Investing in Precious Metals

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kalmia281
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Investing in Precious Metals

Post by kalmia281 »

Do we think Gold is a good investment in the current times?

If we examine the history of Gold prices, the current macroeconomic environment pointing to higher inflation and late economic cycle suggests buying into precious metals as a store of wealth would be a good idea here. Curiously, Gold has not performed well during the last year in which we've begun to see higher inflation.
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Re: Investing in Precious Metals

Post by LadyGeek »

Welcome! This may not be the best place to ask your question. This forum follows "Investing Advice Inspired by Jack Bogle", which is to invest in the entire market using a long-term buy-and-hold approach.

You can find more information here: Bogleheads® investment philosophy

Also see: Getting started

If you need assistance with your portfolio, may I suggest you start a new thread in the Personal Investments forum and post your portfolio information in that thread using the Asking Portfolio Questions format? It will make you think about the "big picture" while giving us the information we need to point you in the right direction.

If you have any questions, ask them in the new thread.
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Re: Investing in Precious Metals

Post by z3r0c00l »

kalmia281 wrote: Sun Aug 01, 2021 9:28 pm Do we think Gold is a good investment in the current times?

If we examine the history of Gold prices, the current macroeconomic environment pointing to higher inflation and late economic cycle suggests buying into precious metals as a store of wealth would be a good idea here. Curiously, Gold has not performed well during the last year in which we've begun to see higher inflation.
Gold has under-performed stocks and bonds over long spans of time and that, combined with high volatility, keeps me from investing in gold. There is also a philosophical angle that is worth mentioning. Below I quote Warren Buffett.

"Today the world’s gold stock is about 171,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,198 USD per ounce — gold’s price as I write this — its value would be about $9.6 trillion. Call this cube pile A.

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?"
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Re: Investing in Precious Metals

Post by halfnine »

z3r0c00l wrote: Mon Aug 02, 2021 6:35 am
kalmia281 wrote: Sun Aug 01, 2021 9:28 pm Do we think Gold is a good investment in the current times?

If we examine the history of Gold prices, the current macroeconomic environment pointing to higher inflation and late economic cycle suggests buying into precious metals as a store of wealth would be a good idea here. Curiously, Gold has not performed well during the last year in which we've begun to see higher inflation.
Gold has under-performed stocks and bonds over long spans of time and that, combined with high volatility, keeps me from investing in gold. There is also a philosophical angle that is worth mentioning. Below I quote Warren Buffett.

"Today the world’s gold stock is about 171,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,198 USD per ounce — gold’s price as I write this — its value would be about $9.6 trillion. Call this cube pile A.

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?"
Your "philosophical angle" assumes gold owners are swapping equities for gold. While that might be true elsewhere it is largely not the case among Bogleheads who own gold. Mostly, from what I have seen on this forum, people are opting for gold instead of the large amounts of cash that Buffet holds. So the "philosiophical angle" really is with all the cropland and profitable companies out there why is Buffet is holding so much cash.
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Re: Investing in Precious Metals

Post by z3r0c00l »

halfnine wrote: Mon Aug 02, 2021 7:34 am
z3r0c00l wrote: Mon Aug 02, 2021 6:35 am
kalmia281 wrote: Sun Aug 01, 2021 9:28 pm Do we think Gold is a good investment in the current times?

If we examine the history of Gold prices, the current macroeconomic environment pointing to higher inflation and late economic cycle suggests buying into precious metals as a store of wealth would be a good idea here. Curiously, Gold has not performed well during the last year in which we've begun to see higher inflation.
Gold has under-performed stocks and bonds over long spans of time and that, combined with high volatility, keeps me from investing in gold. There is also a philosophical angle that is worth mentioning. Below I quote Warren Buffett.

"Today the world’s gold stock is about 171,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,198 USD per ounce — gold’s price as I write this — its value would be about $9.6 trillion. Call this cube pile A.

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?"
Your "philosophical angle" assumes gold owners are swapping equities for gold. While that might be true elsewhere it is largely not the case among Bogleheads who own gold. Mostly, from what I have seen on this forum, people are opting for gold instead of the large amounts of cash that Buffet holds. So the "philosiophical angle" really is with all the cropland and profitable companies out there why is Buffet is holding so much cash.
Well then I am even more against the idea since gold is a poor replacement for cash. Let me know how many retailers, banks, or governments accept gold as a payment, for example.

