Gold

[OldShooter]

... 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.

Yes. I get a kick out of the people advocating gold as a wonderful investment but only putting 5% of their portfolios into it. Nassim Taleb has a sort of Occam's razor for this: "Don't tell me what you think, show me your portfolio."

OTOH, it is entirely feasible to have 25% of a portfolio in TIPS. We are approximately there. As you imply, serious inflation protection is a "Go big or go home" situation.

 

[big-papa]

Yes. I get a kick out of the people advocating gold as a wonderful investment but only putting 5% of their portfolios into it. Nassim Taleb has a sort of Occam's razor for this: "Don't tell me what you think, show me your portfolio."

OTOH, it is entirely feasible to have 25% of a portfolio in TIPS. We are approximately there. As you imply, serious inflation protection is a "Go big or go home" situation.

Yep, I've looked at it in the context of my own portfolio as a possible diversifier since it appears to have low, long term correlation to just about everything else have. Problem, as always, is that good historic data for it is hard to come by since it only traded freely after the early 70's. In my opinion, not a lot of data. Still, in the context of my portfolio and considering the limited timeframe of data, having a lot of it did nothing good for my portfolio vs. what I currently have and having just a little (like 5%) was, well, why bother for diversification purposes?

By the way, there's a fellow over on bogleheads, by the handle Klangfool, who grew up outside of the US and still has relatives in his home country. He keeps a small amount of gold for one reason and that's to get out of the country and back to relatives should the SHTF. Not clear how he would trade a gold ingot for an airline ticket so perhaps he's thinking tallships or something.

As a diversifier for those who like low volatility portfolios, with less upside, such as the Permanent Portfolio or Golden Butterfly I can see how it would make some sense. But if you want both a diversified portfolio and protection against apocalyptic scenarios, you'll probably want to directly own physical gold yourself instead of a mutual fund/etf where it's held somewhere far away in a vault that you'll never get access to. It's just a little more cumbersome to rebalance if you own the metal directly and there are all of the storage questions which have already come up in this thread.

I, too, own TIPs and Ibonds, as a ladder, for an inflation protected income stream which, along with SS (even with a haircut) should just about cover my most basic of needs.

Cheers

 

[big-papa]

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.

Funny how people, the press, etc. so strongly tout assets that are at or close to their all-time highs. Basically we should buy high and sell low?

 

[Stonewalker]

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

Yes, easily. Now a story on that...
Moving guys came and put all the stuff I wanted moved onto the truck. Just as they were about done I said "Oh, hey, I forgot I have a couple safes to move too." The big moving guy pales a bit and looks worried but he and his little buddy follow me to the back room. I point at two of those little Harbor Freight safes and he starts laughing. Picks one up and puts it on his shoulder. "These aren't safes," he says. His little buddy grins at me and grabs the other safe. "You know," he says as he walks away, "if you drop the front of this safe about three inches it will pop open."

Ouch. Get a big safe if you want to store gold. We put ours under the stairs and are going to build false walls around it. And not tell anyone except my brother we have it...

Still, the guy walking off with my little safe on his shoulder makes me shake my head...

 

[GravitySucks]

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.

Isn't that true of everything being sold? The seller would rather green back dollars than the item offered for sale. Whether it's gold, stocks, or toasters.

 

[NgineER]

"You know," he says as he walks away, "if you drop the front of this safe about three inches it will pop open."

Ouch. Get a big safe if you want to store gold. We put ours under the stairs and are going to build false walls around it. And not tell anyone except my brother we have it...

Still, the guy walking off with my little safe on his shoulder makes me shake my head...

You don't want any of the electronic safes either, hotel room type safes are not safe, neither are the electronic safes you can buy at Costco or Sam's club.

A strong rare earth magnet open those safes in seconds without leaving any marks...

https://youtu.be/ApJQ2wcYjBo

 

[ncbill]

Most safes sold are merely "residential security cabinets" (RSCs)

Real safes are tested and rated on how hard they are to breach.

 

[Big_Hitter]

A kilogram

I prefer coins for that reason

 

[gerntz]

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.

The index has been down most of this amount for 5 months. Inflation would have shown up before now if it was reacting to dollar value. And profits would be dropping if producers were eating higher costs.

 

[jurgs01]

If you view gold and silver as an investment, then you will be disappointed. View physical metals as a savings account substitute.

If you want an related investment, buy mining stocks.

I own both, but I am not buying now (other than two mining mutual funds I have dollar cost averaged for years).

