT valuable? OK, then blab around town that you have 100 bars of gold in your basement. You won't make it a week without a home invasion.

Don't believe me? Then, try it.

Reasons gold is valuable:
-- All of the gold ever mined would fit into an Olympic sized swimming pool.
-- Gold is both a commodity and a universally recognized form of hard currency.
-- Gold is a store of value.

Because gold is a currency it's return is about the same as cash. Gold's value will track inflation. Thus, it's real return is zero.

Given the above paragraph, why hold gold in a diversified portfolio?

Gold has low to negative correlation with most other investments, including stocks. When stocks zig, gold zags. Thus, with regular (e.g., annual) portfolio rebalancing, portfolio volatility and drawdowns are reduced.

For example, during the great recession of 2008, gold rose while the S&P 500 went down. Take a look at this chart comparing the gold ETF GLD to the S&P 500 between 11/15/2007 and 3/6/2009: http://bigcharts.marketwatch.com/advcha ... e&state=12.

Just a 5% to 10% gold allocation can reduce the length of portfolio drawdowns by months or even years.

In conclusion, gold is a form of insurance that mitigates portfolio risk. Use it as a substitute or complement for bonds.
Last edited by GratefulinNC on Sat Mar 10, 2018 1:40 pm, edited 3 times in total.

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

Post by fortyofforty » Sat Mar 10, 2018 1:32 pm

I think there is a distinction lost between the "value" many assign to an object and the intrinsic value of that item. A bar of gold doesn't do anything. It doesn't produce income. It doesn't mow the grass or till the garden. It doesn't wash dishes or cook dinner. It just sits there. If you need to convert that bar of gold into food or ammunition or medical services or transportation, you have to find someone who values that gold as much or more than you do.

I would rather put my money into corporations. These are made of people striving, working, inventing and struggling to improve their lot. By doing so, they tend to increase the value of pieces of their companies I can hold in the form of shares of stock. Often, they pay a dividend, which immediately returns some cash to shareholders. In a sense, a corporation is "alive".
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by Alexa9 » Sat Mar 10, 2018 1:40 pm

I don't see the value. If SHTF, gold and silver will be useless. I am much more confident in US companies for long term growth.

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

Post by GratefulinNC » Sat Mar 10, 2018 2:04 pm

fortyofforty wrote:
Sat Mar 10, 2018 1:32 pm
I think there is a distinction lost between the "value" many assign to an object and the intrinsic value of that item. A bar of gold doesn't do anything. It doesn't produce income. It doesn't mow the grass or till the garden. It doesn't wash dishes or cook dinner. It just sits there. If you need to convert that bar of gold into food or ammunition or medical services or transportation, you have to find someone who values that gold as much or more than you do.

I would rather put my money into corporations. These are made of people striving, working, inventing and struggling to improve their lot. By doing so, they tend to increase the value of pieces of their companies I can hold in the form of shares of stock. Often, they pay a dividend, which immediately returns some cash to shareholders. In a sense, a corporation is "alive".
You are correct: Gold is not a substitute for stocks.

Hoeever, gold is a substitute or complement for bonds. See my above post.

You may prefer bonds. Both bonds and gold reduce drawdowns. Gold has the added advantage of reducing the duration of drawdowns. For details, check out http://www.portfoliocharts.com.

I like to use gold in tandem with bonds. Just a 5% to 10% gold allocation is wonderful insurance that improves portfolio performance.

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

Post by david1082b » Sat Mar 10, 2018 2:16 pm

fortyofforty wrote:
Sat Mar 10, 2018 1:32 pm
I think there is a distinction lost between the "value" many assign to an object and the intrinsic value of that item. A bar of gold doesn't do anything. It doesn't produce income. It doesn't mow the grass or till the garden. It doesn't wash dishes or cook dinner. It just sits there. If you need to convert that bar of gold into food or ammunition or medical services or transportation, you have to find someone who values that gold as much or more than you do.

I would rather put my money into corporations. These are made of people striving, working, inventing and struggling to improve their lot. By doing so, they tend to increase the value of pieces of their companies I can hold in the form of shares of stock. Often, they pay a dividend, which immediately returns some cash to shareholders. In a sense, a corporation is "alive".
I don't think those people tend to increase the values of the shares, since most stocks underperform tbills in the long run. The extreme competition results in a tiny minority of stocks producing most of the general stock index's historical returns. Gold probably outperforms most stocks. Only when they diversify enough do most stock investors have a chance of beating gold or bills.

