"Beware the Hype on Gold"

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
unclescrooge
Posts: 5057
Joined: Thu Jun 07, 2012 7:00 pm

Re: "Beware the Hype on Gold"

Post by unclescrooge » Fri Jul 31, 2020 11:03 am

ohboy! wrote:
Fri Jul 31, 2020 10:37 am
Tesla $300 people though overvalued. Should I dig up the posts on that? Now where are we? Don't discount China and global unease. Cultures that have traditions of buying precious metals. Gold is a slow train if you want to take the expressway with metals buy silver. American Eagles are selling for 40-50% over spot right now.
While I've owned gold and silver since 2005, and currently allocate 7.5% of my portfolio to gold and gold miners, 50% over spot sounds like a bubble to me. :shock:

glock19
Posts: 168
Joined: Thu May 03, 2012 9:49 pm

Re: "Beware the Hype on Gold"

Post by glock19 » Fri Jul 31, 2020 12:04 pm

abuss368 wrote:
Tue Jul 28, 2020 11:01 am
Thanks for sharing Taylor! I do not plan to speculate with gold!
Personally, I don't speculate in anything, and I sure would not speculate with gold. I also would not "invest" in gold. I'm not even sure it is a negative correlating asset class say to equities or bonds.

Good data has shown gold does not necessarily protect in hyperinflation! However, good data has shown that gold does protect a portfolio in times of a declining dollar or geopolitical turmoil.

Anyone interested in protecting their assets from a declining U.S. dollar (I believe we are experiencing that at the present) would do well to keep gold as a diversifier. If this is not in your best interest, just don't do it, but please try to understand why others might disagree as to it's value.

sean.mcgrath
Posts: 457
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: "Beware the Hype on Gold"

Post by sean.mcgrath » Fri Jul 31, 2020 12:16 pm

siamond wrote:
Fri Jul 31, 2020 10:47 am
I am a little reluctant to do so though, as I do not quite see the value of such pre-1970 backtesting. In general, I would never discard lessons from pre-70 history, but in this precise case, things were REALLY DIFFERENT.
Yes, I can imagine. I'm thinking through the arguments for gold in a portfolio (inflation hedge, etc.), and am unsure whether the arguments are all based post-70, or make the argument from longer back. If from further back, there should be a way to model. If post-70, I would say that it is such an incredibly new asset class that we have virtually no clue how it will behave going forward. Perhaps this is an adjustment period as we get used to a non-gold backed world, and it will settle down to behaving like every other commodity.

User avatar
fredflinstone
Posts: 2679
Joined: Mon Mar 29, 2010 7:35 am
Location: Bedrock

Re: "Beware the Hype on Gold"

Post by fredflinstone » Fri Jul 31, 2020 12:37 pm

Taylor Larimore wrote:
Tue Jul 28, 2020 10:09 am
Bogleheads:

Morningstar's Amy C. Arnott, CFA has written an excellent article about adding Gold (currently a top performer) to our portfolios. These are excerpts:
"Gold has a long history as a safe haven. Its price is largely independent of other asset classes, and it has also traditionally been used as a refuge against weakness in the dollar. It can also serve as a hedge against inflation and market volatility."

"There are two primary ways to invest in gold: buying the commodity directly (gold bullion) and buying shares in companies that mine and sell gold (gold equity)."

"The evidence for gold as an inflation hedge is relatively weak. Over the past 15 years, gold has had a very low correlation with inflation."

"I looked at five different 10-year periods starting in 1970, 1980, 1990, 2000, and 2010. Overall, adding gold improved returns in only two of the five periods. It reduced risk in every period but improved the Sharpe ratio only in the two periods where returns also improved."

"Gold is far from guaranteed to improve risk, return, or risk-adjusted returns in any given period. Instead, its track record is decidedly mixed."

"On balance, gold has a pretty reliable record as a safe haven in times of market turmoil. However, it’s better viewed as an insurance policy than as a core holding. Investors who decide to add gold to their portfolios should be wary of the current hype surrounding precious metals and be prepared for periodic dry spells."
Beware the Hype on Gold

Past performance does not forecast future performance.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: Gold is largely a rank speculation, for its price is based solely on market expectation. Gold provides no internal rate of return. Unlike stocks and bonds, gold provides none of the intrinsic value that is created for stocks by earning growth and dividend yields, and for bonds by interest payments."
The link to the article, "Beware the Hype on Gold," is incorrect. Here is the correct link:
https://www.morningstar.com/articles/99 ... pe-on-gold

I was able to read the article earlier today. For some reason, I can no longer do so without registering for Morningstar, which I do not want to do. Anyway, as I recall the article does not point to a single example of "hype" regarding gold. Is there any evidence of such "hype" and how does it compare to, say, the "hype" for stocks? Here at Bogleheads, for example, it seems that nearly everyone owns stocks (either directly or through a mutual fund) and it is standard Boglehead advice that investors should own at least some stocks. But many people do not own gold. So which asset category is the recipient of greater hype?
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8

User avatar
fredflinstone
Posts: 2679
Joined: Mon Mar 29, 2010 7:35 am
Location: Bedrock

Re: "Beware the Hype on Gold"

Post by fredflinstone » Fri Jul 31, 2020 12:39 pm

CyclingDuo wrote:
Fri Jul 31, 2020 4:59 am
At least somebody at Goldman has their head screwed on correctly... :mrgreen:

Gold has ‘no role’ in portfolio of wealthy clients, says Goldman manager

https://www.marketwatch.com/story/gold- ... yptr=yahoo
Is this an example of the pro-gold "hype" referenced in the original post?
Last edited by fredflinstone on Fri Jul 31, 2020 12:39 pm, edited 1 time in total.
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8

User avatar
CyclingDuo
Posts: 3376
Joined: Fri Jan 06, 2017 9:07 am

Re: "Beware the Hype on Gold"

Post by CyclingDuo » Fri Jul 31, 2020 12:39 pm

unclescrooge wrote:
Fri Jul 31, 2020 10:58 am
CyclingDuo wrote:
Fri Jul 31, 2020 4:59 am
At least somebody at Goldman has their head screwed on correctly... :mrgreen:

Gold has ‘no role’ in portfolio of wealthy clients, says Goldman manager

https://www.marketwatch.com/story/gold- ... yptr=yahoo
Except that Goldman is talking out of both sides of it's mouth.
https://www.marketwatch.com/story/goldm ... 2020-07-28
That's the chief investment officer of private wealth management at Goldman Sachs talking vs. the commodity crew.

