Gold

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classical_Liberal
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Re: Gold

Post by classical_Liberal » Wed Nov 14, 2018 12:14 am

Lillailler wrote:
Tue Nov 13, 2018 3:49 am
why invest in gold?
I hold both physical and ETF's at about 10% of total portfolio. The small amount of physical is for "prepper", but in the sense that @jean stated. As opposed to "hunker down" prepping, I choose to prep in the "fast mobility" sense because a) It's worked better historically, and b) It fits better into my overall web-of-goals. Physical gold is my backup passport out. A chance to start over in a better area if need be and use skills/social capital to reestablish myself. Otherwise, you are correct in that transactional and holding costs make physical a poor investment.

The ETF gold is purely for the technical view. I (mostly) invest in Tyler9000esque passive non-correlation. Your assessment is correct that gold increases in value with systemic risk, but I do not consider paper gold SHTF insurance. Rather, it provides me an asset to drawdown if all other classes are suffering, without systemic failure. In SHTF, I do not believe owning shares of IAU will have significant value in the short term. IOW, I will sell my hedge when it's paying off, simply to avoid selling assets that are underperforming temporarily.

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Jin+Guice
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Re: Gold

Post by Jin+Guice » Mon Nov 26, 2018 10:37 pm

Gold as investment has always confused me, but I'm an admitted noob at investing. Physical gold as a SHTF investment is interesting. Obviously not good in a doomsday scenario where money becomes worthless, but useful in a nazi/ Stalinesque take over. One thing this would necessitate is seeing the problem coming and running fast enough to avoid the death camps. I'm not sure I'd do this.

Why does gold move opposite of stocks and bonds? Is there a crash scenario where this wouldn't happen? Are there other assets that behave like this that might have advantages over gold?

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fiby41
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Re: Gold

Post by fiby41 » Tue Nov 27, 2018 1:47 am

The utility has to be there for me to buy any metal. If I marry, the jewellery for the hypothetical spouse will be all the gold I buy.

Mister Imperceptible
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Re: Gold

Post by Mister Imperceptible » Tue Nov 27, 2018 5:51 am

Before a year ago, if you had asked me if I thought gold had any utility, or that I would be buying any, I would have looked at you sideways.

Right now, the ratio of total paper assets (stocks, bonds, derivatives, pension plans, etc.) making a claim to wealth, relative to actual wealth, is proliferating. The best way to describe it is that in a financial crisis, as debts are defaulting and paper assets are getting marked down, there is flight to quality down Exter’s Pyramid. I see the problem in owning nothing at the bottom (gold) and then trying to rush down the ladder to quality along with everyone else at the same time.

https://en.m.wikipedia.org/wiki/John_Exter

Given the current stock market valuations, by buying gold I am “selling high” on paper assets and buying low on what I anticipate other investors will eventually flee to.

Having cash instead of gold is the default for most, but inflation depreciates cash over time. This is why artificially low interest rates push investors into risky speculative assets, because they are looking for a return on their capital. Having short memories, they forget previous bear markets and drawdowns of principal, and the importance of return *of* capital.

Inflation is probably the single most underestimated wealth destroyer. Taking a look at sovereign and corporate debts, buying precious metals is a way of saying “I am not bailing out insolvent banks or governments or bankrupt retirement plans. I am not paying into the Ponzi scheme.” (Of course, one could say that buying gold is entering a Ponzi scheme, but I have perhaps naively bought the idea that no central authority controls the gold market.) When the government buys bad debts to support asset prices, they are essentially converting those toxic assets into Treasuries- thereby devaluing the dollar. This is the moral hazard- big investment banks can try to win big because they know if they lose, they have a price-insensitive buyer to get them off the hook (taxpayers).

http://danielamerman.com/va/ccc/OECDdebt.html

http://danielamerman.com/va/Repression.html

The government wants you and your capital in the system, so they can slowly confiscate it over time. Hence my bad joke above about criminal activity and taking your wealth “off the grid.” The government can freeze your bank accounts, whether because you are being targeted individually, or because they need to devalue the dollar to pay bad debts. They may try to associate gold ownership with criminal activity, just as they are trying to do in to the (fascist) push to eliminate physical cash. (Because criminals didn’t exist before Federal Reserve notes. :roll: People sure do love the idea of a centralized power tracking all of their transactions. “I have nothing to hide.” Lol ok, why not put a camera in your room where you and your spouse sleep, “you have nothing to hide.”)

