Barron's Making the Case for Gold

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permport
Posts: 102
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Re: Barron's Making the Case for Gold

Post by permport » Wed Oct 03, 2018 5:53 pm

All Seasons wrote:
Wed Oct 03, 2018 5:04 pm
I don't either, but I don't mind being a contrarian. Following the crowd on any given issue in the investment world is usually a mistake. The prudent aren't prudent because they do what everyone else is doing -- quite the opposite. :P
I get what you guys are saying, but I fear it is a waste of time. A typical debate/discussion on these forums when it comes to contrarian ideas goes something like this:

Silly Person: Remember that the future will not look like the past!

Prudent Person: Agreed.

Silly Person: Look, international investing and gold have been a disaster! Avoid!

Prudent Person: Didn't you just say that the future will not look like the past?

Silly Person: Yeah, but portfolio visualizer shows U.S. has outperformed etc.

Prudent Person: But you literally just said the future will not look like the past. And what about Bogle's own principle of reversion to the mean??

Silly Person: Portfolio visualizer...

Prudent Person: What?

Silly Person: PORTFOLIO VISUALIZER IS GOD.

Prudent Person: I give up.

You need to be willing to buy assets that are in the dumps and not overweight assets that have performed well recently. Look at all the "Why do I need bonds at all?" threads that are popping up on the forums these days. It's madness.

You can't buy historical performance retroactively, the future won't resemble the past, and mean reversion abounds. People pay lip service to those concepts, but seldom follow through.
Buy right and hold tight.

wolf359
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Re: Barron's Making the Case for Gold

Post by wolf359 » Wed Oct 03, 2018 6:08 pm

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

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

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

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

I've explored holding gold, and the closest I might get is the GOLD ETF. Why is it practical or desireable to hold actual physical gold as money? How do I even use it as money?

GRP
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Re: Barron's Making the Case for Gold

Post by GRP » Wed Oct 03, 2018 6:23 pm

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

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

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

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

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

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

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

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

My 2 cents is all. :sharebeer

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eye.surgeon
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Re: Barron's Making the Case for Gold

Post by eye.surgeon » Wed Oct 03, 2018 6:27 pm

GRP wrote:
Mon Oct 01, 2018 5:58 pm
There's always a case for gold. In fact, it should form the core of everyone's portfolio as a form of universal money -- just in case. 10% or so core holding in gold should be at the heart of any investor's assets.
Most here would disagree with this including myself. Try filling your car up with gas using your gold, and you will see it's not quite the universal money you are hoping for.
"I would rather be certain of a good return than hopeful of a great one" | Warren Buffett

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

Post by All Seasons » Wed Oct 03, 2018 6:28 pm

permport wrote:
Wed Oct 03, 2018 5:53 pm
All Seasons wrote:
Wed Oct 03, 2018 5:04 pm
I don't either, but I don't mind being a contrarian. Following the crowd on any given issue in the investment world is usually a mistake. The prudent aren't prudent because they do what everyone else is doing -- quite the opposite. :P
I get what you guys are saying, but I fear it is a waste of time. A typical debate/discussion on these forums when it comes to contrarian ideas goes something like this:

Silly Person: Remember that the future will not look like the past!

Prudent Person: Agreed.

Silly Person: Look, international investing and gold have been a disaster! Avoid!

Prudent Person: Didn't you just say that the future will not look like the past?

Silly Person: Yeah, but portfolio visualizer shows U.S. has outperformed etc.

Prudent Person: But you literally just said the future will not look like the past. And what about Bogle's own principle of reversion to the mean??

Silly Person: Portfolio visualizer...

Prudent Person: What?

Silly Person: PORTFOLIO VISUALIZER IS GOD.

Prudent Person: I give up.

You need to be willing to buy assets that are in the dumps and not overweight assets that have performed well recently. Look at all the "Why do I need bonds at all?" threads that are popping up on the forums these days. It's madness.

You can't buy historical performance retroactively, the future won't resemble the past, and mean reversion abounds. People pay lip service to those concepts, but seldom follow through.
This just won my vote for best post on this forum.... ever. :D :D :D
The market portfolio is always a legitimate portfolio.

GRP
Posts: 45
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Re: Barron's Making the Case for Gold

Post by GRP » Wed Oct 03, 2018 6:29 pm

eye.surgeon wrote:
Wed Oct 03, 2018 6:27 pm
GRP wrote:
Mon Oct 01, 2018 5:58 pm
There's always a case for gold. In fact, it should form the core of everyone's portfolio as a form of universal money -- just in case. 10% or so core holding in gold should be at the heart of any investor's assets.
Most here would disagree with this including myself. Try filling your car up with gas using your gold, and you will see it's not quite the universal money you are hoping for.
See my last post above yours for my reasoning. I always welcome contrasting viewpoints.

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permport
Posts: 102
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Re: Barron's Making the Case for Gold

Post by permport » Wed Oct 03, 2018 6:45 pm

GRP wrote:
Wed Oct 03, 2018 6:29 pm
eye.surgeon wrote:
Wed Oct 03, 2018 6:27 pm
GRP wrote:
Mon Oct 01, 2018 5:58 pm
There's always a case for gold. In fact, it should form the core of everyone's portfolio as a form of universal money -- just in case. 10% or so core holding in gold should be at the heart of any investor's assets.
Most here would disagree with this including myself. Try filling your car up with gas using your gold, and you will see it's not quite the universal money you are hoping for.
See my last post above yours for my reasoning. I always welcome contrasting viewpoints.
People seem to overestimate how hard it is to go into a dealer's shop and exchange gold for local currency.

