# Investing in Gold



## goldman (Mar 18, 2017)

I'm not sure if there's any other threads about investing in gold, so I though I'd start a new one.

Investors often say that holding gold isn't a good investment. For one it obviously doesn't have a yield. And with holding gold there is a cost for storage through an ETF like GLD (or HUG) or yearly safety deposit box fees at the bank. 

And there's the apparent poor annual returns. In USD Gold is down 30% from its highs in 2011 while during that same time equity indexes have returned around 150% and fixed income has returned around 30-50%. From 2010 to current the total return of the TSX 60 was 70% compared to break even by the gold ETF HUG 









What about a longer term investment? Since 2002 to now, gold in USD has matched the total return on the SPY and DIA stock indexes of over 300% , and clearly surpassed the total return on treasury bond fund TLT and corporate bond fund LQD. Gold generated a stellar return of 500% from 2002 to it's highs in 2011. 









What about the longer term performance of gold in CAD for Canadians? A 20 year return of nearly 300%. In comparison the total return of the SPY and XIU during that time was approximately 200%. 



















According to this chart calculated using Tradingview from September 1989 to current gold in CAD has matched the price performance of the TSX index. 


So after looking at the 'bigger picture', what do you guys think about a long term investment in gold? 

I'm going to keep digging to see if I can find or make a longer term chart of gold in CAD, say for the past 50 or 100 years. 
It can be a bit more difficult information to find, but the performance of gold in CAD can be calculated using various methods like spreadsheets or charting software.


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## james4beach (Nov 15, 2012)

I actually think gold is a more important investment for a Canadian than an American. We do not have a reserve currency, nor the global power (or military) to enforce anything. In past periods of economic deleveraging and global slowdowns, the CAD has generally been hurt. I think Canadian investors tend to make a mistake by looking at gold priced in USD.

The relevant measurement for us should be gold in CAD. And on that metric, gold has been a fine holding for Canadian investors. Here's a chart:









And by the way, starting at 2000-01-01 which is the oldest data stockcharts.com has for XIU, I calculate the total return of XIU since then as 157%. Gold returned 311%, much more (this ignores gold fees whereas XIU fees were taken into account so it's a bit unfair). There's no question this has been a worthwhile investment asset since 2000.


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## james4beach (Nov 15, 2012)

Why I invest in gold:

1. It's a very well established asset and there's some reason to believe it will preserve real purchasing power in the very long term.

2. Diversification: it behaves differently than stocks, bonds, and real estate. It has a low correlation with other asset classes, doing its own thing at times. This is great for portfolio design.

3. Protection against disasters such as currency collapse, war, high inflation, financial system implosion

I don't buy gold as a pure bet on its high performance. I hope it performs well, but there are several reasons I hold it. For instance I am happy with the portfolio diversification it offers (#2) even if it doesn't outperform. The protection (#3) is for an unlikely, but still possible, scenario that has occurred in many different countries. At the end of the day you can look to my asset allocations to see my level of trust in gold or how valuable it is to me: my targets are 30% stocks, 50% bonds/GICs, 20% gold.


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## hfp75 (Mar 15, 2018)

I have always been a friend of Gold - with varying commitments over the years. Currently I am holding 15% in my managed accounts - Pension accounts where I have no input or accounts where gold/PM is not an option I hold none. Overall, I think I am at just under 10%.

I can be a bit more of a pessimist vs an optimist, so gold suits my nature just fine.

I think that with global debt where it is at and the cost of servicing it slowly being pushed up, there is risk there. I think central banks will in reality be held and rates wont get to high cause otherwise they would crush everyone due to the global debt load. Having said that, as our world only takes on more and more debt, rates will be forced lower and lower. There is a breaking point here somewhere and we are close to 0% rates now (vs our past)... so what next ? New global currencies ? New way to stratify debt ? Either way money will continue to devalue and Gold will have value.

Also, as was mentioned before it is a separate asset class. Remember, your not supposed to put all your eggs in one basket.

I used to use a fund that was Gold/Silver and Miners in one. I left that and went to MNT - actual Gold certified by the RCM. Now I know that some will say I have no USD exposure, BUT I feel that Gold is an international currency of its own in reality. The currency you hold it in might have little differentiating difference in the long run.

I am a fan of real bullion too vs paper gold and I have 10% of my 10% in physical gold.... so lets say 1% of our net worth. There is a bit of silver mixed into that portion... probably a 60/40 split (gold/silver) in physical bullion. No other silver in my world. I also like silver - BUT it is different than gold...