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

Post by JBTX » Sat Mar 10, 2018 2:29 pm

This is a very interesting and objective academic piece discussing gold.

http://www.nber.org/papers/w18706

My view is I’m not big on gold. I generally agree with Buffets sentiments. If a Martian were to look at us they’d see we dig up gold then mold it into bars then bury back into the ground via a vault. Ultimately pointless. The entire amount of gold in the world can be contained within a baseball diamond. It has very little and limited utilitarian value. It doesn’t generate income or do much of anything.

Gold is valued heavily in India from a cultural perspective. The worldwide demand of gold is heavily influenced by India. In third world countries that don’t have access to reliable banks or financial markets gold may be their only vehicle for savings.

George Soros once described gold as the “ultimate bubble” in that its value is 100% based upon the perception that somebody after you will pay you more than you paid for it. Having said that Soros is known from time to time to put money into GLD.

Having said all that, over thousands of years it continues to retain value and over time increases, although with great volatility. Taking a very very long view it could be viewed as a diversifier. It tends to have low or even negative correlation with stocks.

I own somewhere between 1-2% of portfolio in gold and silver ETFs. Basically not enough to make a difference but make me feel like I’ve diversified just a little bit.

I’ve always been skeptical of having gold bars for the zombie apocalypse. Seems like if all institutions have failed and you have a lawless free for all it would be tough to unload without getting yourself killed. Also I hate the idea of having expensive valuable things sitting around that can get lost or stolen.

Maybe some not so shiney silver coins.

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

Post by GratefulinNC » Sat Mar 10, 2018 3:44 pm

JBTX wrote:
Sat Mar 10, 2018 2:29 pm
This is a very interesting and objective academic piece discussing gold.

http://www.nber.org/papers/w18706

My view is I’m not big on gold. I generally agree with Buffets sentiments. If a Martian were to look at us they’d see we dig up gold then mold it into bars then bury back into the ground via a vault. Ultimately pointless. The entire amount of gold in the world can be contained within a baseball diamond. It has very little and limited utilitarian value. It doesn’t generate income or do much of anything.

Gold is valued heavily in India from a cultural perspective. The worldwide demand of gold is heavily influenced by India. In third world countries that don’t have access to reliable banks or financial markets gold may be their only vehicle for savings.

George Soros once described gold as the “ultimate bubble” in that its value is 100% based upon the perception that somebody after you will pay you more than you paid for it. Having said that Soros is known from time to time to put money into GLD.

Having said all that, over thousands of years it continues to retain value and over time increases, although with great volatility. Taking a very very long view it could be viewed as a diversifier. It tends to have low or even negative correlation with stocks.

I own somewhere between 1-2% of portfolio in gold and silver ETFs. Basically not enough to make a difference but make me feel like I’ve diversified just a little bit.

I’ve always been skeptical of having gold bars for the zombie apocalypse. Seems like if all institutions have failed and you have a lawless free for all it would be tough to unload without getting yourself killed. Also I hate the idea of having expensive valuable things sitting around that can get lost or stolen.

Maybe some not so shiney silver coins.
Why is gold valuable?

Unlike stocks and bonds, the value of gold is intrinsic. There is a very limited, finite supply.

The demand for gold is directly related to how rare it really is. That rarity is real.

The rarity of god IS its value. That rarity makes it a store of value. That rarity makes it unique.

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

Post by fortyofforty » Sat Mar 10, 2018 4:26 pm

david1082b wrote:
Sat Mar 10, 2018 2:16 pm
fortyofforty wrote:
Sat Mar 10, 2018 1:32 pm
I think there is a distinction lost between the "value" many assign to an object and the intrinsic value of that item. A bar of gold doesn't do anything. It doesn't produce income. It doesn't mow the grass or till the garden. It doesn't wash dishes or cook dinner. It just sits there. If you need to convert that bar of gold into food or ammunition or medical services or transportation, you have to find someone who values that gold as much or more than you do.

I would rather put my money into corporations. These are made of people striving, working, inventing and struggling to improve their lot. By doing so, they tend to increase the value of pieces of their companies I can hold in the form of shares of stock. Often, they pay a dividend, which immediately returns some cash to shareholders. In a sense, a corporation is "alive".
I don't think those people tend to increase the values of the shares, since most stocks underperform tbills in the long run. The extreme competition results in a tiny minority of stocks producing most of the general stock index's historical returns. Gold probably outperforms most stocks. Only when they diversify enough do most stock investors have a chance of beating gold or bills.
I respectfully disagree. I think the average of all stocks, which is nothing more than an amalgam of all corporations, outperforms treasury bills and gold, except if you choose the most favorable measuring periods. People, process and product make companies great, but you can't have two out of three and expect long-term success.