Personally, I'll side with Goldman's investment officer rather than the commodity crew gang for my long range investments. :D

CyclingDuo
"Everywhere is within walking distance if you have the time." ~ Steven Wright

sean.mcgrath
Posts: 457
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: "Beware the Hype on Gold"

Post by sean.mcgrath » Fri Jul 31, 2020 12:45 pm

siamond wrote:
Fri Jul 31, 2020 10:47 am
sean.mcgrath wrote:
Fri Jul 31, 2020 10:30 am
Oh, right -- thanks, Siamond. If I'd have thought for a minute I would have realized that. I am still thinking about how one can backtest gold in a portfolio over longer periods. Do you think this means that you can simply substitute with cash over the earlier periods?
This would be a decent approximation, you should then use the 'Hard Cash' series (instead of a money market-like series like T-Bills). This would miss the 1933 US$/Gold price adjustment though, which was quite significant.
Ok, I created a pre-1970 synthetic golden butterfly vs 60/40. I used US/LTT/STT/Cash a quarter each. The return is: 2.9% CAGR vs. 5.5 for 60/40. Sharpe is 0.16 vs 0.33. Not totally fair, given the 1933 adjustment.

The 20% increase in portfolio value in 1933 doesn't help much, though. My thinking on the adjustment would be, since I am assuming that I am actually holding gold, that I should be compensated for the 75% increase in the dollar value of my 1/4 gold holding. In theory I woke up one day in 1933, and my gold was worth 75% more. I immediately re-balanced, of course. So I start in 1871, and by 1933 my nominal portfolio is $125,004. I bump that up by 18.75%, and start 1933 with $148,442. By 1970, my portfolio is $772,268 (it was $561,440 without the adjustment). My 60/40 portfolio is $6,484,959. Not very pleasant.

User avatar
unclescrooge
Posts: 5057
Joined: Thu Jun 07, 2012 7:00 pm

Re: "Beware the Hype on Gold"

Post by unclescrooge » Fri Jul 31, 2020 12:56 pm

CyclingDuo wrote:
Fri Jul 31, 2020 12:39 pm
unclescrooge wrote:
Fri Jul 31, 2020 10:58 am
CyclingDuo wrote:
Fri Jul 31, 2020 4:59 am
At least somebody at Goldman has their head screwed on correctly... :mrgreen:

Gold has ‘no role’ in portfolio of wealthy clients, says Goldman manager

https://www.marketwatch.com/story/gold- ... yptr=yahoo
Except that Goldman is talking out of both sides of it's mouth.
https://www.marketwatch.com/story/goldm ... 2020-07-28
That's the chief investment officer of private wealth management at Goldman Sachs talking vs. the commodity crew.

Personally, I'll side with Goldman's investment officer rather than the commodity crew gang for my long range investments. :D

CyclingDuo
The commodity crew gang is an unfortunate name, that suggests their opinions should not be taken seriously.

Jeff Currie is an economist and the Global Head of Commodities Research in the Global Investment Research Division at Goldman Sachs.

I wouldn't take anything GS says seriously, but I think both people should be given equal weight.

Pu239
Posts: 287
Joined: Mon Dec 17, 2018 6:24 pm

Re: "Beware the Hype on Gold"

Post by Pu239 » Fri Jul 31, 2020 1:53 pm

ohboy! wrote:
Fri Jul 31, 2020 10:37 am
Gold is a slow train if you want to take the expressway with metals buy silver. American Eagles are selling for 40-50% over spot right now.
Yeah, the physical market is whacked out. If the buy-sell spread is that wide, I'd wonder about collusion among the major players.
Between the idea And the reality...Between the motion And the act...Falls the Shadow - T. S. Eliot

User avatar
willthrill81
Posts: 19596
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: "Beware the Hype on Gold"

Post by willthrill81 » Fri Jul 31, 2020 1:55 pm

Pu239 wrote:
Fri Jul 31, 2020 1:53 pm
ohboy! wrote:
Fri Jul 31, 2020 10:37 am
Gold is a slow train if you want to take the expressway with metals buy silver. American Eagles are selling for 40-50% over spot right now.
Yeah, the physical market is whacked out. If the buy-sell spread is that wide, I'd wonder about collusion among the major players.
I think that it demonstrates that a gulf exists between 'electronic' gold (i.e. gold funds) and physical gold.
“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

User avatar
ohboy!
Posts: 218
Joined: Thu Jan 04, 2018 2:21 pm

Re: "Beware the Hype on Gold"

Post by ohboy! » Fri Jul 31, 2020 1:57 pm

glock19 wrote:
Fri Jul 31, 2020 12:04 pm
abuss368 wrote:
Tue Jul 28, 2020 11:01 am
Thanks for sharing Taylor! I do not plan to speculate with gold!
Personally, I don't speculate in anything, and I sure would not speculate with gold. I also would not "invest" in gold. I'm not even sure it is a negative correlating asset class say to equities or bonds.

Good data has shown gold does not necessarily protect in hyperinflation! However, good data has shown that gold does protect a portfolio in times of a declining dollar or geopolitical turmoil.