I did it a month ago and it took 5 minutes. Seriously, I live in a fairly small town and with a quick Google search I found like half a dozen dealers that will buy/sell gold within a 15 minute drive from me. It's not hard. Like you said, the yellow metal is universal money.
Buy right and hold tight.

hdas
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Re: Barron's Making the Case for Gold

Post by hdas » Wed Oct 03, 2018 6:55 pm

The challenge with holding gold is those long periods of under-performance, we are all used to the rhythms of the stock market. Bond bear markets are long and tiring too but softened by the interest payment. Gold might benefit from Lindy Effect
The Lindy effect is a concept that the future life expectancy of some non-perishable things like a technology or an idea is proportional to their current age, so that every additional period of survival implies a longer remaining life expectancy.[1] Where the Lindy effect applies, mortality rate decreases with time. In contrast, living creatures and mechanical things follow a bathtub curve where, after "childhood", the mortality rate increases with time. Because life expectancy is probabilistically derived, a thing may become extinct before its "expected" survival. In other words, one needs to gauge both the age and "health" of the thing to determine continued survival.
Image
Stay the course and buy some more.

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

Post by All Seasons » Wed Oct 03, 2018 7:04 pm

hdas wrote:
Wed Oct 03, 2018 6:55 pm
The challenge with holding gold is those long periods of under-performance, we are all used to the rhythms of the stock market. Bond bear markets are long and tiring too but softened by the interest payment. Gold might benefit from Lindy Effect
The Lindy effect is a concept that the future life expectancy of some non-perishable things like a technology or an idea is proportional to their current age, so that every additional period of survival implies a longer remaining life expectancy.[1] Where the Lindy effect applies, mortality rate decreases with time. In contrast, living creatures and mechanical things follow a bathtub curve where, after "childhood", the mortality rate increases with time. Because life expectancy is probabilistically derived, a thing may become extinct before its "expected" survival. In other words, one needs to gauge both the age and "health" of the thing to determine continued survival.
Image
Very interesting. It's nice to see some reasonable discourse about gold and possible explanations about its longevity (even if you don't like it as an asset), rather than simple bashing.
The market portfolio is always a legitimate portfolio.

GRP
Posts: 45
Joined: Wed Nov 22, 2017 5:35 pm

Re: Barron's Making the Case for Gold

Post by GRP » Wed Oct 03, 2018 7:28 pm

All Seasons wrote:
Wed Oct 03, 2018 6:28 pm
permport wrote:
Wed Oct 03, 2018 5:53 pm
All Seasons wrote:
Wed Oct 03, 2018 5:04 pm
I don't either, but I don't mind being a contrarian. Following the crowd on any given issue in the investment world is usually a mistake. The prudent aren't prudent because they do what everyone else is doing -- quite the opposite. :P
I get what you guys are saying, but I fear it is a waste of time. A typical debate/discussion on these forums when it comes to contrarian ideas goes something like this:

Silly Person: Remember that the future will not look like the past!

Prudent Person: Agreed.

Silly Person: Look, international investing and gold have been a disaster! Avoid!

Prudent Person: Didn't you just say that the future will not look like the past?

Silly Person: Yeah, but portfolio visualizer shows U.S. has outperformed etc.

Prudent Person: But you literally just said the future will not look like the past. And what about Bogle's own principle of reversion to the mean??

Silly Person: Portfolio visualizer...

Prudent Person: What?

Silly Person: PORTFOLIO VISUALIZER IS GOD.

Prudent Person: I give up.

You need to be willing to buy assets that are in the dumps and not overweight assets that have performed well recently. Look at all the "Why do I need bonds at all?" threads that are popping up on the forums these days. It's madness.

You can't buy historical performance retroactively, the future won't resemble the past, and mean reversion abounds. People pay lip service to those concepts, but seldom follow through.
This just won my vote for best post on this forum.... ever. :D :D :D
+1

JackoC
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Re: Barron's Making the Case for Gold

Post by JackoC » Thu Oct 04, 2018 2:06 pm

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

For example the GLD ETF has an expense ratio of 0.40%. Over 50 years that would reduce your holding by about 18%. If your ancient ancester started out with 1000 gold coins 2000 years ago you would only have a third of a gold coin left today after paying the expenses for 2000 years.
I guess the 2000 yr expense ratio drain is tongue in cheek, but all very long term asset returns have been low, at least compared to what people now expect (from relatively recent history, though their expectation is not a prediction mind you, prediction is just when people estimate future expected return to be lower than what others would like to hear :D ). By the same token that only -.4% virtually wipes out a 2000 yr investment, +2% real would have made it expand by 10^17. At +1% real return, reinvested, it only multiplies to 439 million times what you started with 2000 yrs ago. Obviously that hasn't actually happened. Holding families either lose it or consume it at some intermediate point. Likewise on a somewhat shorter time scale (in exponential terms) small very old Japanese companies (eg. Kongo Gumi the temple builder, in business for ~1400 yrs) haven't grown into gigantic or all-world controlling companies. The presumably positive return of the business has been consumed by the owners generation by generation it would seem, rather than reinvesting for even 1% pa growth (in which case the company would be ~1 mil times larger than 1,400 yrs ago).

