Gold

[thepalmersinking]

Ok, I am not a believer. Why? Because I keep hearing people telling me on TV that I have to buy gold because the devaluation of the dollar (inflation hedge). Yet the people selling gold are taking those dollars in exchange so that blows the lid off the entire idea to me.

Looking for sensible people to weight in.

 

[MichaelB]

Thread moved to appropriate forum.

Discussions of individual stocks, market timing strategies and other investments (gold, commodities, etc.) belong in Stock Picking and Market Strategy.

 

[OldShooter]

Gold has indeed been an inflation hedge over the long haul. It has also been illiquid and highly (highly!) volatile. Absent paranoia about society breaking down, TIPS are more predictable protection, liquid and not volatile.

With paranoia, you have to hold physical metal in an accessible place and hope that it will have some value when the SHTF. Ammunition (.223 Rem, 9mm parabellum, and .45ACP) will probably be a lot more sought after than gold. Flagrant possession of any of this stuff is probably more likely to make you a corpse than make you a negotiator.

 

[rk911]

always wondered where i'd store it if i bought physical gold. if i was to buy metals i'd likely look at mutual funds but i'm more risk averse these days.

 

[gerntz]

Gold has indeed been an inflation hedge over the long haul. It has also been illiquid and highly (highly!) volatile. Absent paranoia about society breaking down, TIPS are more predictable protection, liquid and not volatile.

TIPS do not account for the change in the value of the dollar. Gold can.

 

[RobbieB]

A kilogram of gold is not large and can easily fit into a safe the size of a cigar box.

 

[chris2008]

Where to store it so that
- the bad people do not find it
- the good people will find it when I am gone
- I have access whenever I need??

A bar in a box might bring big joy to those who clean out my last home.

Which size to buy so that I can change for a piece of bread when I need?

Will the exchange rate drop if I - like everybody else - try to change some for food?

So I have some coins in my box at the bank but do not feel wiser or safer for that.

 

[DrRoy]

I have never thought of gold as a good investment. The value is so random as it is influenced by unpredictable aspects of the supply and demand, there are the issues about how to hold it, and if you want physical gold there is a big spread on the bid vs. ask price. I own a little as part of my coin collection, but not as an investment per se.

 

[HawkOwl]

Ok, I am not a believer. Why? Because I keep hearing people telling me on TV that I have to buy gold because the devaluation of the dollar (inflation hedge). Yet the people selling gold are taking those dollars in exchange so that blows the lid off the entire idea to me.

Looking for sensible people to weight in.

Can’t fault your logic. It sounds like the advertisers/sellers do not have a high degree of confidence in the inevitability in its rise in value. Otherwise they would hold onto it themselves.

 

[FIRE'd@51]

Yet the people selling gold are taking those dollars in exchange so that blows the lid off the entire idea to me.

How do you know those people are holding those dollars? More likely they are re-investing them in other assets (e.g. stocks, other currencies, etc.)

 

[kevink]

This is the best overview of gold as an investable asset I know of:

https://portfoliocharts.com/2020/08/21/metal-money-and-the-measurable-value-of-gold/

At the end of the day a modest allocation to gold makes sense in the context of some portfolios while there are many more allocations that work perfectly well without including it. For investing purposes the physical gold ETFs IAU and AAAU are among the best choices.

 

[OldShooter]

TIPS do not account for the change in the value of the dollar.

Categorically false. Changes in the exchange rate directly affect the prices of the vast array of products traded on international markets. A drop in the dollar of 20% means a landed sticker price increase of 25% for things like soybeans, oil, plastics, pork, consumer electronics, most cloth and clothing, ... Too many products to name. After USA market adjustments by sellers and changes in buyer behavior like substitution, the dollar drop shows up in domestic inflation quite quickly. As it does, prices of strictly domestic goods and services rise as those sellers react to their inflation experience. And all of this shows up in TIPS adjustments.

Gold can.

Well "can" is a pretty squishy word. Looking at gold over a decade or two one can sometimes see correlation with inflation (but no separate exchange rate effects). Over shorter terms, gold prices are so manic that no one can discern any correlation with anything. Perhaps with the price of salt in Timbuktu?

 

[gerntz]

Categorically false. Changes in the exchange rate directly affect the prices of the vast array of products traded on international markets. A drop in the dollar of 20% means a landed sticker price increase of 25% for things like soybeans, oil, plastics, pork, consumer electronics, most cloth and clothing, ... Too many products to name. After USA market adjustments by sellers and changes in buyer behavior like substitution, the dollar drop shows up in domestic inflation quite quickly. As it does, prices of strictly domestic goods and services rise as those sellers react to their inflation experience. And all of this shows up in TIPS adjustments.

Well "can" is a pretty squishy word. Looking at gold over a decade or two one can sometimes see correlation with inflation (but no separate exchange rate effects). Over shorter terms, gold prices are so manic that no one can discern any correlation with anything. Perhaps with the price of salt in Timbuktu?