Gold is inert. It doesn't change or innovate, in response to changing conditions. It is only valued exactly what other people are subjectively willing to pay you for it, without any measure of objectivity. Gold, platinum, silver, a Picasso, a Rembrandt, a diamond, a first edition... do not grow earnings, do not produce useful goods and services, do not throw off dividends. They only have value because somebody else is willing to pay you what you demand for them, primarily due to scarcity.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

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

Post by fortyofforty » Sat Mar 10, 2018 4:30 pm

GratefulinNC wrote:
Sat Mar 10, 2018 3:44 pm
JBTX wrote:
Sat Mar 10, 2018 2:29 pm
This is a very interesting and objective academic piece discussing gold.

http://www.nber.org/papers/w18706

My view is I’m not big on gold. I generally agree with Buffets sentiments. If a Martian were to look at us they’d see we dig up gold then mold it into bars then bury back into the ground via a vault. Ultimately pointless. The entire amount of gold in the world can be contained within a baseball diamond. It has very little and limited utilitarian value. It doesn’t generate income or do much of anything.

Gold is valued heavily in India from a cultural perspective. The worldwide demand of gold is heavily influenced by India. In third world countries that don’t have access to reliable banks or financial markets gold may be their only vehicle for savings.

George Soros once described gold as the “ultimate bubble” in that its value is 100% based upon the perception that somebody after you will pay you more than you paid for it. Having said that Soros is known from time to time to put money into GLD.

Having said all that, over thousands of years it continues to retain value and over time increases, although with great volatility. Taking a very very long view it could be viewed as a diversifier. It tends to have low or even negative correlation with stocks.

I own somewhere between 1-2% of portfolio in gold and silver ETFs. Basically not enough to make a difference but make me feel like I’ve diversified just a little bit.

I’ve always been skeptical of having gold bars for the zombie apocalypse. Seems like if all institutions have failed and you have a lawless free for all it would be tough to unload without getting yourself killed. Also I hate the idea of having expensive valuable things sitting around that can get lost or stolen.

Maybe some not so shiney silver coins.
Why is gold valuable?

Unlike stocks and bonds, the value of gold is intrinsic. There is a very limited, finite supply.

The demand for gold is directly related to how rare it really is. That rarity is real.

The rarity of god IS its value. That rarity makes it a store of value. That rarity makes it unique.
The rarity is real. The value, however, is not intrinsic. There are plenty of things that are rarer, but much less valued, than gold.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

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

Post by GratefulinNC » Sat Mar 10, 2018 4:59 pm

fortyofforty wrote:
Sat Mar 10, 2018 4:30 pm
GratefulinNC wrote:
Sat Mar 10, 2018 3:44 pm
JBTX wrote:
Sat Mar 10, 2018 2:29 pm
This is a very interesting and objective academic piece discussing gold.

http://www.nber.org/papers/w18706

My view is I’m not big on gold. I generally agree with Buffets sentiments. If a Martian were to look at us they’d see we dig up gold then mold it into bars then bury back into the ground via a vault. Ultimately pointless. The entire amount of gold in the world can be contained within a baseball diamond. It has very little and limited utilitarian value. It doesn’t generate income or do much of anything.

Gold is valued heavily in India from a cultural perspective. The worldwide demand of gold is heavily influenced by India. In third world countries that don’t have access to reliable banks or financial markets gold may be their only vehicle for savings.

George Soros once described gold as the “ultimate bubble” in that its value is 100% based upon the perception that somebody after you will pay you more than you paid for it. Having said that Soros is known from time to time to put money into GLD.

Having said all that, over thousands of years it continues to retain value and over time increases, although with great volatility. Taking a very very long view it could be viewed as a diversifier. It tends to have low or even negative correlation with stocks.

I own somewhere between 1-2% of portfolio in gold and silver ETFs. Basically not enough to make a difference but make me feel like I’ve diversified just a little bit.

I’ve always been skeptical of having gold bars for the zombie apocalypse. Seems like if all institutions have failed and you have a lawless free for all it would be tough to unload without getting yourself killed. Also I hate the idea of having expensive valuable things sitting around that can get lost or stolen.

Maybe some not so shiney silver coins.
Why is gold valuable?

Unlike stocks and bonds, the value of gold is intrinsic. There is a very limited, finite supply.

The demand for gold is directly related to how rare it really is. That rarity is real.