 

[OldShooter]

The index has been down most of this amount for 5 months. ...

Reminder:

... I don't look at shorter terms than 5 years.

Very sensible. While you're waiting you might ponder the question: If the increased costs due to a devalued dollar do not show up in inflation or in reduced profits, exactly where do they go?

 

[ncbill]

I prefer coins for that reason

Yep, large bars (e.g. kilogram bars) have to be re-assayed before sale.

Common 1 troy ounce bullion coins can be checked with an inexpensive tool:

https://goldcoinbalance.com

 

[wrigley]

Silver!

 

[braumeister]

Palladium is the coming thing. An essential component of any cold fusion apparatus, which as we all know will soon provide limitless free energy with which we can run our Teslas.

 

[gerntz]

Reminder:
Very sensible. While you're waiting you might ponder the question: If the increased costs due to a devalued dollar do not show up in inflation or in reduced profits, exactly where do they go?

Improved quality? Lowered production costs? More efficient use of raw materials?

 

[copyright1997reloaded]

Not here to argue the Pro's/Con's of investing in Gold, Silver, Bitcoin or any other non-equity asset.

However, one of the issues with Gold is having reasonable sized (in terms of value) pieces. Buyng 1 gram pieces usually has way way more overhead than a 1 oz coin. A couple of interesting solutions:

50 gram Valcambi Combibar:

"Credit card" sized.

25x1 gram Maple Leafs:

While these do have more overhead (mark up over spot) than say a 1 oz Maple Leaf, it is not nearly as bad as 1 or 5 gram individual coins or bars.

A hedging strategy (in terms of physical metal) might be to have most in 1 oz chunks, but some (enough to do reasonable day to day barter) in one of the above approaches.

Alternatively, Silver is much more reasonable in terms of a 1 oz value - but having significant $ in Silver would require much more storage (and weight in transport).

Or, if you think the dollar (and other currencies) are going to devalue vs PM's but that the world isn't going to come to an end, buy things like GLD, IAU (Gold ETF's) or SLV, PSLV (Silver ETF's) or as Warren Buffet has recently done, the miners themselves.

 

[OldShooter]

Improved quality? Lowered production costs? More efficient use of raw materials?

ROFL. Certainly those are brilliant new ideas with potential that no one has ever explored before.

 

[street]

I don't have any gold stock but I was telling my son today I had a 16% plus growth for my portfolio tis year. He said I had 100% gain in my gold stock this year. He said he sold and doubled his money now he bought back in.

 

[thepalmersinking]

Good responses so thanks all. I guess my original point as i am in the payments biz is why in the heck anyone would buy Bitcoin as it represents the ‘greater fool theory’ and holds no real value at the end of the day whereas gold does hold something of value. That said, i have run across several online gold exchanges that allow for near instant trades. Cheap? No. I guess you have to trust the players but when you can near instant sell gold in a Fintech and buy something then it almost becomes the ‘gold standard’. But then gold itself grows at 2% in supply each year and that does not account for all the old jewelry that is exchanged, so maybe gold is the original pumped up fake investment after all.

 

[catii]

I keep about 8% of our funds in precious metals, & take possession of it. Of course we have a very-secure vault (TRTL6), with precious metals in the top half, & lots of ammo in the bottom!
It stays in a totally separate bucket, & I've sold silver when the market was really high, & buy more when it's low. Just another commodity, really.

 

[gerntz]

I don't have any gold stock but I was telling my son today I had a 16% plus growth for my portfolio tis year. He said I had 100% gain in my gold stock this year. He said he sold and doubled his money now he bought back in.

Why did we want to create profit when price is nearly the same?

 

[Running_Man]

$1 invested in Inflation bonds would have a bond value of $1.51 today

https://www.in2013dollars.com/us/inflation/2000?amount=1

$1 invested in Gold in 2000 would have a value of $6.84

$1 invested in S&P500 with divdidends revinvested and no taxes would be $3.70

So the idea that gold tracks the official inflation rate in any way shape or form is wrong. This can be for 2 reasons: 1) Inflation gauge mistakes costs or 2) Gold is undergoing market forces in supply demand that cause it to value differently than inflation.

To hold $100,000 in gold requires a couple of one ounce gold tubes 2 3/4 inches by 1 1/2 inches. It is very portable, which is why individuals with gold coins were able to evacuate Europe prior to WWII:

From the United States Holocaust Museum:

The 1924 US quota law set a limit of 25,957 immigration visas for people born in Germany. In 1933, the State Department issued visas to only 1,241 Germans. Although 82,787 people were on the German waiting list for a US visa, most did not have enough money to qualify for immigration.
This was due to the massive inflation and following devastation of the German Stock market following the Reichmark debacle. Most Germans did not have enough gold to leave the country. Only individuals with gold holdings got to leave.

