Barron's Making the Case for Gold

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unclescrooge
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Re: Barron's Making the Case for Gold

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

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

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

alter
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Location: Chicago

Re: Barron's Making the Case for Gold

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

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


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

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

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

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

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

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

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

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

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

ralph124cf
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Re: Barron's Making the Case for Gold

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

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

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

Ralph

jalbert
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Re: Barron's Making the Case for Gold

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

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

alfaspider
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Re: Barron's Making the Case for Gold

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

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


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

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

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

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

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

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

JackoC
Posts: 186
Joined: Sun Aug 12, 2018 11:14 am

Re: Barron's Making the Case for Gold

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

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

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

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

jalbert
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Re: Barron's Making the Case for Gold

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

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

columbia
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Re: Barron's Making the Case for Gold

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

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

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

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

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

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

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

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

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

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

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

TheAccountant
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Re: Barron's Making the Case for Gold

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

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

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

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

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

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

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

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

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

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

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