Anyone interested in protecting their assets from a declining U.S. dollar (I believe we are experiencing that at the present) would do well to keep gold as a diversifier. If this is not in your best interest, just don't do it, but please try to understand why others might disagree as to it's value.
You don't speculate on anything, but the index funds you have do just the same. Bunch of billion dollar companies that don't pay dividends. Are we speculating that some day they might? Are we speculating that some day they might make profits that represent their market cap?

Pu239
Posts: 287
Joined: Mon Dec 17, 2018 6:24 pm

Re: "Beware the Hype on Gold"

Post by Pu239 » Fri Jul 31, 2020 2:21 pm

willthrill81 wrote:
Fri Jul 31, 2020 1:55 pm


I think that it demonstrates that a gulf exists between 'electronic' gold (i.e. gold funds) and physical gold.
If the buy-sell spread of physical metals is narrow, then I agree. If wide, something ain't right.
Between the idea And the reality...Between the motion And the act...Falls the Shadow - T. S. Eliot

User avatar
siamond
Posts: 5483
Joined: Mon May 28, 2012 5:50 am

Re: "Beware the Hype on Gold"

Post by siamond » Fri Jul 31, 2020 2:25 pm

Following Sean's feedback, I added the historical price of gold since 1871 in my working version of the Simba backtesting spreadsheet. Its use is deactivated by default, but switching a simple boolean allows to easily create charts like this one. I don't know who came up with the idea that gold is an inflation hedge, but it seems like a bad case of confirmation bias and overfitting to me.

Image

User avatar
willthrill81
Posts: 19596
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: "Beware the Hype on Gold"

Post by willthrill81 » Fri Jul 31, 2020 2:29 pm

Pu239 wrote:
Fri Jul 31, 2020 2:21 pm
willthrill81 wrote:
Fri Jul 31, 2020 1:55 pm
I think that it demonstrates that a gulf exists between 'electronic' gold (i.e. gold funds) and physical gold.
If the buy-sell spread of physical metals is narrow, then I agree. If wide, something ain't right.
A significant premium for physical gold means that the market is willing to pay more than physical gold than electronic gold. Granted, some of that premium is due to the higher costs of dealing with physical, but TMK those costs have not suddenly increased in the last six months. As such, we must ask why the market wants physical gold more than electronic gold. This could be due to growing distrust of electronic gold, growing preference for physical gold, or something else.
“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

cheezit
Posts: 343
Joined: Sat Jul 14, 2018 7:28 pm

Re: "Beware the Hype on Gold"

Post by cheezit » Fri Jul 31, 2020 2:40 pm

willthrill81 wrote:
Fri Jul 31, 2020 2:29 pm
Pu239 wrote:
Fri Jul 31, 2020 2:21 pm
willthrill81 wrote:
Fri Jul 31, 2020 1:55 pm
I think that it demonstrates that a gulf exists between 'electronic' gold (i.e. gold funds) and physical gold.
If the buy-sell spread of physical metals is narrow, then I agree. If wide, something ain't right.
A significant premium for physical gold means that the market is willing to pay more than physical gold than electronic gold. Granted, some of that premium is due to the higher costs of dealing with physical, but TMK those costs have not suddenly increased in the last six months. As such, we must ask why the market wants physical gold more than electronic gold. This could be due to growing distrust of electronic gold, growing preference for physical gold, or something else.

I don't think the large disconnect between the ask side of the spread for gold coins and the spot price of (large quantities of) bullion necessarily reflects a preference for physical gold over 'electronic' gold.

e: We could test for this preference pretty easily, now that I think of it: look at the premium or discount on deliverable gold futures contracts one day or two days before settlement day relative to the spot price.

User avatar
willthrill81
Posts: 19596
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: "Beware the Hype on Gold"

Post by willthrill81 » Fri Jul 31, 2020 2:50 pm

cheezit wrote:
Fri Jul 31, 2020 2:40 pm
willthrill81 wrote:
Fri Jul 31, 2020 2:29 pm
Pu239 wrote:
Fri Jul 31, 2020 2:21 pm
willthrill81 wrote:
Fri Jul 31, 2020 1:55 pm
I think that it demonstrates that a gulf exists between 'electronic' gold (i.e. gold funds) and physical gold.
If the buy-sell spread of physical metals is narrow, then I agree. If wide, something ain't right.
A significant premium for physical gold means that the market is willing to pay more than physical gold than electronic gold. Granted, some of that premium is due to the higher costs of dealing with physical, but TMK those costs have not suddenly increased in the last six months. As such, we must ask why the market wants physical gold more than electronic gold. This could be due to growing distrust of electronic gold, growing preference for physical gold, or something else.

I don't think the large disconnect between the ask side of the spread for gold coins and the spot price of (large quantities of) bullion necessarily reflects a preference for physical gold over 'electronic' gold.

e: We could test for this preference pretty easily, now that I think of it: look at the premium or discount on deliverable gold futures contracts one day or two days before settlement day relative to the spot price.
By definition, a preference for physical gold must exist for at least some people or else literally no physical gold would be sold at a premium over electronic gold; people would only buy electronic gold.
“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

Pu239
Posts: 287
Joined: Mon Dec 17, 2018 6:24 pm

Re: "Beware the Hype on Gold"

Post by Pu239 » Fri Jul 31, 2020 3:01 pm

willthrill81 wrote:
Fri Jul 31, 2020 2:29 pm


A significant premium for physical gold means that the market is willing to pay more than physical gold than electronic gold. Granted, some of that premium is due to the higher costs of dealing with physical, but TMK those costs have not suddenly increased in the last six months. As such, we must ask why the market wants physical gold more than electronic gold. This could be due to growing distrust of electronic gold, growing preference for physical gold, or something else.
Assuming great demand for physical (hard to get, sells quickly), if precious metals dealers are paying more or less spot for silver eagles from sellers like you and me and selling them for 50% more (wide margin), then something is wrong with how competition for buyers is working. The bullion market normally operates on narrow margins. It may still be doing so but I haven't checked. For physical coin, the spot/ask margin may be wide but the bid/ask margin should be much narrower because dealers should be willing to pay a competitive price to meet buyer demand.
Between the idea And the reality...Between the motion And the act...Falls the Shadow - T. S. Eliot

cheezit
Posts: 343
Joined: Sat Jul 14, 2018 7:28 pm

Re: "Beware the Hype on Gold"