By owning precious metals, not only will the physical properties of the metals resist monetary inflation, but there is nothing to tax. (Cannot tax a pile of coins buried in a hole paying nothing.) The oft-heard criticism “But gold does not have an internal rate of return.” This is a feature, not a bug. It is a commodity that historically solves the coincidence of wants problem. It is not a security that promises a return in exchange for the risk of principal. The long term real (after inflation) return is 0%, and this is acceptable because it promises 0%. This is an easier promise to keep, as opposed to pension plans that promise 7-8% a year and often end up with huge drawdowns trying to make good on that promise.
Jin+Guice wrote:
Mon Nov 26, 2018 10:37 pm
Are there other assets that behave like this that might have advantages over gold?
Silver is gold’s little brother. It can appreciate more in price than gold when there is high inflation/financial trouble because A) it is a smaller market than gold and therefore more volatile, and B) this makes it more prone to potential manipulation (Silver Thursday 1980, and quite possibly JP Morgan in 2011).

The silver-to-gold ratio is historically high, which usually precedes precious metals bull markets. Silver has been dead money and right now *could* be very cheap. If you buy physical silver, you’ll get a better premium if you buy 100oz bars.

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SnailMeister4000
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Re: Gold

Post by SnailMeister4000 » Tue Nov 27, 2018 1:17 pm

It has been a while that I have made a contribution of questionable usefulness/quality to the forum, so here I go:

"Gold is for the mistress - silver for the maid -
Copper for the craftsman cunning at his trade!
"Good!" said the Baron, sitting in his hall,
"But Iron - Cold Iron - is master of them all." (...)"

From "Cold Iron", by Rudyard Kipling.

Maybe a combination of gold in non-physical and physical form would be most suitable to answer to different levels of currency depreciation and SHTF scenario (in addition to other tangible and non-tangible assets, such ass "cold iron", food and other stuff, skills, social capital etc.).

Mister Imperceptible
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Re: Gold

Post by Mister Imperceptible » Tue Nov 27, 2018 2:07 pm

Ah yes, of course, iron. And also, flesh!

https://m.youtube.com/watch?v=wgN1sLcAQnw

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SnailMeister4000
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Re: Gold

Post by SnailMeister4000 » Tue Nov 27, 2018 2:55 pm

Those good old 80s fantasy movies are pure gold, also.

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SnailMeister4000
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Re: Gold

Post by SnailMeister4000 » Tue Nov 27, 2018 3:24 pm

My post above was written in jest, but digital copies of entertainment media might indeed be some useful barter in a SHTF scenario. My apologies for derailing the thread a bit...

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Jin+Guice
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Re: Gold

Post by Jin+Guice » Tue Nov 27, 2018 5:16 pm

@MI: Thanks for explaining it to me. I'm really having a crisis of conscious on what to do with my portfolio which is basically a 90/10 VTSAX/ VBTLX spilt.

Do you see any reason not to own paper gold?

Mister Imperceptible
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Re: Gold

Post by Mister Imperceptible » Tue Nov 27, 2018 6:10 pm

In August I sold the stock index funds in my retirement account and bought paper gold. But I own physical and that is probably better, assuming you do not pay too much in premiums and expect to hold a long time.

The advantage of paper is that you do not pay the heavy premium up front, so you can trade in and out of the position. Paying 2-5% premiums on physical will brutalize you if you trade in and out of the position. If you hold the physical metal for a long time, you amortize the cost of the premium. On a long enough time frame, the ongoing fees of paper gold will be more expensive than the physical premium. But after I bought physical gold the first time, I got paranoid and bought a couple of firearms. There is a cost to that as well.

The trouble with paper gold or silver is that I do not know how trustworthy the custodians are. The ETFs seemed to hold up during the last recession but I do not know what will happen in the next recession, especially if it is worse. Not sure I can bank on GLD or IAU in a meltdown, as @c_L described above.

My preference is for physical because I eliminate the counter party. I can hold it in my hand and it is no one’s promise to me. But then again I am very distrustful of government and financial institutions. If you can buy IAU and sleep like a baby, more power to you (unless my mistrust is validated by real-life shenanigans).

My advice is that you read up on not just gold, but what you think the financial risks are in the future. When I first started reading about investing, it was all about Ben Graham and value investing. Then I realized the value investor is only an agent in a larger economy, and the real returns on stocks may not be as good in the next few decades may not be a good as they’ve been since the Great Depression. My outlook is such that I know I will always want a reserve of precious metals, because my mistrust is an ingrained trait. If you are unsure about it, paper gold/silver could be better if you decide to sell, to avoid paying a hefty premium twice. But I don’t think it would hurt anyone to have a few gold coins, assuming you can hide them.