At their worst BRK has had about 25% of market cap in cash. But it was cash waiting to buy equities or other productive assets as Buffett makes his living on waiting for good deals.
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Re: Investing in Precious Metals

Post by LadyGeek »

I removed a post and reply suggesting illegal activity. The post will be removed even if the suggestion was made in jest.
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Re: Investing in Precious Metals

Post by nigel_ht »

z3r0c00l wrote: Mon Aug 02, 2021 9:46 am
halfnine wrote: Mon Aug 02, 2021 7:34 am
Your "philosophical angle" assumes gold owners are swapping equities for gold. While that might be true elsewhere it is largely not the case among Bogleheads who own gold. Mostly, from what I have seen on this forum, people are opting for gold instead of the large amounts of cash that Buffet holds. So the "philosiophical angle" really is with all the cropland and profitable companies out there why is Buffet is holding so much cash.
Well then I am even more against the idea since gold is a poor replacement for cash. Let me know how many retailers, banks, or governments accept gold as a payment, for example.
You can get a gold back debit card that converts gold holdings to the currency desired at spot price (with or without fee depending on tier). So pretty much anyone that accepts a debit card.

https://www.veracash.com/

Note that US citizens don’t have access to many of these types of gold based services so YMMV.

For me, gold is like gold for reserve banks. I’m not looking for a lot of day to day liquidity. Just liquidity in times of real need.

It dampens the effects left tail events and is why it’s a component of many ultra conservative portfolios like permanent, all weather and golden butterfly.

I can’t quite bring myself to buy as much gold as in these portfolios but I can understand the value of having them as part of the mix.
At their worst BRK has had about 25% of market cap in cash. But it was cash waiting to buy equities or other productive assets as Buffett makes his living on waiting for good deals.
Selling GLD is as easy as selling VTI and buying whatever.
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Re: Investing in Precious Metals

Post by Watty »

Welcome to the forum.

There is a search box in the top right corner of of most of the web pages so if you enter "gold" there you will find lots of prior discussions about gold.
kalmia281 wrote: Sun Aug 01, 2021 9:28 pm Curiously, Gold has not performed well during the last year in which we've begun to see higher inflation.
I don't have time to look up a link but as I recall if you look up the history of how gold has performed in the past during times of normal inflation it really may not be all that good of an inflation hedge.

There is a lot out there that you can easily find to read about this if you look for it.

Hyperinflation is a lot different.
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Re: Investing in Precious Metals

Post by SuperTrooper87 »

LadyGeek wrote: Mon Aug 02, 2021 10:44 am I removed a post and reply suggesting illegal activity. The post will be removed even if the suggestion was made in jest.
It was in jest - didn't mean to ruffle feathers. Our community is getting hammered by them, its disgusting :(
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kalmia281
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Re: Investing in Precious Metals

Post by kalmia281 »

Watty wrote: Mon Aug 02, 2021 10:48 am Welcome to the forum.

There is a search box in the top right corner of of most of the web pages so if you enter "gold" there you will find lots of prior discussions about gold.
kalmia281 wrote: Sun Aug 01, 2021 9:28 pm Curiously, Gold has not performed well during the last year in which we've begun to see higher inflation.
I don't have time to look up a link but as I recall if you look up the history of how gold has performed in the past during times of normal inflation it really may not be all that good of an inflation hedge.

There is a lot out there that you can easily find to read about this if you look for it.

Hyperinflation is a lot different.
How come lots of people point to this time as similar to 1970s and gold performed well then in high inflation/stagflation? Isn’t today similar?
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Re: Investing in Precious Metals

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kalmia281 wrote: Sat Aug 07, 2021 11:20 am How come lots of people point to this time as similar to 1970s and gold performed well then in high inflation/stagflation? Isn’t today similar?
That was a very different time since the US went off the gold standard in 1971 and it became legal to people in the US to own gold in 1975. It would be hard to compare that to today.
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Re: Investing in Precious Metals

Post by dbr »

kalmia281 wrote: Sat Aug 07, 2021 11:20 am
Watty wrote: Mon Aug 02, 2021 10:48 am Welcome to the forum.