I worked with a man whose parents bought his freedom from Vietnam by paying for it with all the gold they had in 1975 when he was 11 years old. He was boat lifted to an island, where he was adopted by a Swiss man who spoke French as he did. He was raised in Switzerland, moved to Canada for University in IT and moved to America. He saved all his money to age 25 and paid for Canadian sponsorship for his sister to move to Canada with him. After another 10 years they sponsored their parent to come to Canada, where they lived in their retirement. This was all only possible because his father, who was a doctor in 1974 had saved money in gold and had a secret holding spot that he used to buy a spot on a boat in gold, the only way to get a spot on the boats. In 1975 the Communists decided his father was not to be a doctor and assigned him as a bus driver and took all money from his bank accounts, took his house and moved him to a government apartment.

https://en.wikipedia.org/wiki/Vietnamese_boat_people

Gold at worst is an asset with different return characteristics that are not tied to the stock market, real estate or bonds. It is universally accepted and in times of crisis is one of the most valuable of assets. It increased in price by 60% during the great depression in the United States. If we continue to be able to live the lucky lives we have in the US, as opposed to many countries around the world where amount of gold you had determines your fate then at worst it would be an underperforming asset.

$100,000 in gold would pay for life for quite a while in a place like Thailand where $400 a month in rent is a quite livable spot with internet electricity and water, on a budget you can go as low as $150:

Here is a video on picking apartments by a charming English woman in Chang Mai Thailand, one of Trip Advisors 25 best destinations in the world:
https://tastythailand.com/how-much-does-an-apartment-in-chiang-mai-cost-per-month-2018/

Remember that in 1912 the cultural, financial and one of the richest cities of the world was Berlin Germany, while many spots in America could be lived in for a fraction of the cost.

 

[copyright1997reloaded]

Gold at worst is an asset with different return characteristics that are not tied to the stock market, real estate or bonds. It is universally accepted and in times of crisis is one of the most valuable of assets. It increased in price by 60% during the great depression in the United States. If we continue to be able to live the lucky lives we have in the US, as opposed to many countries around the world where amount of gold you had determines your fate then at worst it would be an underperforming asset.

$100,000 in gold would pay for life for quite a while in a place like Thailand where $400 a month in rent is a quite livable spot with internet electricity and water, on a budget you can go as low as $150:

...

Remember that in 1912 the cultural, financial and one of the richest cities of the world was Berlin Germany, while many spots in America could be lived in for a fraction of the cost.

Thank you for posting this, much more eloquent than I could ever be. I hold Gold and Silver not because I think they will be great investments, but rather in the hope that they are not great investments...because if they are, it likely means my other assets (like a fixed pension or even worse most everything else in my "net worth" isn't.)

 

[tdv2]

Why not take 1980 to 2020 and make the comparison between gold and the S&P? Why not go back 50 or 60 years and look? It's easy to cherry pick time frames and say this beat that.

1980 - 2020 SP500 (dividends reinvested) up 74.7x.
1980 - 2020 Gold up 3.17x ($594 to $1885)

 

[CSdot]

Why not take 1980 to 2020 and make the comparison between gold and the S&P? Why not go back 50 or 60 years and look? It's easy to cherry pick time frames and say this beat that.

1980 - 2020 SP500 (dividends reinvested) up 74.7x.
1980 - 2020 Gold up 3.17x ($594 to $1885)

Sure, you can look at 2000 - 2020, and gold will look like a genius financial play. Alternatively, you can look at gold starting at the 1980 high, and maybe it loses some of its investment luster.

I have always viewed Gold as insurance against SHTF. I live on the coast, so I have a chain saw and might get a generator just in case. Gold is similar to those items. I may use it, but likely won't. The whole 5% or 10% of your portfolio talk is all about someone trying to sell you gold or gold products. I don't follow their logic. As I said, gold is SHTF insurance and not part of what I would consider part of my "investment portfolio."

As for how much to buy, I would suggest getting the equivalent of what you have in your emergency fund.

I would also say buy some physical gold when the price is low* and stick it in a safe of safe deposit box and forget about it.

*The current price of gold at $1,900 seems high, so now does not seem to be the optimal time to buy.