Rotating out of gold

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Clearly_Irrational
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Joined: Thu Oct 13, 2011 3:43 pm

Rotating out of gold

Post by Clearly_Irrational »

So I've been holding 20% gold for quite some time. My IPS rule is to hold gold when real interest rates are negative as making zero is better than a negative number. With the recent Fed rate increase and the falling inflation rate we're finally there. At some point in a previous thread I promised to update you all when that happened and I actually went through with it. I couldn't find the thread so I'm posting it here. Sold my 20% GLD and bought the same amount in SHV today.

Since this rotation is complete, my IPS requires me to evaluate the performance of the real interest rate rule over this cycle. Based on my definition (Fed funds rate - rolling 12mo average of YoY CPI-U index) the purchase signal was generated Jan 30 2008 and the Sell signal Dec 17 2015.

GLD +11.30%
SHV +0.13%

That's good enough to make me feel it was a success, though obviously there still aren't that many data points to go off of. Portfolio now looks like:

30% Small Value
20% Emerging Market
30% Long Treasuries
20% Cash

Now that that is complete my IPS says to take my hands off the wheel and twiddle my thumbs so I'll be doing that.
lack_ey
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Re: Rotating out of gold

Post by lack_ey »

Just out of curiosity, how are you counting inflation? Which measure, and is it projected or using the recent past?

Also, why actually use a short-term Treasury bond fund (iShares Short Treasury, SHV, duration = 0.47 years, ER = 0.15%, SEC yield = 0.31%) as opposed to say a bank account or rolling the 1-year Treasury for the higher yield, or going max lazy and leaving it in a settlement or some money market fund?
weltschmerz
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Re: Rotating out of gold

Post by weltschmerz »

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Clearly_Irrational
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Re: Rotating out of gold

Post by Clearly_Irrational »

lack_ey wrote:Just out of curiosity, how are you counting inflation? Which measure, and is it projected or using the recent past?
12 month rolling average of the year over year CPI-U index rates. I double check vs. the billion prices project for reasonableness.
lack_ey wrote:Also, why actually use a short-term Treasury bond fund (iShares Short Treasury, SHV, duration = 0.47 years, ER = 0.15%, SEC yield = 0.31%) as opposed to say a bank account or rolling the 1-year Treasury for the higher yield, or going max lazy and leaving it in a settlement or some money market fund?
Enforcing my hands off rule. If it were somewhere else I'd be tempted to do something fancy with it.
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Clearly_Irrational
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Re: Rotating out of gold

Post by Clearly_Irrational »

The Dan wrote:It will be interesting to see what comes next for gold. Is there a price where you would get back in, or is it completely dependent on your interest rate outlook?
It's strictly based on actual real interest rates, no projections allowed. IPS says no active trading authorized under current conditions.
The Dan wrote:Any reason why you were holding such a high % of gold? 20% seems like a very high % for most people, unless you are following the Permanent Portfolio (PP) - and most PP adherents would never sell all their gold at once.
My portfolio is sort of Markowitz meets Fama/French with PP overtones and some macro rules. Basically I liked the fundamental diversification of the PP but thought it had a few things that needed improvement. For example, I would have found holding gold through the 80s and 90s too psychologically painful.
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