There is a search box in the top right corner of of most of the web pages so if you enter "gold" there you will find lots of prior discussions about gold.
kalmia281 wrote: Sun Aug 01, 2021 9:28 pm Curiously, Gold has not performed well during the last year in which we've begun to see higher inflation.
I don't have time to look up a link but as I recall if you look up the history of how gold has performed in the past during times of normal inflation it really may not be all that good of an inflation hedge.

There is a lot out there that you can easily find to read about this if you look for it.

Hyperinflation is a lot different.
How come lots of people point to this time as similar to 1970s and gold performed well then in high inflation/stagflation? Isn’t today similar?
The idea that now is similar to the 1970's is nuts. That what similarities might exist would predict high returns from gold has no basis. That does not mean one can predict that returns from gold will be low.
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Re: Investing in Precious Metals

Post by firebirdparts »

kalmia281 wrote: Sat Aug 07, 2021 11:20 am
How come lots of people point to this time as similar to 1970s and gold performed well then in high inflation/stagflation? Isn’t today similar?
You can only go off the gold standard one time. That should be obvious. Gold was literally $40 an ounce. No joke. I'm serious. It's almost 50 times that high right now. I'm not joking. This should be blatantly buzzing in the front part of your brain.

I choose to think this:
1. Gold is volatile and unpredictable
2. Gold is currently high
3. It would not be stupid, given the times, to buy *some*
4. The price movements of gold from 1970 to 2020 make gold-containing portfolios look brilliant in that dataset. This because of the particular timing of gold price movements. You should expect any analysis to show you that gold is a good investment in that time period, and if you rebalance something like the permanent portfolio, in the past, you'd look like a genius. You should expect to observe this in backtesting.

I don't consider it an investment, exactly, but I think it's okay (not stupid) to have a portfolio that contains *some* gold. I think it is actually stupid to go around having debates about various people's ability to predict future prices. I just don't take an interest, and I promise you nobody can make me take an interest in a thing like that.
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Re: Investing in Precious Metals

Post by seajay »

kalmia281 wrote: Sat Aug 07, 2021 11:20 am
Watty wrote: Mon Aug 02, 2021 10:48 am Welcome to the forum.

There is a search box in the top right corner of of most of the web pages so if you enter "gold" there you will find lots of prior discussions about gold.
kalmia281 wrote: Sun Aug 01, 2021 9:28 pm Curiously, Gold has not performed well during the last year in which we've begun to see higher inflation.
I don't have time to look up a link but as I recall if you look up the history of how gold has performed in the past during times of normal inflation it really may not be all that good of an inflation hedge.

There is a lot out there that you can easily find to read about this if you look for it.

Hyperinflation is a lot different.
How come lots of people point to this time as similar to 1970s and gold performed well then in high inflation/stagflation? Isn’t today similar?
UK ended convertibility of gold/money at a fixed rate in 1931, US followed in 1933. US also made holding/trading investment gold illegal, silver might have been substituted to similar effect. 1975 US and it again was permitted in the US to hold/trade investment gold.

In periods of high inflation taxes also tend to rise. Whilst interest rates might match inflation in gross terms, in net terms investors might be losing out, 12% inflation, 12% interest rates, 40% basic/common rate taxation, -4.8% net real. When so investors are more inclined to flight into gold and the demand sees its price rise.

Some might opt for 67/33 stock/bonds, others prefer to shift the bond risk over to the stock side and might 75/25 stock/T-Bills, swap out T-Bills for gold and there's more volatility, but potentially less taxation risk in gold not paying any interest/dividends

PV example

BRK/Gold 75/25 since 2005 hasn't paid a cent in interest/dividends whilst provided a 7.7% annualized real gain. Investors should strive to keep costs and taxes low, more in their own rather than other peoples pockets.

Physical gold can have wide spreads, buy and immediately sell back to a dealer and you might see 5% or more less. Gold funds/ETF can be substituted for physical gold that has lower spreads, and then when the portfolio has made a decent gain one year use some of the 'other peoples money' to fund rotating some of gold funds into physical gold. 25% of portfolio in gold ETF's, portfolio gains +10%, count that as +9.4% gain year and having swapped out around half of gold funds into physical 'core' gold that thereafter is unlikely to be traded as part of rebalancing the portfolio.

Many seem to have a intense dislike of investment gold and jump into threads to express such, so be prepared to see some flak if you discuss/ask about investment gold. Others say that the first rule of gold is to say that "you don't own any gold", for various reasons that's perhaps good advice.
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