The Japanese co's have existed continuously. But generally and especially going back 2000 yrs, it's those 100% losses every once in a while that kill very long term returns. Gold isn't immune from those, but neither is anything else. Gold *might*, *arguably* suffer those -100%'s less often, at least in cases where it's not so much, and you don't have a high enough profile that people know to come looking particularly for you in times of chaos. But I know not everybody agrees with that, and some people seem to have an emotional anti-gold preconception that's as impervious to argument as the attitudes of the gold bugs who so exasperate the gold haters.

lifeisinmirrors
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Re: Barron's Making the Case for Gold

Post by lifeisinmirrors » Thu Oct 04, 2018 2:50 pm

Gold isn't correlated to stocks, but its expected return is close to zero.

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

Post by All Seasons » Thu Oct 04, 2018 4:22 pm

https://www.bloomberg.com/news/features ... ium-canada

Our digital wealth is vulnerable -- diversify into some physical assets like gold, my friends. :sharebeer
The market portfolio is always a legitimate portfolio.

stuper1
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Re: Barron's Making the Case for Gold

Post by stuper1 » Thu Oct 04, 2018 4:29 pm

Agreed about digital wealth being vulnerable. In addition, adding something like 10% gold to your portfolio will reduce volatility with little effect on long-term CAGR. In the short-term, it can help CAGR. Take a look at the years 2000 to 2010 when stocks/bonds weren't doing so great. Gold returns have been shown to be basically uncorrelated to stock/bond returns (which by the way are fairly highly correlated to each other). This is why gold makes a great diversifier, as well as being a great insurance policy against the digital wealth problem.

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

Post by All Seasons » Thu Oct 04, 2018 4:34 pm

stuper1 wrote:
Thu Oct 04, 2018 4:29 pm
Agreed about digital wealth being vulnerable. In addition, adding something like 10% gold to your portfolio will reduce volatility with little effect on long-term CAGR. In the short-term, it can help CAGR. Take a look at the years 2000 to 2010 when stocks/bonds weren't doing so great. Gold returns have been shown to be basically uncorrelated to stock/bond returns (which by the way are fairly highly correlated to each other). This is why gold makes a great diversifier, as well as being a great insurance policy against the digital wealth problem.
Some great points.

Some people may have the impression that people like myself are wedded to gold or something. I'm not. The digital/physical diversification principle is just pragmatism in action.

If physical Treasury bonds still existed I'd advocate for those, too. At least they pay interest -- unlike gold. Unfortunately they no longer exist.
The market portfolio is always a legitimate portfolio.

columbia
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Re: Barron's Making the Case for Gold

Post by columbia » Thu Oct 04, 2018 4:48 pm

As has been pointed out in this forum before: gold is a workable inflation hedge, provided that you are able live several hundred years; too much variance for shorter time periods.

wrongfunds
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Re: Barron's Making the Case for Gold

Post by wrongfunds » Thu Oct 04, 2018 5:01 pm

Physical gold, at least I understand but buying some paper which claims that they are storing *your* gold at small fee? Hats off to the guy who came with that idea.

I can just imagine the boiler room discussion between the founders:-

"We will tell people to send us real money and we will tell them that we will buy gold on their behalf and store it safely for them"
"Do you think people are so stupid to fall for such a scheme?"
"You don't know until you try!"

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

Post by All Seasons » Thu Oct 04, 2018 5:10 pm

wrongfunds wrote:
Thu Oct 04, 2018 5:01 pm
Physical gold, at least I understand but buying some paper which claims that they are storing *your* gold at small fee? Hats off to the guy who came with that idea.

I can just imagine the boiler room discussion between the founders:-

"We will tell people to send us real money and we will tell them that we will buy gold on their behalf and store it safely for them"
"Do you think people are so stupid to fall for such a scheme?"
"You don't know until you try!"
It's especially absurd when you consider that a lot of these ETFs are unallocated. No gold is really stored on your behalf and you don't have real title -- it's just price exposure at best.

Most of all, you lose the physical/digital diversification benefit.

Aside from the Chinese hardware hack revelation, recall that a few years ago Russian malicious software was found in the NASDAQ stock exchange operating system.

https://www.businessinsider.com/nasdaq- ... ers-2014-7

To top it all off, these are just hacks that we know about. I can't imagine what kind of intrusions have not been made public, or what could happen if the Chinese or Russians got into explicit and open cyber/financial warfare against us.
The market portfolio is always a legitimate portfolio.

stuper1
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Re: Barron's Making the Case for Gold

Post by stuper1 » Thu Oct 04, 2018 8:09 pm

What's the saying? "Diversification is the only free lunch." Did I get that right?

A lot of people feel they are diversified if they hold a total stock market fund and a total bond market fund. Try looking at the correlation between stocks and bonds some time. They are actually fairly correlated. You bring up a great point about digital/physical diversification also being important.

GRP
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Re: Barron's Making the Case for Gold

Post by GRP » Thu Oct 04, 2018 8:09 pm

All Seasons wrote:
Thu Oct 04, 2018 5:10 pm
wrongfunds wrote:
Thu Oct 04, 2018 5:01 pm
Physical gold, at least I understand but buying some paper which claims that they are storing *your* gold at small fee? Hats off to the guy who came with that idea.

I can just imagine the boiler room discussion between the founders:-

"We will tell people to send us real money and we will tell them that we will buy gold on their behalf and store it safely for them"
"Do you think people are so stupid to fall for such a scheme?"
"You don't know until you try!"
It's especially absurd when you consider that a lot of these ETFs are unallocated. No gold is really stored on your behalf and you don't have real title -- it's just price exposure at best.