Post by cheezit » Fri Jul 31, 2020 3:06 pm

You have not demonstrated that a premium for physical gold over 'electronic' gold exists, as both sides of the coins/spot price comparison are physical gold. The spot price of gold is the price you can buy large quantities of physical bullion at, eg. 100 oz bars of fineness >= 995. If small quantities of coins are selling at a premium to that, it constitutes either a huge bid/ask spread at coin dealers, or a premium (and thus a preference) for coins over bullion, market misbehavior, or some mix of these.

In order to demonstrate a preference for physical gold over 'electronic' gold, you need to show that gold ETNs are trading at a discount to the spot price of bullion and/or something similar using the appropriate futures contracts.

User avatar
permport
Posts: 208
Joined: Sat Mar 31, 2018 11:20 am

Re: "Beware the Hype on Gold"

Post by permport » Fri Jul 31, 2020 3:26 pm

sean.mcgrath wrote:
Fri Jul 31, 2020 5:37 am

I explained to you why that comment makes no sense.
No, your response didn't invalidate my comment in any way.

When you borrow money you create a cycle. It doesn't matter if it's via perpetual bonds, or whether a country continuously rolls over debt, or whether it's to finance college, or through whatever machinations someone engages in to try and obscure the basic fact I pointed out: if you borrow money you create a time in the present where you can spend more than you make. But the necessary consequence is that you MUST create a time in the future where you spend less than you make.

Even if the bond is perpetual or a country never fully pays off debt, there are still carrying/interest charges on that debt. Even if the principle is never paid off eventually the aggregate cost of interest will exceed whatever that principle was anyway. Sure, as you pointed out, debt can be used to finance improved productivity via education or similar investments. That still doesn't invalidate the basic point. You can spend more than you make now via, say, a student loan, but you still MUST spend less than you make in the future to service/pay down that debt. There's no way around it.
Buy right and hold tight.

User avatar
willthrill81
Posts: 19596
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: "Beware the Hype on Gold"

Post by willthrill81 » Fri Jul 31, 2020 3:26 pm

cheezit wrote:
Fri Jul 31, 2020 3:06 pm
You have not demonstrated that a premium for physical gold over 'electronic' gold exists, as both sides of the coins/spot price comparison are physical gold. The spot price of gold is the price you can buy large quantities of physical bullion at, eg. 100 oz bars of fineness >= 995.
Please name a source where I can actually buy 100 oz. gold for spot. I've never seen one.

Kitco is currently selling 100 oz. bars for $198,010. According to Monex, the spot price of gold is $1,973. So there is still a premium even at that level.
“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

User avatar
permport
Posts: 208
Joined: Sat Mar 31, 2018 11:20 am

Re: "Beware the Hype on Gold"

Post by permport » Fri Jul 31, 2020 3:35 pm

willthrill81, who is one of the few people on this forum with a balanced view on gold, has astutely pointed out the conditions in Venezuela and how great swathes of the population are using gold to engage in day-to-day commerce. I found a great little video on the impacts money printing in that country has had and what life is like.

https://9gag.com/gag/a3w44Qm
Buy right and hold tight.

User avatar
permport
Posts: 208
Joined: Sat Mar 31, 2018 11:20 am

Re: "Beware the Hype on Gold"

Post by permport » Fri Jul 31, 2020 3:50 pm

A word about futures:

In normal market conditions futures contracts create a virtually unlimited supply of highly liquid "gold" for the market to trade in.

However, in a monetary crisis people would exhibit insane demand for physical gold and shun futures contracts. This would create a massive spread between the two as people realize they are not substitutable. The previously ample supply of "gold" (really paper) becomes persona non grata and that would likely put even more upward pressure on the price of gold as people realize there's less available than they thought.
Buy right and hold tight.

cheezit
Posts: 343
Joined: Sat Jul 14, 2018 7:28 pm

Re: "Beware the Hype on Gold"

Post by cheezit » Fri Jul 31, 2020 3:55 pm

willthrill81 wrote:
Fri Jul 31, 2020 3:26 pm
cheezit wrote:
Fri Jul 31, 2020 3:06 pm
You have not demonstrated that a premium for physical gold over 'electronic' gold exists, as both sides of the coins/spot price comparison are physical gold. The spot price of gold is the price you can buy large quantities of physical bullion at, eg. 100 oz bars of fineness >= 995.
Please name a source where I can actually buy 100 oz. gold for spot. I've never seen one.

Kitco is currently selling 100 oz. bars for $198,010. According to Monex, the spot price of gold is $1,973. So there is still a premium even at that level.
If you want to buy small quantities of gold or any other physical commodity for exactly spot, you will never be able to do so for the same reason you cannot generally buy one pound of coffee beans for the spot price of coffee on the NYSE. Nb. that the premium over quoted spot is less for the 400 oz bars at Kitco than for the 100 oz bars, reflecting this principal.

Incidentally, a 0.35% premium over NYSE spot for single 100 oz bars at Kitco is

1) a far cry from the 40-50% premium of coins over spot that prompted you to claim that there is a premium for physical gold over 'electronic'

and

2) still not reflective of a premium for physical gold over 'electronic' gold, as both the quoted price at Kitco for one bar and the quoted spot price are prices for physical gold.

sean.mcgrath
Posts: 457
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: "Beware the Hype on Gold"

Post by sean.mcgrath » Sat Aug 01, 2020 2:53 am

permport wrote:
Fri Jul 31, 2020 3:26 pm
sean.mcgrath wrote:
Fri Jul 31, 2020 5:37 am

I explained to you why that comment makes no sense.
No, your response didn't invalidate my comment in any way.