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## Onagoth (May 12, 2017)

For me...a 10% allocation to gold helps me sleep at night.

So that's why I have it. To me, it's an insurance policy against central bank miscalculation/stupidity.

I also have physical PMs in various locations....so my actual allocation is quite a bit higher than 10%


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## OhGreatGuru (May 24, 2009)

There are other threads on gold. Go to "Advanced Search" and search on "Gold" in titles only, and you will find most of them.

As a non-believer, my impression is that most gold aficionados are attracted by considerations other than normal investment returns. Since, by your own research, gold is rather high now, it means you would be "buying high".


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## fatcat (Nov 11, 2009)

a handful of gold in your safe deposit box is a fine idea otherwise as an asset class its dead money ... since 2011 gold has cost you money to own it, that’s 7 straight years of paying out money year after year when the same money in a simple gic ladder would kill gold

guru has it right, people own gold for reasons completely unrelated to its worth as an asset class


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## james4beach (Nov 15, 2012)

fatcat said:


> guru has it right, people own gold for reasons completely unrelated to its worth as an asset class


Gold has demonstrated its value in portfolio design and diversification. At least some people own it for justifiable reasons; I can't speak for everyone.



> since 2011 gold has cost you money to own it, that’s 7 straight years of paying out money year after year when the same money in a simple gic ladder would kill gold


Big deal. Stocks were dead money for about 11 years, when it also performed way less than a GIC ladder. For the big picture, in a diversified portfolio, the poor performance of gold for X years is irrelevant, just as the poor performance of stocks for Y years is irrelevant.

All asset classes go through strong and weak periods. Your comment, fatcat, that "a simple GIC ladder would kill" actually gets to the key insight in portfolio design:

There are times when GICs / bonds do best.
There are times when stocks do best.
There are times when gold does best.

That's why you need to hold all of them. *It does not matter* if one of those classes performs poorly for some period of time. If you get hung up on that, you're missing the point of diversification in a portfolio. For example when we hit a stretch where stocks perform worse than bonds for 15 years, it will feel bad, but it also shouldn't deter you from including a stock allocation in your portfolio.

In my early years of investing, I actually made the opposite mistake as fatcat. Starting around 2000, my experience was that my gold and bonds/GICs performed far better than stocks. In my eyes, stocks were the worthless investment. So I know how it feels from fatcat's perspective... it's very hard for people to reason in terms of multiple decades when you repeatedly (for years) see a certain pattern. Back then, stocks looked like dead money. Today gold looks like dead money.

Over time I've realized that you really need to hold all the primary asset classes (stocks, bonds, gold) for best long term results. And yes that will mean that any one of them might do badly for a long time.


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## james4beach (Nov 15, 2012)

Looking at trailing total returns to Feb 3 (morningstar), here's MNT gold bullion versus XBB bonds. The 1 year return is identical for both. Over both 3 years and 5 years, gold returned more than bonds.

Question for the board: is it worth holding XBB ?

And if yes, then how could the performance of gold (MNT) be disappointing, when it actually beat XBB?


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## fatcat (Nov 11, 2009)

james4beach said:


> Gold has demonstrated its value in portfolio design and diversification. At least some people own it for justifiable reasons; I can't speak for everyone.
> 
> 
> u
> ...


but gold is opaque, gold is occult, gold doesn’t respond to anything like fundamentals, gold responds to fear, gold is very hard to measure where stocks and bonds are more fundamental and easier to yardstick 

gold may do well it may not, but there is no real way ro know when gold is useful or not and in the meantime gold costs you money to own, this can’t be overstated

gold may beat stocks and or bonds but it is much harder to predict when that ... might ... happen

there is a reason that 95% of portfolios of big money managers are in 95% stocks / bonds

only a small portion of large portfolio managers own large allocations of gold permanently and there is a reason for that

they may up their portion as needed when they want a hedge but very few of them leave large allocations permanently on the table and there is a reason

money allocated to gold can more profitably and more predictably placed elsewhere ... it is a barbarous relic

ps. it really comes down to allocations, 5% seems perfectly ok to me, but i have yet to see a good argument for more than 5% and i am joined by about 95% of all money managers who would rather put money into more predictable assets


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## james4beach (Nov 15, 2012)

Works for me fatcat. I'd rather not compete with others on this trade. The $65 billion in GLD/IAU/CEF already bothers me. Please go ahead and take your cues from those professionals. You're right, gold is a barbarous relic. Why should it have any value at all? It's almost like the price is driven by psychology, herd behaviour, and central bank intervention.



fatcat said:


> gold may beat stocks and or bonds but it is much harder to predict when that ... might ... happen


You're not _supposed_ to time it. You can't predict when any of these asset classes will outperform the others.