The US Dollar Index has dropped ~7% this year. Is inflation anywhere near that? Are TIPS interest rates anywhere near that?

"can" for the last 20 years is 5x price or around 8% compounded annually. I don't look at shorter terms than 5 years.

 

[GravitySucks]

always wondered where i'd store it if i bought physical gold. if i was to buy metals i'd likely look at mutual funds but i'm more risk averse these days.

I use a coffee can buried in the back yard

 

[MuirWannabe]

I use a coffee can buried in the back yard

I see you live in Syracuse. Can you be a bit more specific?

 

[OldShooter]

The US Dollar Index has drop ~7% this year. Is inflation anywhere near that? Are TIPS interest rates anywhere near that?

As I said, the adjustment is not an instantaneous thing, not the least because sellers initially eat some of the increases (as they have done with the Chinese tariffs) and consumers adapt but this is mitigation not 100% compensation. TIPS adjustments are determined 6 months ahead of the adjustment date, too, so that is an automatic lag. But the macro truth is the macro truth --- currency fluctuations affect the inflation rate.

If you don’t think a significant decline in the dollar will show up at the gas pump as retail inflation, you live on a different planet than I do.

“can” for the last 20 years is 5x price or around 8% compounded annually. I don’t look at shorter terms than 5 years.

With the historically wild standard deviation that gold has delivered, different intervals will “prove” different things. I have no interest in analyzing or understanding beyond my belief that it is a gamble, not an investment. So, … believe what you like and I will do the same.

 

[LRDave]

Gold has asked to join the "Pay off Mortgage or not"/"When to take SS" club.....

 

[Dash man]

I see you live in Syracuse. Can you be a bit more specific?

It’s right next to the bodies of other folk that have gone searching.

 

[qwerty3656]

People advocating TIPS, how about I-bonds? I was thinking of purchasing $20k this year (10k for each for my wife and I) and another $20k in January.

 

[OldShooter]

People advocating TIPS, how about I-bonds? I was thinking of purchasing $20k this year (10k for each for my wife and I) and another $20k in January.

I don't know much about them, but I understand that they have some advantages, IIRC in the way they are taxed.

For us, the purchase limit is too small. For us looking to substantially reduce inflation risk when we bought our TIPS in 2006, it took a pretty good pile. But everyone's situation is different and I have read many positive comments about I-bonds here.

 

[foxfirev5]

People advocating TIPS, how about I-bonds? I was thinking of purchasing $20k this year (10k for each for my wife and I) and another $20k in January.

I've been told I Bonds are the only no-brainer out there right now. I agree. Even at the mere 10K+ limits it adds up. (Unless you're in the highly inflated Boglehead sphere)

 

[SnowballCamper]

I've tried to talk myself into precious metals several times, for the SHTF scenarios. The following reasons are why I didn't do gold or silver:

Physical gold isn't easily divisible for exchange, Silver is more so, without taking up too much more space.

The transaction costs are extraordinary compared to most other securities, also buy & sell spreads are large IMHO.

There are better ways to hedge against inflation IMHO (TIPS I-bonds, etc.).

In a world where the US dollar is no longer useful as a currency, there will be so much more chaos that I can't imagine gold/silver being especially more useful than survival skills. I'm probably better off taking some survival training courses than having some gold or silver coins.

 

[Jerry1]

I've tried to talk myself into precious metals several times, for the SHTF scenarios. The following reasons are why I didn't do gold or silver:

Physical gold isn't easily divisible for exchange, Silver is more so, without taking up too much more space.

The transaction costs are extraordinary compared to most other securities, also buy & sell spreads are large IMHO.

There are better ways to hedge against inflation IMHO (TIPS I-bonds, etc.).

In a world where the US dollar is no longer useful as a currency, there will be so much more chaos that I can't imagine gold/silver being especially more useful than survival skills. I'm probably better off taking some survival training courses than having some gold or silver coins.

Anytime I read about people wanting gold for SHTF scenarios, I just think to myself, you can’t eat gold. In a SHTF situation, I want some basic needs stored, which, in and of themselves would be a hedge on inflation.

As for hyper inflation, even if gold is a hedge, are you going to put enough of your portfolio in gold for it to make a difference? What would that take - 25% or more? There’s no way I’m taking on that much gold.

 

[big-papa]

I've been told I Bonds are the only no-brainer out there right now. I agree. Even at the mere 10K+ limits it adds up. (Unless you're in the highly inflated Boglehead sphere)

Many bogleheads also invest in Ibonds. The inflated bogleheads take the $10K per SS number, add the $5K you can purchase through your tax refund, then include a trust or two for even more.

 

[big-papa]

Gold has asked to join the "Pay off Mortgage or not"/"When to take SS" club.....

You forgot "should I invest in international stocks".