The rarity of god IS its value. That rarity makes it a store of value. That rarity makes it unique.
The rarity is real. The value, however, is not intrinsic. There are plenty of things that are rarer, but much less valued, than gold.
You may be right. What do you think of this article? https://seekingalpha.com/article/112794 ... ue-of-gold

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

Post by fortyofforty » Sat Mar 10, 2018 5:55 pm

Didn't learn much. Of course nobody knows what the value of gold will be in the future. But, because it has no yield (as the article says), the value is wholly dependent upon finding someone who will offer you what you want for it. Granted, people have long sought gold, it is pretty, and it does not oxidize. Besides limited industrial utility--in which the metal is used to produce a product that generates revenue--gold's value lies in appearance.

If you've ever watched Pawn Stars, you'd hear something like "Just because something is rare doesn't mean it's valuable" used repeatedly, much to the dismay of those coming into the shop who believe they're holding a fortune and leave with a relative pittance.

Things like food, water, shelter, fire starting supplies, firearms and ammunition would have more intrinsic value than gold in an apocalyptic scenario, in my opinion.
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by willthrill81 » Mon Mar 12, 2018 12:40 pm

Alexa9 wrote:
Sat Mar 10, 2018 1:40 pm
I don't see the value. If SHTF, gold and silver will be useless. I am much more confident in US companies for long term growth.
fortyofforty wrote:
Sat Mar 10, 2018 5:55 pm
Things like food, water, shelter, fire starting supplies, firearms and ammunition would have more intrinsic value than gold in an apocalyptic scenario, in my opinion.
In the initial stages of an economic catastrophe, gold and silver (PMs) might be useful. For instance, some theorize that in the initial stages of hyperinflation but before the currency becomes worthless, one could sell enough PMs to pay off one's debts. Ask someone in Venezuela if they'd rather have local currency or PMs right now. But yes, during a catastrophe, brass and lead might be better investments.

Where PMs could be useful is after the catastrophe is over. PMs could 'carry wealth' over the catastrophe, allowing you to rebuild on the other side of it.

If an economic catastrophe doesn't occur, then yes, stock is very likely to beat the pants off of PMs over the long-term, and that's where the bulk of my investments are located. Think of PMs as an insurance policy. You don't buy them for growth; you buy them to protect against risk. It's not food, water, shelter, etc. OR gold; it's both.

That being said, portfolios that have had a modest allocation to gold (10-25%) have done well.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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

Post by alfaspider » Mon Mar 12, 2018 1:36 pm

willthrill81 wrote:
Mon Mar 12, 2018 12:40 pm


That being said, portfolios that have had a modest allocation to gold (10-25%) have done well.
Couldn't that be said about a 10% allocation to just about any investment?

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

Post by willthrill81 » Mon Mar 12, 2018 4:38 pm

alfaspider wrote:
Mon Mar 12, 2018 1:36 pm
willthrill81 wrote:
Mon Mar 12, 2018 12:40 pm


That being said, portfolios that have had a modest allocation to gold (10-25%) have done well.
Couldn't that be said about a 10% allocation to just about any investment?
Compare a portfolio with just stocks and bonds to one that added a modest allocation to gold over the last 40 years.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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

Post by Index Fan » Mon Mar 12, 2018 5:07 pm

Precious metals have come in handy in multiple historical scenarios including Argentina's economic turmoil in the early 2000s (especially 'junk jewelry').

Holding small amounts of PMs for portfolio insurance purposes a reasonable strategy to me.
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by happyisland » Mon Mar 12, 2018 6:03 pm

Is there any scenario where holding gold would have been better than holding another hard currency? I ask because Venezuela was mentioned above, and it would be far more useful to have dollars or euros in Venezuela now. If I'm not mistaken it would have been better to have dollars during Argentina's crisis as well...

Maybe the people who want insurance for currency risk would be better served by owning a small basket of widely-accepted hard currencies?

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

Post by keinodoggy » Mon Mar 12, 2018 6:24 pm

JBTX wrote:
Sat Mar 10, 2018 2:29 pm
This is a very interesting and objective academic piece discussing gold.

http://www.nber.org/papers/w18706

My view is I’m not big on gold. I generally agree with Buffets sentiments. If a Martian were to look at us they’d see we dig up gold then mold it into bars then bury back into the ground via a vault. Ultimately pointless. The entire amount of gold in the world can be contained within a baseball diamond. It has very little and limited utilitarian value. It doesn’t generate income or do much of anything.

Gold is valued heavily in India from a cultural perspective. The worldwide demand of gold is heavily influenced by India. In third world countries that don’t have access to reliable banks or financial markets gold may be their only vehicle for savings.

George Soros once described gold as the “ultimate bubble” in that its value is 100% based upon the perception that somebody after you will pay you more than you paid for it. Having said that Soros is known from time to time to put money into GLD.