Most of all, you lose the physical/digital diversification benefit.

Aside from the Chinese hardware hack revelation, recall that a few years ago Russian malicious software was found in the NASDAQ stock exchange operating system.

https://www.businessinsider.com/nasdaq- ... ers-2014-7

To top it all off, these are just hacks that we know about. I can't imagine what kind of intrusions have not been made public, or what could happen if the Chinese or Russians got into explicit and open cyber/financial warfare against us.
While your point is well taken, I'm personally a little less dismissive of ETFs. Here's my take.

Take your 10% gold allocation and split it in half. Put the first half in physical gold so you get the physical diversification benefit in addition to real ownership (no counterparty risk). Take the second half and put it into ETFs so that you have tighter spreads and more liquidity when it comes time to rebalance.

Best of both worlds.

hdas
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Re: Barron's Making the Case for Gold

Post by hdas » Fri Oct 05, 2018 12:54 pm

an interesting query would be, how does gold perform during times when both stocks and bonds go down?. Apt for the current juncture. H
Stay the course and buy some more.

JackoC
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Re: Barron's Making the Case for Gold

Post by JackoC » Fri Oct 05, 2018 2:29 pm

wrongfunds wrote:
Thu Oct 04, 2018 5:01 pm
Physical gold, at least I understand but buying some paper which claims that they are storing *your* gold at small fee? Hats off to the guy who came with that idea.

I can just imagine the boiler room discussion between the founders:-

"We will tell people to send us real money and we will tell them that we will buy gold on their behalf and store it safely for them"
"Do you think people are so stupid to fall for such a scheme?"
"You don't know until you try!"
How is that different than the boiler room discussion about having investors send real money and we tell them we're buying stocks on their behalf?

That said, I agree with the point made by others that paper gold vehicles don't address the risk of massive hacking etc. Even if the sponsor is State Street (GLD) where your scenario is kind of silly frankly, that ETF still depends on the same computer systems across the financial system as State Street sponsored stock ETF's.

The 'last ditch' type investment should be in physical held oneself. That's not necessarily the same investment though as 10% (or whatever) for general diversification. That could be part paper and part own-held physical. I do personally think it's wise to have a small last ditch gold holding and I do, not nearly 10% and I'm not sold on such a high % as of now. It's not entirely unreasonable though either IMO.

alter
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Re: Barron's Making the Case for Gold

Post by alter » Fri Oct 05, 2018 3:05 pm

Gold is great as a store of value. It has had the same relative buying power since the Roman Empire, not many things, if any, can say the same about retaining its value across thousands of years and the rise and fall of empires. As an investment...not so much. Buy it if you think the currency you are buying it with will rapidly lose it's value.

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permport
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Re: Barron's Making the Case for Gold

Post by permport » Fri Oct 05, 2018 4:29 pm

All Seasons wrote:
Wed Oct 03, 2018 6:28 pm
permport wrote:
Wed Oct 03, 2018 5:53 pm
All Seasons wrote:
Wed Oct 03, 2018 5:04 pm
I don't either, but I don't mind being a contrarian. Following the crowd on any given issue in the investment world is usually a mistake. The prudent aren't prudent because they do what everyone else is doing -- quite the opposite. :P
I get what you guys are saying, but I fear it is a waste of time. A typical debate/discussion on these forums when it comes to contrarian ideas goes something like this:

Silly Person: Remember that the future will not look like the past!

Prudent Person: Agreed.

Silly Person: Look, international investing and gold have been a disaster! Avoid!

Prudent Person: Didn't you just say that the future will not look like the past?

Silly Person: Yeah, but portfolio visualizer shows U.S. has outperformed etc.

Prudent Person: But you literally just said the future will not look like the past. And what about Bogle's own principle of reversion to the mean??

Silly Person: Portfolio visualizer...

Prudent Person: What?

Silly Person: PORTFOLIO VISUALIZER IS GOD.

Prudent Person: I give up.

You need to be willing to buy assets that are in the dumps and not overweight assets that have performed well recently. Look at all the "Why do I need bonds at all?" threads that are popping up on the forums these days. It's madness.

You can't buy historical performance retroactively, the future won't resemble the past, and mean reversion abounds. People pay lip service to those concepts, but seldom follow through.
This just won my vote for best post on this forum.... ever. :D :D :D
Too bad this isn't Reddit; I could start farming for karma. :wink:
Buy right and hold tight.

JackoC
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Re: Barron's Making the Case for Gold

Post by JackoC » Sat Oct 06, 2018 10:42 am

permport wrote:
Fri Oct 05, 2018 4:29 pm

I could start farming for karma. :wink:
I give up, google wouldn't tell me what that means. :D

GRP
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Re: Barron's Making the Case for Gold

Post by GRP » Sat Oct 06, 2018 3:37 pm

JackoC wrote:
Sat Oct 06, 2018 10:42 am
permport wrote:
Fri Oct 05, 2018 4:29 pm

I could start farming for karma. :wink:
I give up, google wouldn't tell me what that means. :D
Hehe they're basically fake Internet points on Reddit that millennials value WAY too much. :D

https://www.reddit.com/r/help/comments/ ... t_itwhats/

Also, as a person who is never afraid to poke fun at himself, I found a picture of myself trying to explain to Bogleheads why they should put 10% of their portfolios into gold. HA!

