Implementing Gold in the Permanent Portfolio with Low Transaction Costs

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ebast
Posts: 138
Joined: Sat Mar 23, 2013 10:42 pm

Re: Implementing Gold in the Permanent Portfolio with Low Transaction Costs

Post by ebast »

I've experimented with a few small transactions with silver eagles at this point. First time was on some craigslist purchase where the seller specifically mentioned metals (which ended up with me getting a discount given spot and a great deal if I consider what I originally acquired it for). Based on buyers or what you're buying you can probably guess when you can propose it. I have also used them as a token payment to friends for services rendered, e.g. had a friend who's a diesel mechanic come check out an engine for me and gave him an ounce of silver for his trouble, that sort of thing. Unusual enough that it's a little classier than just giving somebody a twenty, and oh yeah, cheaper too.

Getting even cheaper, too..

No way to unload a sizeable position as this is just for small transactions but so far my experience is that the kind of people that are going to accept metals are (quite logically) the kind that will value them over spot fiat value, so in contrast with purchase, storage, and all the other little taxes in dealing with precious metal, maybe here you actually even get a little bonus for using it.

CS
Posts: 709
Joined: Sat Dec 29, 2012 10:24 pm

Re: Implementing Gold in the Permanent Portfolio with Low Transaction Costs

Post by CS »

jacob wrote:
CS wrote:If I tried to do that this year as a Minnesota resident, they would charge me sales tax on the value of the gold, not the declared value (one ounce Eagles have a face value of $50).
It would be more fair to charge the tax in gold on the value of the paper (not the declared value, a dollar-note costs about 10 cents to produce). At least there should be a choice :mrgreen:
Consistency! :lol:
Tyler9000 wrote:Regarding GLD, IAU, and SGOL:
...

The appeal for SGOL is largely in its structure, as its gold is held in vaults in Zurich and is seen by some people as being more trustworthy than GLD or IAU. Since gold ETFs are highly dependent on trust that they actually have the gold they claim, that distinction is very valuable.

My personal choice came down to IAU and SGOL. The lower ER for IAU broke the tie, but both are good choices.
Eventually you could do both. I have one in Fidelity and the other in Vanguard for good measure of not having everything in one basket.
bryan wrote: For silver/gold I was thinking I would make some silverware (tea kettle) or luxury items. Granted, I haven't thought of drawing down from my precious metal allocation. Though I guess a rising equity glidepath dictates I get rid of the gold/silver first...
How about making jewelry? That way you could walk out the door with some of your wealth on your person without the attention of a bag of coins. Perhaps thick gold chains are due for a comeback! (I don't think they ever went out of style in Jersey.)

In a all seriousness, I have heard of at least one woman doing this for real. She always wore lots of heavy gold jewelry - a habit learned from having to flee, in a hurry, a part of the world in chaos.

Spartan_Warrior
Posts: 1659
Joined: Fri Dec 02, 2011 1:24 am

Re: Implementing Gold in the Permanent Portfolio with Low Transaction Costs

Post by Spartan_Warrior »

@Jacob:

You need more than a handful to really get a good use of it: https://youtu.be/NBRrCY5uhWY?t=27s ;)

KevinW
Posts: 959
Joined: Mon Aug 02, 2010 4:45 am

Re: Implementing Gold in the Permanent Portfolio with Low Transaction Costs

Post by KevinW »

When analyzing transaction costs in the PP, keep in mind that transactions are rare. I follow the default rebalancing rule of "check once per year and after major world events" and have been contributing for several years, so one year's contributions do not trigger a rebalance by themselves. Under those circumstances I only transact gold perhaps once every 2 years. So the amortized transaction costs are really quite minimal. This is not a day trading portfolio.

Physical coins have relatively high transaction costs but practically zero ongoing expenses, while ETFs have practically zero transaction costs but an ongoing expense ratio of 0.25 - 0.40 percent. IMO either can work OK given the infrequency of transactions. But I think the best solution is to consider roughly half the gold as "deep gold" that is held long-term and almost never sold in physical, and to hold the remaining "shallow gold" that is transacted during rebalancing in ETFs.

I think all three of the major gold ETFs (GLD, IAU, SGOL) are fine and prefer IAU due to the lower expense ratio. I'm skeptical that SGOL's Swiss vault would ever be a significant advantage. The fund sponsor and its executives are all based in USA, so in a hypothetical extreme scenario where the government were cracking down on gold ETFs, I doubt SGOL would resist much longer than the other two.

@jacob
I don't think most PP investors actually hold gold coins for their first-order value in direct barter. The second-order scenario of transporting them to a different community and exchanging them for local currency is more realistic. Think of Syrian refugees carrying 1/4 their net worth in their backpack and then exchanging them for Euros (or whatever) after they resettle. The third-order benefit is peace of mind that a hard asset hedge is in place, and therefore the resolve to avoid malinvestment in excessive real estate, prepping, etc. IMO the third-order benefit is the most valuable.

slowtraveler
Posts: 722
Joined: Sun Jan 11, 2015 10:06 pm

Re: Implementing Gold in the Permanent Portfolio with Low Transaction Costs

Post by slowtraveler »

I love all the wisdom here.

@JP
Thanks for being brave and sharing your reasoning here.

I think we're all mature enough on this forum to realize we can make our own choices that are different from others without needing to attack the others and maybe even appreciating their reasoning as well.

The fact that we can all discuss owning gold as part of a balanced portfolio so peacefully is testament to that.

@ebast:
I love the idea of using my silver like $20 bills-get a discount while seeming classier.

About holding physical gold-
I have a bit of precious metals already, but holding too much would lower my mobility which is opposite to what I want from my portfolio.

I'm still leaning towards IAU and getting closer to picking some up as soon as I solidify the rest of my portfolio.

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