Having said all that, over thousands of years it continues to retain value and over time increases, although with great volatility. Taking a very very long view it could be viewed as a diversifier. It tends to have low or even negative correlation with stocks.

I own somewhere between 1-2% of portfolio in gold and silver ETFs. Basically not enough to make a difference but make me feel like I’ve diversified just a little bit.

I’ve always been skeptical of having gold bars for the zombie apocalypse. Seems like if all institutions have failed and you have a lawless free for all it would be tough to unload without getting yourself killed. Also I hate the idea of having expensive valuable things sitting around that can get lost or stolen.

Maybe some not so shiney silver coins.
It has very little and limited utilitarian value. It doesn’t generate income or do much of anything.
Electronics and Computers:
Gold is a highly efficient conductor that is able to carry tiny electrical charges, and because of this property a small amount is found in almost all electronic devices, including cell phones, televisions, GPS units and more. Because gold is such an efficient conductor of electrical charges, it is also often found in desktop and laptop computers to transfer information quickly.


Gold Tooth and Silver

Dentistry and Medicine:
Gold makes for the best fillings, crowns, bridges and orthodontic appliances because the metal is chemically inert, easy to insert and nonallergenic. Gold has been used in dentistry since 700 B.C. and will probably continue to be the best option for replacing broken or missing teeth. In the medical field, small amounts of gold isotopes are used in certain radiation treatments and diagnosis.



Gold space products nasa

Aerospace:
In the aerospace industry where reliable and effective technologies are key to survival, gold plays an essential role. Gold is used to lubricate mechanical parts, conduct electricity and coat the insides of space vehicles to protect people inside from infrared radiation and heat.

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

Post by golfCaddy » Mon Mar 12, 2018 10:07 pm

happyisland wrote:
Mon Mar 12, 2018 6:03 pm
Is there any scenario where holding gold would have been better than holding another hard currency? I ask because Venezuela was mentioned above, and it would be far more useful to have dollars or euros in Venezuela now. If I'm not mistaken it would have been better to have dollars during Argentina's crisis as well...

Maybe the people who want insurance for currency risk would be better served by owning a small basket of widely-accepted hard currencies?
There's pockets of the Middle East and Africa where gold is still used in transactions as a medium of exchange.

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

Post by spectec » Mon Mar 12, 2018 10:13 pm

willthrill81 wrote:
Sat Apr 15, 2017 4:42 pm
jastevenson wrote:When you invest in a index fund, the premise is that you own a piece of a company. So long-term growth in the size and profit of a company results in a higher stock price when

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

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

From a strict investment perspective, it might make some sense to hold a small portion of a portfolio in gold to reduce volatility, which increases safe withdrawal rates. Go to Portfolio Charts to see its historic performance when used this way.
When my clients ask if they should buy physical gold to protect them against a collapse of the financial markets, I always remind them they need to keep an equal amount of lead on hand. Otherwise someone with the right quantity & configuration of that metal will likely wind up owning their gold.
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers

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

Post by GratefulinNC » Tue Mar 13, 2018 5:30 am

spectec wrote:
Mon Mar 12, 2018 10:13 pm
willthrill81 wrote:
Sat Apr 15, 2017 4:42 pm
jastevenson wrote:When you invest in a index fund, the premise is that you own a piece of a company. So long-term growth in the size and profit of a company results in a higher stock price when

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

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

From a strict investment perspective, it might make some sense to hold a small portion of a portfolio in gold to reduce volatility, which increases safe withdrawal rates. Go to Portfolio Charts to see its historic performance when used this way.
When my clients ask if they should buy physical gold to protect them against a collapse of the financial markets, I always remind them they need to keep an equal amount of lead on hand. Otherwise someone with the right quantity & configuration of that metal will likely wind up owning their gold.
Your above statemnet is not true:

Today, you can buy a gold ETF. No need to buy physical bullion.

Gold will not save you from an economic collapse. The value of gold is in ameliorating drawdowns. This value realized by regular rebalancing. See my posts above.

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

Post by alfaspider » Tue Mar 13, 2018 9:50 am

keinodoggy wrote:
Mon Mar 12, 2018 6:24 pm


Gold Tooth and Silver

Dentistry and Medicine:
Gold makes for the best fillings, crowns, bridges and orthodontic appliances because the metal is chemically inert, easy to insert and nonallergenic. Gold has been used in dentistry since 700 B.C. and will probably continue to be the best option for replacing broken or missing teeth. In the medical field, small amounts of gold isotopes are used in certain radiation treatments and diagnosis.

A bit of an aside, but the vast majority of dentists these days seem to use various composites instead of gold. Crowns and bridges are mostly being replaced by implants.