Image

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villars
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Re: Barron's Making the Case for Gold

Post by villars » Sat Oct 06, 2018 4:09 pm

Gold's allure is its long history as an accepted medium of exchange and store of value ( i.e money). Throughout history, only silver has occasionally challenged Gold on this account. Take away Gold's utility as potential money , and its value would plummet . Its uses in jewelry and electronics do not justify its current price. So gold is being bought as a hedge against hyper-inflation of fiat money.

The problem for gold now is that crypto currencies compete with it as potential non-fiat money . If we are to judge from the latest country to suffer hyper-inflation ( Venezuela), crypto , not gold , appears to be the preferred alternative medium of exchange. I think long term prospects for gold are poor for that reason.

hdas
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Re: Barron's Making the Case for Gold

Post by hdas » Sat Oct 06, 2018 4:45 pm

villars wrote:
Sat Oct 06, 2018 4:09 pm
The problem for gold now is that crypto currencies compete with it as potential non-fiat money . If we are to judge from the latest country to suffer hyper-inflation ( Venezuela), crypto , not gold , appears to be the preferred alternative medium of exchange. I think long term prospects for gold are poor for that reason.
Well, Venezuela + Hyperinflation + Crypto + Gold = This https://www.telesurtv.net/english/news/ ... -0009.html
Stay the course and buy some more.

drk
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Re: Barron's Making the Case for Gold

Post by drk » Sat Oct 06, 2018 4:49 pm

permport wrote:
Wed Oct 03, 2018 5:53 pm
All Seasons wrote:
Wed Oct 03, 2018 5:04 pm
I don't either, but I don't mind being a contrarian. Following the crowd on any given issue in the investment world is usually a mistake. The prudent aren't prudent because they do what everyone else is doing -- quite the opposite. :P
I get what you guys are saying, but I fear it is a waste of time. A typical debate/discussion on these forums when it comes to contrarian ideas goes something like this:

Silly Person: Remember that the future will not look like the past!

Prudent Person: Agreed.

Silly Person: Look, international investing and gold have been a disaster! Avoid!

Prudent Person: Didn't you just say that the future will not look like the past?

Silly Person: Yeah, but portfolio visualizer shows U.S. has outperformed etc.

Prudent Person: But you literally just said the future will not look like the past. And what about Bogle's own principle of reversion to the mean??

Silly Person: Portfolio visualizer...

Prudent Person: What?

Silly Person: PORTFOLIO VISUALIZER IS GOD.

Prudent Person: I give up.

You need to be willing to buy assets that are in the dumps and not overweight assets that have performed well recently. Look at all the "Why do I need bonds at all?" threads that are popping up on the forums these days. It's madness.

You can't buy historical performance retroactively, the future won't resemble the past, and mean reversion abounds. People pay lip service to those concepts, but seldom follow through.
Kudos. This dialogue should be auto-posted at the top of every "why international" or "why bonds" or "why not crypto" thread.

KJVanguard
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Re: Barron's Making the Case for Gold

Post by KJVanguard » Sat Oct 06, 2018 5:34 pm

Gold has been valued for at least the last 5,000 years (probably more). It was valued in ancient Egypt and gold still has value (around $1,200 per troy ounce) today.

It wasn't all that long ago that gold (and silver) backed currencies. Today they are all backed by "the full faith & credit" of some central bank. Let's examine what "full faith & credit" means: it only has value because you can get folks to agree it has value; it has no intrinsic value. Same reason bit coin has value. I remember Bogle waiting for bit coins to drop to their fair value, which he believed was $0.

I own a bit of precious metals (silver, gold, platinum) and I sure hope the day never comes when I need to barter for goods using silver rounds, but is anyone willing to say that the US dollar becoming worthless is impossible? Keep in mind that post-WWI, the German Mark became so worthless that it was burned for heat! Currencies have become worthless in the past and there is no reason to believe it can't happen in the future.

I'm not a prepper waiting for the world to end, but I recognize the difference between unlikely and impossible.

hdas
Posts: 387
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Re: Barron's Making the Case for Gold

Post by hdas » Mon Oct 08, 2018 3:49 pm

Gold can't catch a break.....down 1% when stocks are collapsing, the 'Barbaric Relic' has a lot ground to recover before the momentum guys get interested. H
Stay the course and buy some more.

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

Post by All Seasons » Mon Oct 08, 2018 7:51 pm

I suspect that the recent interest rate increases are the cause for the simultaneous fall in various asset values that you note.

The Permanent Portfolio folks with their 25% cash hoards are probably sitting content.
The market portfolio is always a legitimate portfolio.

guymontag
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Joined: Tue Jul 03, 2018 3:56 pm

Re: Barron's Making the Case for Gold

Post by guymontag » Tue Oct 09, 2018 2:50 pm

I like and strive for Jack Bogle’s idea of 5% gold for an account that’s not meant to be touched.

boglerdude
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Contact:

Re: Barron's Making the Case for Gold

Post by boglerdude » Wed Oct 10, 2018 12:59 am

Arent we supposed to market cap weight? So where's gold and commodities in the global portfolio

https://thumbor.forbes.com/thumbor/960x ... tfolio.jpg

https://www.forbes.com/sites/phildemuth ... -investor/

Counterpoint https://ftalphaville.ft.com/2015/08/04/ ... portfolio/

jalbert
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Re: Barron's Making the Case for Gold

Post by jalbert » Wed Oct 10, 2018 1:56 am

Gold Is Cheap. Inflation Is Coming. You Do the Math
Inflation leads to rising interest rates which makes bonds more attractive relative to gold, all else equal. Gold prices can thus go either if inflation accelerates.