When you borrow money you create a cycle. It doesn't matter if it's via perpetual bonds, or whether a country continuously rolls over debt, or whether it's to finance college, or through whatever machinations someone engages in to try and obscure the basic fact I pointed out: if you borrow money you create a time in the present where you can spend more than you make. But the necessary consequence is that you MUST create a time in the future where you spend less than you make.

Even if the bond is perpetual or a country never fully pays off debt, there are still carrying/interest charges on that debt. Even if the principle is never paid off eventually the aggregate cost of interest will exceed whatever that principle was anyway. Sure, as you pointed out, debt can be used to finance improved productivity via education or similar investments. That still doesn't invalidate the basic point. You can spend more than you make now via, say, a student loan, but you still MUST spend less than you make in the future to service/pay down that debt. There's no way around it.
Let me generalize to make it clearer. If you borrow money to make an investment with a positive return, you will "spend less than you make" in future, but you are making more. If, in a hypothetical example, scenario one you don't borrow and earn $100 per year forever. Scenario two you borrow $10, make an investment and now earn $200. You pay off the loan a year later, and still have $190 to spend vs. the original scenario.

I understand that in year two you "spend less than you make," but what is your point? In that particular made up example, what is the consequence of the debt and "creating a cycle?"

I understand your point for debt used for consumption, but not for debt used for investment.
Last edited by sean.mcgrath on Sat Aug 01, 2020 3:25 am, edited 1 time in total.

sean.mcgrath
Posts: 457
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: "Beware the Hype on Gold"

Post by sean.mcgrath » Sat Aug 01, 2020 2:59 am

siamond wrote:
Fri Jul 31, 2020 2:25 pm
Following Sean's feedback, I added the historical price of gold since 1871 in my working version of the Simba backtesting spreadsheet.
Thanks, Siamond. I am also not sure whether it's valid, but it is interesting to backtest the permanent portfolio variants.I see that my version of the spreadsheet is 2016 -- time to download a new one.

Edit: just noticed the "working version" comment. May I have a copy?

User avatar
steve321
Posts: 496
Joined: Sat Sep 09, 2017 9:16 am
Location: Southampton, UK

Re: "Beware the Hype on Gold"

Post by steve321 » Sat Aug 01, 2020 3:22 am

phantom0308 wrote:
Fri Jul 31, 2020 4:52 am
steve321 wrote:
Tue Jul 28, 2020 11:01 am
Amy C. Arnott has not looked back over a very long period in history. My mentor Ray Dalio teaches that the long debt cycle lasts for about 70-100 years. We are currently at the end of such a cycle; therefore the situation is probably closest to the 1930's.
When the debt burden is very high, and you need to print a lot of money to service that debts, people eventually lose trust in the currency, and turn to gold.
This sounds a lot like Elliot wave theory and the other demographic curve fitting ideas goldbugs commonly cite. I found the ideas unhelpful after years of listening to predictions that inflation would run rampant any day now while seeing the fed fail to hit 2% quarter after quarter.
I don't know about Elliot wave theory but according to wikipedia it's based on collective investor psychology, or crowd psychology.
Ray Dalio teaching is based on the long debt cycle.
Success does not bring happiness. In fact, happiness IS success. | 'There are only two tragedies in life: one is not getting what one wants, and the other is getting it.' Oscar Wilde

User avatar
siamond
Posts: 5483
Joined: Mon May 28, 2012 5:50 am

Re: "Beware the Hype on Gold"

Post by siamond » Sat Aug 01, 2020 12:03 pm

sean.mcgrath wrote:
Sat Aug 01, 2020 2:59 am
siamond wrote:
Fri Jul 31, 2020 2:25 pm
Following Sean's feedback, I added the historical price of gold since 1871 in my working version of the Simba backtesting spreadsheet.
Thanks, Siamond. I am also not sure whether it's valid, but it is interesting to backtest the permanent portfolio variants.I see that my version of the spreadsheet is 2016 -- time to download a new one.

Edit: just noticed the "working version" comment. May I have a copy?
The latest official version can be downloaded here.

I am working on a few other things that were requested and will publish a draft update (probably tonight or tomorrow), including the extended gold data series. Watch the Simba thread...

sean.mcgrath
Posts: 457
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: "Beware the Hype on Gold"

Post by sean.mcgrath » Sat Aug 01, 2020 1:49 pm

siamond wrote:
Sat Aug 01, 2020 12:03 pm
sean.mcgrath wrote:
Sat Aug 01, 2020 2:59 am
siamond wrote:
Fri Jul 31, 2020 2:25 pm
Following Sean's feedback, I added the historical price of gold since 1871 in my working version of the Simba backtesting spreadsheet.
Thanks, Siamond. I am also not sure whether it's valid, but it is interesting to backtest the permanent portfolio variants.I see that my version of the spreadsheet is 2016 -- time to download a new one.

Edit: just noticed the "working version" comment. May I have a copy?
The latest official version can be downloaded here.

I am working on a few other things that were requested and will publish a draft update (probably tonight or tomorrow), including the extended gold data series. Watch the Simba thread...
Thanks, looking forward to it. I've made a kludge version out of curiosity. I'll wait for yours before I post, though, so that others can reproduce.