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willthrill81
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by willthrill81 » Tue Mar 13, 2018 9:56 am

spectec wrote:
Mon Mar 12, 2018 10:13 pm
willthrill81 wrote:
Sat Apr 15, 2017 4:42 pm
jastevenson wrote:When you invest in a index fund, the premise is that you own a piece of a company. So long-term growth in the size and profit of a company results in a higher stock price when

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

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

From a strict investment perspective, it might make some sense to hold a small portion of a portfolio in gold to reduce volatility, which increases safe withdrawal rates. Go to Portfolio Charts to see its historic performance when used this way.
When my clients ask if they should buy physical gold to protect them against a collapse of the financial markets, I always remind them they need to keep an equal amount of lead on hand. Otherwise someone with the right quantity & configuration of that metal will likely wind up owning their gold.
I've got that metal covered as well. :beer
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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

Post by alfaspider » Tue Mar 13, 2018 10:37 am

willthrill81 wrote:
Mon Mar 12, 2018 4:38 pm
alfaspider wrote:
Mon Mar 12, 2018 1:36 pm
willthrill81 wrote:
Mon Mar 12, 2018 12:40 pm


That being said, portfolios that have had a modest allocation to gold (10-25%) have done well.
Couldn't that be said about a 10% allocation to just about any investment?
Compare a portfolio with just stocks and bonds to one that added a modest allocation to gold over the last 40 years.
Out of curiosity, I just did with portfolio visualizer using the maximum date range (20 years). One portfolio was a standard 70/30 bogglehead portfolio allocated to total stock and total bond. The other was a similar portfolio but 70/20/10 with 10% gold. The results were nearly identical, but the traditional BH portfolio came out ahead vs the portfolio with gold (165,500 vs 160,000 for an initial $10k investment). Likewise, volatility wasn't materially different with the worst years and best years and max drawdown within 1%. Obviously, you could come to different conclusions with different date ranges, but I'm not really seeing what you are claiming. I'd also point out that 1998 was the beginning of a bull run for gold, so other date ranges are probably worse.

https://www.portfoliovisualizer.com/bac ... sisResults

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willthrill81
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by willthrill81 » Tue Mar 13, 2018 11:34 am

alfaspider wrote:
Tue Mar 13, 2018 10:37 am
willthrill81 wrote:
Mon Mar 12, 2018 4:38 pm
alfaspider wrote:
Mon Mar 12, 2018 1:36 pm
willthrill81 wrote:
Mon Mar 12, 2018 12:40 pm


That being said, portfolios that have had a modest allocation to gold (10-25%) have done well.
Couldn't that be said about a 10% allocation to just about any investment?
Compare a portfolio with just stocks and bonds to one that added a modest allocation to gold over the last 40 years.
Out of curiosity, I just did with portfolio visualizer using the maximum date range (20 years). One portfolio was a standard 70/30 bogglehead portfolio allocated to total stock and total bond. The other was a similar portfolio but 70/20/10 with 10% gold. The results were nearly identical, but the traditional BH portfolio came out ahead vs the portfolio with gold (165,500 vs 160,000 for an initial $10k investment). Likewise, volatility wasn't materially different with the worst years and best years and max drawdown within 1%. Obviously, you could come to different conclusions with different date ranges, but I'm not really seeing what you are claiming. I'd also point out that 1998 was the beginning of a bull run for gold, so other date ranges are probably worse.

https://www.portfoliovisualizer.com/bac ... sisResults
From 1972-2017, a portfolio with 70% TSM and 30% TBM returned 9.81%, while moving to 20% TBM and 10% gold increased the return to 10.18%. From 1998-2017 (last 20 years), the portfolio with gold outperformed by .30% annually.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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

Post by All Seasons » Tue Mar 13, 2018 12:04 pm

I own gold primarily for diversification purposes. Not just diversification in the traditional sense of volatility and risk adjusted return.

I own it primarily to diversify away from digital assets. I shudder when I consider the prospect of all the wealth I've worked decades for being stored on some server somewhere that can be wiped out or cut off very easily.

Think about the layers of infrastructure and people that stand in the way of us and the wealth we think we own. The exchanges have to be operating, the grid has to be up, you have to have a working internet connection, the market must be orderly and liquid, your brokerage house has to be up and running, etc., etc.

All it takes is a single cyber-hack in any part of that chain to potentially destroy your wealth. All our money and assets are just bits on drives. You don't even have to take out the drive or the data, just cutting off access can be devastating.

It doesn't have to be a doomsday scenario for gold to be a valuable addition to your portfolio.