We also don't know that inflation is coming. The fed has lots of ability to drain liquidity from the economy tight now either through raising the fed funds rate or by selling treasury notes and mortgages from its balance sheet.

As far as doing the math, if either point hypothetically could go either way with equal likelihood, the bet on gold would have only a 25% chance of success.
Risk is not a guarantor of return.

Yukon
Posts: 192
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Re: Barron's Making the Case for Gold

Post by Yukon » Wed Oct 10, 2018 3:52 am

All Seasons wrote:
Tue Oct 02, 2018 12:13 am
For those of you who like to bash gold just remember this: the people who print your money are hoarding gold.
This.

Why do the haters think governments hold gold?
Don't Work Forever.

Valuethinker
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Re: Barron's Making the Case for Gold

Post by Valuethinker » Wed Oct 10, 2018 4:49 am

Yukon wrote:
Wed Oct 10, 2018 3:52 am
All Seasons wrote:
Tue Oct 02, 2018 12:13 am
For those of you who like to bash gold just remember this: the people who print your money are hoarding gold.
This.

Why do the haters think governments hold gold?
Because a group of Central Banks do hold huge amounts of gold. And the Bank of England (the Chancellor/ Minister of Finance at the time, Gordon Brown) is castigated for selling much of its gold in the late 1990s at about 1/3rd the current market price.

Gold is dense, and valuable, and widely accepted as an alternate form of money (but don't try this at your local Kroger). So 2 Central Banks can exchange reserves simply by (literally) moving gold from one pile in the Bank of England vault, to another pile. (The Bank of England has a money museum unfortunately only open weekdays - the basement, where the vault is, is itself impressive I think it was a WW2 air raid shelter - 6' thick concrete walls).

The other alternative for CBs is Special Drawing Rights, SDRs are an IMF-created way of holding national reserves. And of course they can hold currency of other countries and bonds of other countries.

Retail, the big demand is for jewelry (India the largest consumer) and probably from countries with exchange controls and sanctions against them (think Iran). Iranian merchants bring gold to Dubai and Qatar for deposit, I gather.

JackoC
Posts: 349
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Re: Barron's Making the Case for Gold

Post by JackoC » Wed Oct 10, 2018 10:56 am

Yukon wrote:
Wed Oct 10, 2018 3:52 am
All Seasons wrote:
Tue Oct 02, 2018 12:13 am
For those of you who like to bash gold just remember this: the people who print your money are hoarding gold.
This.

Why do the haters think governments hold gold?
Rather than debate in qualitative semantics of what's significant or not, world gold reserves (central bank, IMF) are in the 30,000's of tons. Total gold in existence is estimated with more variation but one estimate is around 170,000 tons.

US gold reserves are around 8,000 tons so $300bil+. The narrowest measure of US money supply M1 is around $3.8tril the broader M2 $14.2tril.

cheezit
Posts: 88
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Re: Barron's Making the Case for Gold

Post by cheezit » Wed Oct 10, 2018 1:37 pm

KJVanguard wrote:
Sat Oct 06, 2018 5:34 pm
Today they are all backed by "the full faith & credit" of some central bank. Let's examine what "full faith & credit" means: it only has value because you can get folks to agree it has value; it has no intrinsic value. Same reason bit coin has value.
This is totally wrong. Fiat currencies issued by a sovereign have intrinsic value because the state with issues them will accept them (and usually only them) as payment for debts, namely taxes. These same sovereign states have, by definition, a local monopoly on violence. If you don't pay your taxes, they can imprison you and confiscate your goods, and if you resist they can kill you. So it is intrinsically valuable to have currency that they will accept - your freedom and in the end your life depend on it.

I will also reiterate my earlier point that this is a big strike against holding physical gold as a store of value - there is political risk, in that the sovereign can confiscate it and reimburse you with paper currency at will, and historically this has happened.

hdas
Posts: 387
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Re: Barron's Making the Case for Gold

Post by hdas » Wed Oct 10, 2018 1:51 pm

Let us keep the thread alive by not bringing the usual nonsense ideological stuff.........more importantly, gold is up a meager today with TSM down 2%. H
Stay the course and buy some more.

jalbert
Posts: 3912
Joined: Fri Apr 10, 2015 12:29 am

Re: Barron's Making the Case for Gold

Post by jalbert » Wed Oct 10, 2018 2:10 pm

Yukon wrote:
Wed Oct 10, 2018 3:52 am
All Seasons wrote:
Tue Oct 02, 2018 12:13 am
For those of you who like to bash gold just remember this: the people who print your money are hoarding gold.
This.

Why do the haters think governments hold gold?
Gold reserves and holdings in reserve currencies by a govt provide stability to the currency managed by the govt and are what enables a currency managed by that govt to be a reserve currency. The gold held by the US govt is one part of why the USD is a leading reserve currency. In effect, the US govt holds gold so you don’t have to.
Risk is not a guarantor of return.

Yukon
Posts: 192
Joined: Wed Jan 23, 2008 8:10 am

Re: Barron's Making the Case for Gold

Post by Yukon » Wed Oct 10, 2018 2:23 pm

jalbert wrote:
Wed Oct 10, 2018 2:10 pm
Yukon wrote:
Wed Oct 10, 2018 3:52 am
All Seasons wrote:
Tue Oct 02, 2018 12:13 am
For those of you who like to bash gold just remember this: the people who print your money are hoarding gold.
This.