User avatar
Forester
Posts: 1358
Joined: Sat Jan 19, 2019 2:50 pm
Location: UK

Re: "Beware the Hype on Gold"

Post by Forester » Mon Aug 03, 2020 4:53 am

Real 10-year yields at a record low of negative 0.99%; https://twitter.com/lisaabramowicz1/st ... 30080?s=21

RomeoMustDie
Posts: 217
Joined: Sat Mar 14, 2020 6:07 pm

Re: "Beware the Hype on Gold"

Post by RomeoMustDie » Mon Aug 03, 2020 7:40 am

Anon9001 wrote:
Tue Jul 28, 2020 11:04 am
If you are buying it now you are speculating on interest rates going lower. A reasonable speculation but ultimately not a good idea. If inflation goes up significantly they would have to raise interest rates on many of the Government bonds which would detract from the price of the Gold.
If you buy equities you are speculating that there will be a non hyperinflation growth environment. If you are buying bond etfs you are speculating on inflation and interest rates.

This logic can go ad nauseum.

It's possible to talk about gold as an asset class in a portfolio in the same way we do stocks and bonds.

glock19
Posts: 168
Joined: Thu May 03, 2012 9:49 pm

Re: "Beware the Hype on Gold"

Post by glock19 » Mon Aug 03, 2020 11:45 am

ohboy! wrote:
Fri Jul 31, 2020 1:57 pm
glock19 wrote:
Fri Jul 31, 2020 12:04 pm
abuss368 wrote:
Tue Jul 28, 2020 11:01 am
Thanks for sharing Taylor! I do not plan to speculate with gold!
Personally, I don't speculate in anything, and I sure would not speculate with gold. I also would not "invest" in gold. I'm not even sure it is a negative correlating asset class say to equities or bonds.

Good data has shown gold does not necessarily protect in hyperinflation! However, good data has shown that gold does protect a portfolio in times of a declining dollar or geopolitical turmoil.

Anyone interested in protecting their assets from a declining U.S. dollar (I believe we are experiencing that at the present) would do well to keep gold as a diversifier. If this is not in your best interest, just don't do it, but please try to understand why others might disagree as to it's value.
You don't speculate on anything, but the index funds you have do just the same. Bunch of billion dollar companies that don't pay dividends. Are we speculating that some day they might? Are we speculating that some day they might make profits that represent their market cap?
I feel you are right. It's difficult for me to put an exact definition on "speculation", and I guess everyone has their own definition. In my view, speculation is anything bought with the expectation of short term gain, and sometimes having little or no knowledge of the market.

I've had Van Total Mkt for over 20 years as my core holding, yet in some ways I am speculation on the future, e.g. good economic cycle, low inflation, etc.

I think one of many problems in the discussions of gold on this forum is folks are referred to as "gold bugs", inferring they either jump in and out of the commodity or bury it in the backyard for an apocalypse. As long as gold is not recognized as an asset class, it's impossible to discuss it's value in a diversified portfolio.

User avatar
CyclingDuo
Posts: 3376
Joined: Fri Jan 06, 2017 9:07 am

Re: "Beware the Hype on Gold"

Post by CyclingDuo » Mon Aug 03, 2020 12:08 pm

glock19 wrote:
Mon Aug 03, 2020 11:45 am
I think one of many problems in the discussions of gold on this forum is folks are referred to as "gold bugs", inferring they either jump in and out of the commodity or bury it in the backyard for an apocalypse. As long as gold is not recognized as an asset class, it's impossible to discuss it's value in a diversified portfolio.
That and having a handle such as "glock" certainly rings out with a particular tone. :mrgreen:
"Everywhere is within walking distance if you have the time." ~ Steven Wright

All Seasons
Posts: 167
Joined: Sun Dec 10, 2017 4:14 pm

Re: "Beware the Hype on Gold"

Post by All Seasons » Tue Aug 04, 2020 10:44 am

We are over $2,000 today, people! $2,014 as of this moment!
The market portfolio is always a legitimate portfolio.

Robot Monster
Posts: 765
Joined: Sun May 05, 2019 11:23 am
Location: New York

Re: "Beware the Hype on Gold"

Post by Robot Monster » Tue Aug 04, 2020 11:02 am

All Seasons wrote:
Tue Aug 04, 2020 10:44 am
We are over $2,000 today, people! $2,014 as of this moment!
Important psychological threshold, indeed. Unsure what the consequences of that will be. Perhaps some will call top, others will say it's a new beginning. Sadly all unactionable. We can only stand on the sidelines and watch the fireworks...perhaps that's enough.
Investors often exhibit a tendency to evaluate the performance of their portfolio over very short horizons (e.g. days) even when their actual investment time horizon is quite long (e.g. decades).

alfaspider
Posts: 2853
Joined: Wed Sep 09, 2015 4:44 pm

Re: "Beware the Hype on Gold"

Post by alfaspider » Tue Aug 04, 2020 11:06 am

All Seasons wrote:
Tue Aug 04, 2020 10:44 am
We are over $2,000 today, people! $2,014 as of this moment!
Bubble bubble, toil and trouble.

Anon9001
Posts: 574
Joined: Fri Dec 20, 2019 9:28 am
Location: भारत

Re: "Beware the Hype on Gold"

Post by Anon9001 » Tue Aug 04, 2020 12:25 pm

Impressive how it keeps going up. I myself bought it far back and I thought it was expensive at the time. Do need to look at huge amount of negative yielding bonds to understand that this is actually cheap in comparison. As long as the negative yield bubble continues expect it to go up.

User avatar
unclescrooge
Posts: 5057
Joined: Thu Jun 07, 2012 7:00 pm

Re: "Beware the Hype on Gold"

Post by unclescrooge » Tue Aug 04, 2020 12:34 pm

Glad I bought GDX (gold miners etf) 6 weeks ago. I missed a major run up but decided it was time move half of my REIT allocation into GDX.

It's up 30% since then.

