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Old 03-10-2012, 05:38 PM   #21
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I question even this use. An asset that goes from $100 to $700 one decade; $700 to $300 over two decades; and $300 to $1,700 the last decade isn't a reliable store of value. It isn't a reliable inflation hedge either. I'm not sure what it is . . . speculative plaything?

I don't own any gold,so put me down in the skeptic category also. However, the permanent portfolio and other such gold heavy portfolios have done very well over the last decade or when more traditional portfolio have failed. In good times gold acts as significant drag in the portfolio. It is worth remember that you and I are fortunate to be US citizen and enjoyed a pretty stable economic environment with growing prosperity during our and our parents lives. Which is pretty much why we don't "get" gold.

For much of the rest of the world the situation hasn't be so rosy, and gold has acted as way of preserving wealth. In situations as diverse as he Wiemar Republic, and Nazi Germany to numerous coups and currency devaluation in Latin America and Africa, a large store of gold has been the difference between financial ruin or worse.
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Old 03-11-2012, 06:03 AM   #22
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I do not own gold and do not plan to buy / sell / hold gold or gold funds.
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Is there any gold bugs out there? How much, if any, should one hold in their portfolio? Should one hold physical gold or gold funds?
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Old 03-11-2012, 06:57 AM   #23
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While we have a few ounces of gold sitting in a safe deposit box and hold some notional silver as a portfolio diversifier, we generally prefer other asset classes for investment purposes.
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Old 03-11-2012, 07:43 AM   #24
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I only buy gold as a filler - for my teeth.
I've had gold teeth. Maybe I should have brushed them.

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Old 03-11-2012, 10:10 AM   #25
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I question even this use. An asset that goes from $100 to $700 one decade; $700 to $300 over two decades; and $300 to $1,700 the last decade isn't a reliable store of value. It isn't a reliable inflation hedge either. I'm not sure what it is . . . speculative plaything?
But a stock index of 30 leading companies called the DJIA that goes from 14060 to 6630 to 13000 in less than 5 years is a reliable source of value?
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Old 03-11-2012, 11:19 AM   #26
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But a stock index of 30 leading companies called the DJIA that goes from 14060 to 6630 to 13000 in less than 5 years is a reliable source of value?
"Store" of value.

It helps to include the quote I was commenting on:

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I think you nailed it Gold is a way of preserving wealth not accumulating it at least in the west.
It's true. Gold is often sold as identical to money, only better because it preserves purchasing power. Unfortunately, it is really bad at that over any kind of useful time horizon.

Your comparison to stocks would be valid if stocks were similarly sold and bought as a way of protecting against volatility. But they aren't, so it isn't.
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Old 03-11-2012, 01:23 PM   #27
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I've had gold teeth. Maybe I should have brushed them.
I do have one gold dental crown that gets brushed at least once a day.

If one is concerned about banking crisis, this blog supports gold investing.
http://expectedreturnsblog.com/
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Old 03-11-2012, 05:40 PM   #28
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I question even this use. An asset that goes from $100 to $700 one decade; $700 to $300 over two decades; and $300 to $1,700 the last decade isn't a reliable store of value. It isn't a reliable inflation hedge either. I'm not sure what it is . . . speculative plaything?
This got me wondering, so I did a little analysis that I started in 1968 (when the price was allowed to float). The assumptions are that you started with $10,000 and put it all in the S&P 500 and gold and sold it all on January 1 of this year. Each year, if the allocation between gold and your S&P was over 1/2%, you'd re-allocate back into balance.

The result was what I expected...your maximum loss in any one year was reduced going from 0% to 5%, and from 5% to 10%. Going from 10% to 15%, your maximum loss in any one year got worse. Meanwhile, your maximum gain in any one year got hurt by being in gold, but not nearly as much as the protection on the down side.

Admitedly, this snapshot ends with gold at near inflation adjusted highs, so take it with a grain of salt. But I think there might be a use for gold. At least more than a plaything.

Used http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/spearn.htm and http://www.nma.org/pdf/gold/his_gold_prices.pdf
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Old 03-12-2012, 07:40 AM   #29
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Admitedly, this snapshot ends with gold at near inflation adjusted highs, so take it with a grain of salt. But I think there might be a use for gold. At least more than a plaything.
Mostly my comment was about the widely held belief that gold is an inflation hedge and/or a store of value. It isn't good at either in any useful way.

But it is still possible, as you point out, that an asset class can benefit a portfolio even if it isn't necessarily something you'd want to own as a stand alone investment. It doesn't have to be either of the above two things to be a valuable addition to a portfolio. The conditions to make this work are 1) its returns should not correlate highly with your other assets 2) its expected returns must be positive.

Do these conditions apply to gold today?

Low correlation is probably true, but what about expected positive returns now that gold is trading at an all-time high?

If you look at your calculation in the same way you'd look at a FIRECalc run, and if you were trying to determine the right allocation of gold in your portfolio, do you think the proper starting date for the analysis is 1968, when the price stood at $39 and was just about to embark on a 13 year bull-run that generated 23% average annual returns? Or, considering that gold is in the midst of a current 10 year bull-market that generated average annual returns of 19%, that maybe a better historic starting point for the analysis is closer to 1980.

What I see when I look at the price of gold over the last half century is an asset class that does tremendously well for about a decade and then does horrible for two. If we're using history as a guide (understanding that past performance is no guarantee) now seems like a very, very risky time to own gold; for any reason.
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IAU vs GLD
Old 03-12-2012, 11:27 AM   #30
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IAU vs GLD

If you choose to purchase a gold etf, consider IAU instead of GLD. The expense rate is less by 15 basis points.
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Old 03-12-2012, 11:42 AM   #31
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I question even this use. An asset that goes from $100 to $700 one decade; $700 to $300 over two decades; and $300 to $1,700 the last decade isn't a reliable store of value. It isn't a reliable inflation hedge either. I'm not sure what it is . . . speculative plaything?
Could not the same thing be said about stock and bond prices?
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Old 03-12-2012, 11:50 AM   #32
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Could not the same thing be said about stock and bond prices?
Must be Ground Hog Day.
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Old 03-12-2012, 11:54 AM   #33
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Low correlation is probably true, but what about expected positive returns now that gold is trading at an all-time high?

If you look at your calculation in the same way you'd look at a FIRECalc run, and if you were trying to determine the right allocation of gold in your portfolio, do you think the proper starting date for the analysis is 1968,
Earlier than 1968 made no sense. Later is throwing away data.

If the world of finance was the same as it was through most of he analysis period, the argument about historical highs might hold water, but the world has become interconnected. No country can just coast through like nothing happened as other major countries have meltdowns. And it looks like meltdowns are on the horizon in southern Europe. Driving based on the rear view mirror might be OK if the road stays the same, but I think the road has changed.
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