Why do the haters think governments hold gold?
Gold reserves and holdings in reserve currencies by a govt provide stability to the currency managed by the govt and are what enables a currency managed by that govt to be a reserve currency. The gold held by the US govt is one part of why the USD is a leading reserve currency. In effect, the US govt holds gold so you don’t have to.
So do you feel gold is a ridiculous investment as part of a diversified personal asset allocation? Perhaps 3-5% of a portfolio? You don't sound like a hater.
Don't Work Forever.

alfaspider
Posts: 1613
Joined: Wed Sep 09, 2015 4:44 pm

Re: Barron's Making the Case for Gold

Post by alfaspider » Wed Oct 10, 2018 2:57 pm

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

Image

While I have no idea what an ounce of gold bought 1,000 years ago, I think it's fairly safe to surmise that the value fluctuated similarly based on regional economies and current events. Remember how the Spanish conquistadors messed up the gold market in South and Central America when they arrived?

jalbert
Posts: 3912
Joined: Fri Apr 10, 2015 12:29 am

Re: Barron's Making the Case for Gold

Post by jalbert » Wed Oct 10, 2018 4:36 pm

So do you feel gold is a ridiculous investment as part of a diversified personal asset allocation? Perhaps 3-5% of a portfolio? You don't sound like a hater.
A small allocation to gold like 3-5% may reduce portfolio risk, and may improve risk-adjusted return. These benefits are unproven but there certainly is enough evidence not to dismiss the idea. I think financial planners at USAA recommend portfolios with 3-4% in either gold or commodities based on these ideas. Some target retirement fund products also include commodities exposure. Some also believe in holding small amounts of gold to diversify the tail risk of extreme outcomes.

The argument against holding a small allocation to gold or commodities is that they have a zero expected real return. They might reduce risk, but do not contribute to portfolio return in real terms over the long run. There are real assets that generate revenue. Gold is not one of them.

Barron’s article is recommending market timing and speculation, neither of which are good strategies.

Holding gold mining companies instead of bullion has the benefit of actually generating revenue, but leverage and business risk and other factors give these greater correlation to equities, basically because they are equities. Gold miners may use futures or other derivatives to hedge the value of their unmined gold or to hedge the revenue generated by new mining projects, or just to hedge their general business risk of falling gold prices. Because of hedging, your actual exposure to gold from a gold mining company can vary a fair bit outside of your control.

If you want to consider incorporating precious metals into an asset allocation, it is important to put aside emotions around preparing for the apocalypse or strong negative emotions about the asset and evaluate the asset objectively.

If I were to hold precious metals and/or commodities, I would want it encapsulated in a fund that took care of rebalancing for me so I would not have to deal with the emotional churn of a very volatile asset class. The fund HSTRX would be an example: 80% treasuries, 20% commodities, precious metals equity, etc.
Last edited by jalbert on Wed Oct 10, 2018 10:51 pm, edited 1 time in total.
Risk is not a guarantor of return.

alter
Posts: 140
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Location: Chicago

Re: Barron's Making the Case for Gold

Post by alter » Wed Oct 10, 2018 4:52 pm

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


While I have no idea what an ounce of gold bought 1,000 years ago, I think it's fairly safe to surmise that the value fluctuated similarly based on regional economies and current events. Remember how the Spanish conquistadors messed up the gold market in South and Central America when they arrived?
Yep really. Never claimed it didn't fluctuate in price. Back then an ounce of gold would by a fine suit and it does today too. Not interested in the last 100 years, whether it would fluctuate. Point is, gold will be worth something long after the US empire ends at which point your stock certificates and dollar bills are worthless. Not that you'll care what it's worth in another thousand years, but that was my point, is that it retains it's value

Yukon
Posts: 192
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Re: Barron's Making the Case for Gold

Post by Yukon » Wed Oct 10, 2018 8:04 pm

jalbert wrote:
Wed Oct 10, 2018 4:36 pm
So do you feel gold is a ridiculous investment as part of a diversified personal asset allocation? Perhaps 3-5% of a portfolio? You don't sound like a hater.
A small allocation to gold like 3-5% may reduce portfolio risk, and may improve risk-adjusted return. These benefits are unproven but there certainly is enough evidence not to dismiss the idea. I think financial planners at USAA recommend portfolios with 3-4% in either gold or commodities based on these ideas. Some target retirement fund products also include commodities exposure. Some also believe in holding small amounts of gold to diversify the tail risk of extreme outcomes.

The argument against holding a small allocation to gold or commodities is that they have a zero expected real return. They might reduce risk, but do not contribute to portfolio return in real terms over the long run. There are real assets that generate revenue. Gold is not one of them.

Barron’s article is recommending market timing and speculation, neither of which are good strategies.

Holding gold mining companies instead of bullion has the benefit of actually generating revenue, but leverage and business risk and other factors give these greater correlation to equities, basically because they are equities. Gold miners may use futures or other derivatives to hedge the value of their unmined gold or to hedge the revenue generated by new mining projects, or just to hedge their general business risk of falling gold prices. Because of hedging, your actual exposure to gold from a gold mining company can vary a fair bit outside of your control.

If you want to consider incorporating precious metals into an asset allocation, it is important to put aside emotions around preparing for the apocalypse or strong negative emotions about the asset and evaluate the asset objectively.