User avatar
fredflinstone
Posts: 2679
Joined: Mon Mar 29, 2010 7:35 am
Location: Bedrock

Re: "Beware the Hype on Gold"

Post by fredflinstone » Tue Aug 04, 2020 2:29 pm

Gold prices will rise and fall. This we can be sure of. But I am fairly confident that gold will be more expensive in 10 years than today. I expect gold prices to rise as a result of increased civil unrest in the US, increased government debt, increased government debt monetization, increased demand for physical gold as a means of illegally avoiding wealth and estate taxes, an increased desire by investors to diversify their portfolios beyond stocks and bonds, and a lack of good alternative investments.
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8

APX32
Posts: 100
Joined: Sat May 27, 2017 1:22 pm

Re: "Beware the Hype on Gold"

Post by APX32 » Tue Aug 04, 2020 3:30 pm

Robot Monster wrote:
Tue Aug 04, 2020 11:02 am
All Seasons wrote:
Tue Aug 04, 2020 10:44 am
We are over $2,000 today, people! $2,014 as of this moment!
Important psychological threshold, indeed. Unsure what the consequences of that will be. Perhaps some will call top, others will say it's a new beginning. Sadly all unactionable. We can only stand on the sidelines and watch the fireworks...perhaps that's enough.
Sorry if I’m missing something, but what forces you to stand on the sidelines and just watch? There are are many ways you can participate, including doing some analysis and deciding that perhaps gold should have a place in your portfolio.

fredflinstone has summed up all my thoughts very well. We could easily be entering a period of 15-20 years where gold will perform well and serve as a solid component of any portfolio. My personal approach is long term. I’m 44, so I’m looking at the next 15-20 years as I approach retirement and will continue to hold 10% of my portfolio in gold, rebalancing as needed.
20% SPY | 12% GLD | 68% Cash

Carol88888
Posts: 276
Joined: Wed Jan 24, 2018 2:24 am

Re: "Beware the Hype on Gold"

Post by Carol88888 » Tue Aug 04, 2020 3:36 pm

I don't understand gold. What is it worth? What does it produce?

I think if you buy it you have to consider it a trade because it can be just dreadful for twenty years. So that poses the question: When do you sell?

And do you really want something in your portfolio that you have to watch with an eagle eye towards getting out of it? I think this just mucks up a buy and hold portfolio which provides good returns without any hassle factor.

All Seasons
Posts: 167
Joined: Sun Dec 10, 2017 4:14 pm

Re: "Beware the Hype on Gold"

Post by All Seasons » Tue Aug 04, 2020 3:38 pm

Closed at $2,038 today. Wow... :shock:
The market portfolio is always a legitimate portfolio.

DB2
Posts: 924
Joined: Thu Jan 17, 2019 10:07 pm

Re: "Beware the Hype on Gold"

Post by DB2 » Tue Aug 04, 2020 4:15 pm

fredflinstone wrote:
Tue Aug 04, 2020 2:29 pm
Gold prices will rise and fall. This we can be sure of. But I am fairly confident that gold will be more expensive in 10 years than today. I expect gold prices to rise as a result of increased civil unrest in the US, increased government debt, increased government debt monetization, increased demand for physical gold as a means of illegally avoiding wealth and estate taxes, an increased desire by investors to diversify their portfolios beyond stocks and bonds, and a lack of good alternative investments.
Agreed.

000
Posts: 708
Joined: Thu Jul 23, 2020 12:04 am

Re: "Beware the Hype on Gold"

Post by 000 » Tue Aug 04, 2020 4:31 pm

Carol88888 wrote:
Tue Aug 04, 2020 3:36 pm
I don't understand gold. What is it worth? What does it produce?
What is a US Dollar worth? A Euro? What do fiat-denominated bonds produce right now?

User avatar
fredflinstone
Posts: 2679
Joined: Mon Mar 29, 2010 7:35 am
Location: Bedrock

Re: "Beware the Hype on Gold"

Post by fredflinstone » Tue Aug 04, 2020 4:34 pm

Carol88888 wrote:
Tue Aug 04, 2020 3:36 pm
I don't understand gold. What is it worth? What does it produce?

I think if you buy it you have to consider it a trade because it can be just dreadful for twenty years. So that poses the question: When do you sell?

And do you really want something in your portfolio that you have to watch with an eagle eye towards getting out of it? I think this just mucks up a buy and hold portfolio which provides good returns without any hassle factor.
I will buy or sell gold if and when my asset allocation is out of whack with my desired allcoation. It is very simple. A 25/25/25/25 stock/bond/gold/cash portfolio is about as easy to manage as a 50/50 stock/bond portfolio. But hey if you think holding multiple asset classes is a big hassle, maybe you should try 100% stocks or 100% bonds.
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8

User avatar
fredflinstone
Posts: 2679
Joined: Mon Mar 29, 2010 7:35 am
Location: Bedrock

Re: "Beware the Hype on Gold"

Post by fredflinstone » Tue Aug 04, 2020 4:39 pm

000 wrote:
Tue Aug 04, 2020 4:31 pm
Carol88888 wrote:
Tue Aug 04, 2020 3:36 pm
I don't understand gold. What is it worth? What does it produce?
What is a US Dollar worth? A Euro? What do fiat-denominated bonds produce right now?
That lump of metal called gold has easily performed both stocks and bonds over the last two decades. Yes, gold -- which produces nothing and sits there collecting dust -- has appreciated in price far more than the 500 greatest companies in the US.
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8

User avatar
unclescrooge
Posts: 5057
Joined: Thu Jun 07, 2012 7:00 pm

Re: "Beware the Hype on Gold"