Imagine a situation where the NYSE or NASDAQ was taken down for, say, a day or two by a nation state or hacking group such as Anonymous (http://money.cnn.com/2014/07/17/technol ... index.html).

The exchange and the overall market are back to functioning normally after a couple days, but investors suddenly realize how vulnerable their digital wealth is. This causes a sell-off in digitally denominated assets (pretty much everything). Gold and silver skyrocket as a different kind of safe haven. The sell-off causes a negative wealth effect as people's portfolios shrink. Margin calls are made. It spreads into the real economy and there is a recession. All this from a couple days disruption to an exchange.

I'm not saying the above is going to happen, but it is certainly plausible. Investors, us as a group, underestimate the possibility because it's never happened before, but eventually a significant cyber attack on our financial system will happen. Anything that can happen will happen on a long enough time scale.

Take 5% of your portfolio and put it into some gold bullion. Even our mentor, Jack Bogle, a known gold basher, concedes that such an allocation is sensible (https://www.theglobeandmail.com/report- ... e33731856/).
The market portfolio is always a legitimate portfolio.

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

Post by alfaspider » Tue Mar 13, 2018 12:40 pm

willthrill81 wrote:
Tue Mar 13, 2018 11:34 am
alfaspider wrote:
Tue Mar 13, 2018 10:37 am
willthrill81 wrote:
Mon Mar 12, 2018 4:38 pm
alfaspider wrote:
Mon Mar 12, 2018 1:36 pm
willthrill81 wrote:
Mon Mar 12, 2018 12:40 pm


That being said, portfolios that have had a modest allocation to gold (10-25%) have done well.
Couldn't that be said about a 10% allocation to just about any investment?
Compare a portfolio with just stocks and bonds to one that added a modest allocation to gold over the last 40 years.
Out of curiosity, I just did with portfolio visualizer using the maximum date range (20 years). One portfolio was a standard 70/30 bogglehead portfolio allocated to total stock and total bond. The other was a similar portfolio but 70/20/10 with 10% gold. The results were nearly identical, but the traditional BH portfolio came out ahead vs the portfolio with gold (165,500 vs 160,000 for an initial $10k investment). Likewise, volatility wasn't materially different with the worst years and best years and max drawdown within 1%. Obviously, you could come to different conclusions with different date ranges, but I'm not really seeing what you are claiming. I'd also point out that 1998 was the beginning of a bull run for gold, so other date ranges are probably worse.

https://www.portfoliovisualizer.com/bac ... sisResults
From 1972-2017, a portfolio with 70% TSM and 30% TBM returned 9.81%, while moving to 20% TBM and 10% gold increased the return to 10.18%. From 1998-2017 (last 20 years), the portfolio with gold outperformed by .30% annually.
My results are actually January 1997 to January 1998 (max for portfolio visualizer) for these three asset classes, where gold decreased CAGR from 9.41 to 9.33%. If we take a more recent sample, from Jan 2013 to Jan 2018, the portfolio with gold decreases CAGR by approximately .5%. However, all that is beside the point. In no scenario is the end result materially different in a 70/20/10 portfolio with gold than a simple 70/30 unless you cherry pick ideal scenarios for one asset class. Even the one absolute best recent time frames for the portfolio with gold (January 2007 to December 2009) only results in a CAGR difference of about 1% and a negligible impact on overall portfolio volatility.

My original point was that a 10% allocation one way or another just isn't that material to your outcome if you are choosing between asset classes with similar purposes in your portfolio (i.e. growth assets like equities or protective assets like bonds or gold).

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willthrill81
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Re: Is there any reason a buy-and-hold investor would buy gold?

Post by willthrill81 » Tue Mar 13, 2018 2:21 pm

alfaspider wrote:
Tue Mar 13, 2018 12:40 pm
willthrill81 wrote:
Tue Mar 13, 2018 11:34 am
alfaspider wrote:
Tue Mar 13, 2018 10:37 am
willthrill81 wrote:
Mon Mar 12, 2018 4:38 pm
alfaspider wrote:
Mon Mar 12, 2018 1:36 pm


Couldn't that be said about a 10% allocation to just about any investment?
Compare a portfolio with just stocks and bonds to one that added a modest allocation to gold over the last 40 years.
Out of curiosity, I just did with portfolio visualizer using the maximum date range (20 years). One portfolio was a standard 70/30 bogglehead portfolio allocated to total stock and total bond. The other was a similar portfolio but 70/20/10 with 10% gold. The results were nearly identical, but the traditional BH portfolio came out ahead vs the portfolio with gold (165,500 vs 160,000 for an initial $10k investment). Likewise, volatility wasn't materially different with the worst years and best years and max drawdown within 1%. Obviously, you could come to different conclusions with different date ranges, but I'm not really seeing what you are claiming. I'd also point out that 1998 was the beginning of a bull run for gold, so other date ranges are probably worse.