If I were to hold precious metals and/or commodities, I would want it encapsulated in a fund that took care of rebalancing for me so I did not have to deal with the emotional churn of a very volatile asset class. The fund HSTRX would be an example: 80% treasuries, 20% commodities, precious metals equity, etc.
Very well said! No one seems capable of "putting aside emotions around preparing for the apocalypse or strong negative emotions about the asset" to rationally consider how a zero expected return asset can affect a portfolio. Or, why a government might hoard the asset. Thanks for sharing
Don't Work Forever.

alfaspider
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Re: Barron's Making the Case for Gold

Post by alfaspider » Thu Oct 11, 2018 7:28 am

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


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

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

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

JackoC
Posts: 349
Joined: Sun Aug 12, 2018 11:14 am

Re: Barron's Making the Case for Gold

Post by JackoC » Thu Oct 11, 2018 11:24 am

cheezit wrote:
Wed Oct 10, 2018 1:37 pm
KJVanguard wrote:
Sat Oct 06, 2018 5:34 pm
Today they are all backed by "the full faith & credit" of some central bank. Let's examine what "full faith & credit" means: it only has value because you can get folks to agree it has value; it has no intrinsic value. Same reason bit coin has value.
1. This is totally wrong. Fiat currencies issued by a sovereign have intrinsic value because the state with issues them will accept them (and usually only them) as payment for debts, namely taxes. These same sovereign states have, by definition, a local monopoly on violence. If you don't pay your taxes, they can imprison you and confiscate your goods, and if you resist they can kill you. So it is intrinsically valuable to have currency that they will accept - your freedom and in the end your life depend on it.

2. I will also reiterate my earlier point that this is a big strike against holding physical gold as a store of value - there is political risk, in that the sovereign can confiscate it and reimburse you with paper currency at will, and historically this has happened.
1. I generally agree with that point, the previous one is not correct in saying it has *no* intrinsic value. OTOH 'totally wrong' might imply no validity to the general idea of potentially tenuous value for fiat currencies. There are all kinds of examples where fiat currencies have lost nearly all their real value, and where the ability to pay taxes with them has become much less important. But it is true that even govts in free countries can be pretty effective making you pay taxes, so the designation of the fiat currency as something you can use to pay taxes gives it some intrinsic value.

2. But, govts in less than totalitarian states are not necessarily effective enforcing bans on holding physical gold or dictating its price. It's very situation dependent, critically including the society's view on the legitimacy of the action. There are famous photo's of Americans lining up to turn in their gold (sometimes mistaken for runs on banks) in response to the 1933 order. But there hasn't been a groundswell of people handing in illegal specie or hard currency in numerous other countries that have outlawed them (especially foreign currency). There aren't lines of Americans now handing in their illegal drugs and other illegal things lots of people don't accept should be illegal. So that historical point is worth making, but just because a gov dictates a value for gold (or a foreign hard currency within its borders) won't necessarily make it so. It depends on the situation. The big argument for holding at least some physical gold is you can't predict what past episode the future will be a rerun of, if any.

jalbert
Posts: 3912
Joined: Fri Apr 10, 2015 12:29 am

Re: Barron's Making the Case for Gold

Post by jalbert » Thu Oct 11, 2018 2:19 pm

If a govt with large gold reserves has trouble meeting debt obligations, it may well choose to sell off gold to raise hard cash rather than printing money to deal with the debt. That’s the whole point and role of having substantial gold reserves to partially back a currency. What would that do to the price of gold in the midst of a crisis? Probably cause it to collapse. The point is that gold is an unreliable hedge against unpredictable events.
Risk is not a guarantor of return.

JackoC
Posts: 349
Joined: Sun Aug 12, 2018 11:14 am

Re: Barron's Making the Case for Gold

Post by JackoC » Thu Oct 11, 2018 4:03 pm

jalbert wrote:
Thu Oct 11, 2018 2:19 pm
If a govt with large gold reserves has trouble meeting debt obligations, it may well choose to sell off gold to raise hard cash rather than printing money to deal with the debt. That’s the whole point and role of having substantial gold reserves to partially back a currency. What would that do to the price of gold in the midst of a crisis? Probably cause it to collapse. The point is that gold is an unreliable hedge against unpredictable events.
The last sentence is a plausible argument against a large gold allocation but there are much stronger ones. It's not a good argument against a small one, I don't think. A small allocation doesn't rely on gold 'reliably' doing anything, just having the potential to gain a lot of value relative to fiat currencies in some extreme cases, which it demonstrably has in some cases.

On selling gold reserves, back to my earlier opinion-free post about gold reserves, to add some interpretation. They aren't actually very big in the scheme of things. That cuts against the pro-gold argument that fiat currency issuers are relying on gold, therefore so should the individual investor. They aren't much really. But it also cuts against the idea central banks could anything appreciable to handle rich world (whole world) over-indebtedness problem if it some day becomes a mega crisis, by selling gold. The US govt owes ~$15tril (not including what it 'owes itself' in SS 'trust fund' etc). It seems reasonable to believe it will take a minimum of some more yrs of adding to that at $1tril/yr, and future unfunded liabilities of many trillions coming more into focus, for that to cause a crisis. By that time how would selling 8,000 tons of gold (~$300bil at today's prices) be a material part of dealing with the problem, unless the price of gold had skyrocketed in the interim? I'm not predicting it will, just saying by arithmetic that's the only way selling gold reserves could be more than an asterisk in the excessive debt problem. If as is often said on this forum the ability to 'run the printing presses' means that US govt debt truly is riskless, the effect of 'running the presses' to substantially lower the real value of up to 10's of $trils of debt would seem likely to swamp the effect of selling 8,000 tons of gold, again if gold is anywhere near today's price.

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