Post by unclescrooge » Tue Aug 04, 2020 5:00 pm

fredflinstone wrote:
Tue Aug 04, 2020 4:39 pm
000 wrote:
Tue Aug 04, 2020 4:31 pm
Carol88888 wrote:
Tue Aug 04, 2020 3:36 pm
I don't understand gold. What is it worth? What does it produce?
What is a US Dollar worth? A Euro? What do fiat-denominated bonds produce right now?
That lump of metal called gold has easily performed both stocks and bonds over the last two decades. Yes, gold -- which produces nothing and sits there collecting dust -- has appreciated in price far more than the 500 greatest companies in the US.
This has become a political debate, in the sense that people who believe you are already invested, and those who aren't will never believe anything you say.

halfnine
Posts: 1245
Joined: Tue Dec 21, 2010 1:48 pm

Re: "Beware the Hype on Gold"

Post by halfnine » Tue Aug 04, 2020 5:00 pm

Robot Monster wrote:
Tue Aug 04, 2020 11:02 am
All Seasons wrote:
Tue Aug 04, 2020 10:44 am
We are over $2,000 today, people! $2,014 as of this moment!
Important psychological threshold, indeed. Unsure what the consequences of that will be. Perhaps some will call top, others will say it's a new beginning. Sadly all unactionable. We can only stand on the sidelines and watch the fireworks...perhaps that's enough.
That is a bit US centric. It's only a "psychological threshold" for at most 5% of the people on the planet.

User avatar
willthrill81
Posts: 19596
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: "Beware the Hype on Gold"

Post by willthrill81 » Tue Aug 04, 2020 11:47 pm

unclescrooge wrote:
Tue Aug 04, 2020 5:00 pm
fredflinstone wrote:
Tue Aug 04, 2020 4:39 pm
000 wrote:
Tue Aug 04, 2020 4:31 pm
Carol88888 wrote:
Tue Aug 04, 2020 3:36 pm
I don't understand gold. What is it worth? What does it produce?
What is a US Dollar worth? A Euro? What do fiat-denominated bonds produce right now?
That lump of metal called gold has easily performed both stocks and bonds over the last two decades. Yes, gold -- which produces nothing and sits there collecting dust -- has appreciated in price far more than the 500 greatest companies in the US.
This has become a political debate, in the sense that people who believe you are already invested, and those who aren't will never believe anything you say.
The same could be said of most of the threads in the investment sub-forum. But some people do change their minds on something every now and again (I certainly have about some things), and there are a lot of lurkers on this forum who aren't yet entrenched in any position.
“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

rossington
Posts: 701
Joined: Fri Jun 07, 2019 2:00 am
Location: Florida

Re: "Beware the Hype on Gold"

Post by rossington » Wed Aug 05, 2020 3:10 am

No matter how one looks at it... gold has value, whether or not that value is worth it to you is a matter of personal preference and ideology.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

Valuethinker
Posts: 40537
Joined: Fri May 11, 2007 11:07 am

Re: "Beware the Hype on Gold"

Post by Valuethinker » Wed Aug 05, 2020 3:17 am

halfnine wrote:
Tue Aug 04, 2020 5:00 pm
Robot Monster wrote:
Tue Aug 04, 2020 11:02 am
All Seasons wrote:
Tue Aug 04, 2020 10:44 am
We are over $2,000 today, people! $2,014 as of this moment!
Important psychological threshold, indeed. Unsure what the consequences of that will be. Perhaps some will call top, others will say it's a new beginning. Sadly all unactionable. We can only stand on the sidelines and watch the fireworks...perhaps that's enough.
That is a bit US centric. It's only a "psychological threshold" for at most 5% of the people on the planet.
Consider another example: oil at $20/ bl. Or $10. This matters a lot to the Middle East, to Russia, to Aberdeen in the UK.

The USD is the "currency numeraire" of the world, the thing we account in - much international trade is in USD. Almost all commodity prices are quoted in USD. It is the currency of the safest, most liquid asset (the US T Bill & Treasury bonds). It is widely used in tourism (outside of Europe). The currencies of a number of Central American states are, I believe, set to track USD (and there are other examples in other continents).

Whilst you (or I ;-) ) might regret the passing of the dominance of the British Pound Sterling, it has happened, and for the time being the USD has no feasible alternatives. Maybe it will be Renimbi in 30 years time, but China would need to run a larger trade deficit. I doubt it will be the Euro - Germany has a permanent structural bias towards trade surplus, it would seem. It won't be the Japanese Yen - that ship has sailed.

In 1913 the Pound Sterling was actually *more* important to world trade & finance than the USD. Virtually all world trade finance cleared through the London Bills market - notes purchased at a discount which were then redeemed at par at London merchant banks (J Rothschild etc). At the beginning of August 1914, on the brink of war, the market went into a panic, had to be closed for a few days. An almost forgotten episode in that terrible time which led to the worst war (or wars) in human history

(I think future historians will discount "World War 1" and "World War 2" but see it, as the French general said when the Versailles Agreement was signed "this is not peace, just a 20 year ceasefire". Basically you had 2 sides - Germany & some central European powers (Austro-Hungarian Empire, then later Hungary + Bulgaria) vs France + the peripheral European states. In the second round, Italy and Japan changed sides (Italy managed to be a loser on *both* sides, which was a trick)). And of course on that perspective, WW1 was simply the next round of the 1871 Franco-Prussian War.

One of the enduring effects of the 2 wars was to end Britain's primacy in world trade & finance, and to cement the US as the dominant player in that market.

And history repeats - we had another crash in the crucial currency of trade. Adam Tooze's book on the Global Financial Crisis opened my eyes to the importance of the dollar swap trade. Basically foreign financial institutions are short dollar deposits vs their trading & lending books - particularly in Europe, perhaps globally. When the crisis hit, and repeated again in March 2020, that liquidity disappeared - world trade would basically have collapsed. So the Fed stepped in and lent hundreds of billions of dollars to European banks via currency swaps in early 2009. Had the Fed not done that this March, the economic effects of Covid-19 would have been turned into a financial crisis like 2008-09 with who knows what long term consequences.

Post Reply