I would also think long and hard about using just bonds to diversify away from stocks. When Ben Graham was buying bonds, he was not bumping elbows with a US government buying bonds as well.

***Disclaimer*** I could be absolutely wrong about everything. Stocks could go up another 300% and never come down, and you could make a nice capital gain selling your bonds when interest rates drop to negative 3 percent. Meanwhile gold drops to $200/ounce and Mister Imperceptible is left behind forever in his cubicle.

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Jin+Guice
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Re: Gold

Post by Jin+Guice » Tue Nov 27, 2018 10:16 pm

@MI: Thanks again for the response. I've read Ben Graham and I'm currently reading a book about value investing. I really have no idea what I'm doing aside from having a business minor in college and a masters in econ (my focus was not on financial economics though). Do you have a suggestion of some good books to read?

Currently I'm more interested in gold as a business as usual, the future more or less resembles the past, investment tool. I'm more worried about protecting my portfolio from what I've come to believe are overvalued stock (and pretty much all other traditional asset) markets and I am aware that I am a very niave investor. I'm in the awkward position of having enough money that it's worth it to think about how to grow it, but not nearly enough to retire.

My SHTF plan currently doesn't involve money. It's interesting thinking of gold as a hedge against a deviant government that you need to escape. I hadn't considered this. If I end up with enough money to be at a sub 3% SWR, I'll certainly pick up some gold as I'll be in defense mode at this point. Otherwise I'm willing to bet that being a white american man who can run several miles will protect me or that the drones will shoot me before I even know they're there. Either way the gold won't have helped much and if shit doesn't hit the fan I'll have lost out by not gambling a little bit.

I don't mean to dismiss what you've said, this has been very helpful and I'll probably pick up some gold in paper form eventually. I've been considering golden butterfly but I want to do several years of research before I chose a new strategy. Then again the zen masters on here don't seem to use a strategy, so who knows.

Mister Imperceptible
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Re: Gold

Post by Mister Imperceptible » Wed Nov 28, 2018 10:43 am

I consider myself pretty far beneath the zen masters in terms of knowledge, so I do not want to be the one who points you in a particular direction. In fact, part of the reason I own gold is because I doubt my ability to evaluate and make particular stock investments. I own some real estate and that is all the risk I can handle right now. I like the Graham quote that says investing is not about aiming for the highest returns, it is about managing risks. I have made almost a 100% cash-on-cash return in 2 years on my real estate investment. But I do not think I am that smart and I do not expect those returns to continue, so I am hedging my bets.

I do not think the government is coming after me personally. The process of monetary inflation/financial repression is all-encompassing and impersonal- that is why the government employs it. The world does not have to end for gold to have value, the dollar just has to depreciate over time, and it does, by at least 2% per year on average, by Federal Reserve mandate.

Whether you need to do several years of research before taking action, I do not know. You are never going to have perfect knowledge or information. Diversification might help if you feel ignorant. But know why you are diversifying. I think some of the zen masters have emphasized the importance of being flexible.

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Re: Gold

Post by jacob » Thu Nov 29, 2018 3:14 pm

The gold/DJIA ratio is a technical analysis classic. It's hard [for me] to disentangle anything solid.

https://www.macrotrends.net/1378/dow-to ... ical-chart (be aware that the default chart is logarithmic, but money is not)

Wads
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Re: Gold

Post by Wads » Fri Dec 21, 2018 2:36 pm

Agree with all of MI post above.

Does anyone have a recommendation for a high-quality home safe? I'm looking for a small but heavy safe to store gold. Id prefer one to weigh 250-300 pounds which would stop most people from walking out the door with it and fire proof. I considered a safe deposit box but a personal safe will be much cheaper in the long term.

classical_Liberal
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Re: Gold

Post by classical_Liberal » Fri Dec 21, 2018 6:44 pm

@wads
Have you considered a DIY, hide in plain site? This, in combination with an easy score (ie leave a few hundred in cash on the table), is good protection.

Jean
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Re: Gold

Post by Jean » Sat Dec 22, 2018 9:22 am

I invest mostly in honor because cattle die, kinsmen die, you yourself die, but one thing now that never dies is the fame of a dead man’s deeds.

Wads
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Re: Gold

Post by Wads » Sat Dec 22, 2018 11:02 am

@CL
It's something that I considered but I will feel better with a safe or safety deposit box. I don't feel comfortable with 10% of NW hiding in plain sight.

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