https://www.portfoliovisualizer.com/bac ... sisResults
From 1972-2017, a portfolio with 70% TSM and 30% TBM returned 9.81%, while moving to 20% TBM and 10% gold increased the return to 10.18%. From 1998-2017 (last 20 years), the portfolio with gold outperformed by .30% annually.
My results are actually January 1997 to January 1998 (max for portfolio visualizer) for these three asset classes, where gold decreased CAGR from 9.41 to 9.33%. If we take a more recent sample, from Jan 2013 to Jan 2018, the portfolio with gold decreases CAGR by approximately .5%. However, all that is beside the point. In no scenario is the end result materially different in a 70/20/10 portfolio with gold than a simple 70/30 unless you cherry pick ideal scenarios for one asset class. Even the one absolute best recent time frames for the portfolio with gold (January 2007 to December 2009) only results in a CAGR difference of about 1% and a negligible impact on overall portfolio volatility.

My original point was that a 10% allocation one way or another just isn't that material to your outcome if you are choosing between asset classes with similar purposes in your portfolio (i.e. growth assets like equities or protective assets like bonds or gold).
Portfolio Visualizer lets you view the impact of gold all the way back to 1972. Go the 'asset allocation' link here.

I agree with you that a 10% allocation to anything isn't likely to move the needle of the overall portfolio much. For those wanting to include gold in their portfolio (I don't currently at least), I think 20-25% is a more reasonable proportion.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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

Post by alfaspider » Tue Mar 13, 2018 2:24 pm

willthrill81 wrote:
Tue Mar 13, 2018 2:21 pm
alfaspider wrote:
Tue Mar 13, 2018 12:40 pm
willthrill81 wrote:
Tue Mar 13, 2018 11:34 am
alfaspider wrote:
Tue Mar 13, 2018 10:37 am
willthrill81 wrote:
Mon Mar 12, 2018 4:38 pm


Compare a portfolio with just stocks and bonds to one that added a modest allocation to gold over the last 40 years.
Out of curiosity, I just did with portfolio visualizer using the maximum date range (20 years). One portfolio was a standard 70/30 bogglehead portfolio allocated to total stock and total bond. The other was a similar portfolio but 70/20/10 with 10% gold. The results were nearly identical, but the traditional BH portfolio came out ahead vs the portfolio with gold (165,500 vs 160,000 for an initial $10k investment). Likewise, volatility wasn't materially different with the worst years and best years and max drawdown within 1%. Obviously, you could come to different conclusions with different date ranges, but I'm not really seeing what you are claiming. I'd also point out that 1998 was the beginning of a bull run for gold, so other date ranges are probably worse.

https://www.portfoliovisualizer.com/bac ... sisResults
From 1972-2017, a portfolio with 70% TSM and 30% TBM returned 9.81%, while moving to 20% TBM and 10% gold increased the return to 10.18%. From 1998-2017 (last 20 years), the portfolio with gold outperformed by .30% annually.
My results are actually January 1997 to January 1998 (max for portfolio visualizer) for these three asset classes, where gold decreased CAGR from 9.41 to 9.33%. If we take a more recent sample, from Jan 2013 to Jan 2018, the portfolio with gold decreases CAGR by approximately .5%. However, all that is beside the point. In no scenario is the end result materially different in a 70/20/10 portfolio with gold than a simple 70/30 unless you cherry pick ideal scenarios for one asset class. Even the one absolute best recent time frames for the portfolio with gold (January 2007 to December 2009) only results in a CAGR difference of about 1% and a negligible impact on overall portfolio volatility.

My original point was that a 10% allocation one way or another just isn't that material to your outcome if you are choosing between asset classes with similar purposes in your portfolio (i.e. growth assets like equities or protective assets like bonds or gold).
Portfolio Visualizer lets you view the impact of gold all the way back to 1972. Go the 'asset allocation' link here.

I agree with you that a 10% allocation to anything isn't likely to move the needle of the overall portfolio much. For those wanting to include gold in their portfolio (I don't currently at least), I think 20-25% is a more reasonable proportion.
Yes, but you can't use total stock/total bond indexes back to 1972.

As for 20-25%- I'm not sure it really matters that much if you are comparing to bonds. With the exception of a few limited time periods, a 70/30 stock/bond portfolio performs similarly to a 70/30 stock/gold portfolio, with the gold portfolio slightly under performing on return and no significant volatility difference.

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