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## GreatLaker (Mar 23, 2014)

This is an interesting article from InvestorsFriend comparing various asset class returns from 1926 to 2016, over the entire period then split into 20 year periods.
InvestorsFriend: Stocks, Bonds, Bills and Inflation and Gold

Stocks massively outperformed over the entire time, and had the best returns over several 20 year sub-periods. Gold did really well in a couple of time periods, due to specific economic circumstances. To me this says diversification with a concentration on stocks has the best chance of outperforming for the long term future, but be prepared for the long-term fluctuations.


There is another interesting article comparing stocks, long bonds and T-bills:
InvestorsFriend: Are Stocks Really Riskier Than Bonds?


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## james4beach (Nov 15, 2012)

The long term amazing performance of stocks is mostly a US phenomenon. Once you look around to other countries the story for equities weakens. Plus, once you add in other countries you start to find local currency problems or even failures -- illustrating the motivations for gold & hard assets.

This is a big problem with the US-centric view to investing that nearly all of us take. When you take a US-centric view, it's hard to see the value of gold in a portfolio. Because Wall Street is the heart of the global financial industry, we hear their philosophy, which is (currently) to load up on equities and not bother with other assets. This comes from historical American returns.

Even if the US continues on that amazing trajectory, we're in a different country. I take a more global view of investing and it shows me different prospects for stocks / bonds / gold than the Wall Street view. And while 5% may be a sensible gold allocation in the US, I think in countries like ours higher levels make sense.

Both myself, and Argonaut -- a very experienced investor who's demonstrated a great portfolio over the years here -- hold a 20% weight in gold.


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## fatcat (Nov 11, 2009)

GreatLaker said:


> This is an interesting article from InvestorsFriend comparing various asset class returns from 1926 to 2016, over the entire period then split into 20 year periods.
> InvestorsFriend: Stocks, Bonds, Bills and Inflation and Gold
> 
> Stocks massively outperformed over the entire time, and had the best returns over several 20 year sub-periods. Gold did really well in a couple of time periods, due to specific economic circumstances. To me this says diversification with a concentration on stocks has the best chance of outperforming for the long term future, but be prepared for the long-term fluctuations.
> ...


this is precisely it ... 5% is fine but if you stay with stocks and bonds which are more predictable and much much easier to measure, you will do fine and you will understand your assets much better ... look at buffet, he just ignores gold completely and his success is well known

to carve off 20% and have it sit as dead money (again, you have to pay to own gold) until all of a sudden gold is doing well is not a strategy i could endorse

this won’t convince james or any other lover of gold because gold is more than money to some people .... gold is a symbol that exerts a powerful influence on the psyche

gold is a relic of a financial system that lacked computers, blockchains and cryptography ... it will never be used as money again, it can’t be used as money again because it is insufficient for the demands of the modern world

james, look at your misgivings with GLD, CEF and the rest, you should have misgivings, is the gold there or not and if all hell breaks loose will you have access or not ?

for armageddon there is a better case to made for bitcoin (lost passwords notwithstanding) than there is for gold


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## fireseeker (Jul 24, 2017)

fatcat said:


> gold is a relic of a financial system that lacked computers, blockchains and cryptography ... it will never be used as money again, it can’t be used as money again because it is insufficient for the demands of the modern world


Or, perhaps, buy at maximum pessimism?


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## fatcat (Nov 11, 2009)

fireseeker said:


> Or, perhaps, buy at maximum pessimism?


precisely the point, there is no way to even understand what “pessimism” is with regard to gold ... gold is a black hole of fear and confusion


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## james4beach (Nov 15, 2012)

fatcat said:


> precisely the point, there is no way to even understand what “pessimism” is with regard to gold ... gold is a black hole of fear and confusion


How quickly we forget 2001 and 2008 (with respect to stocks).

All these asset classes become black holes of fear and confusion when they're in bear markets. The key to diversification is to ensure that your whole portfolio isn't susceptible to that.


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## fatcat (Nov 11, 2009)

james4beach said:


> How quickly we forget 2001 and 2008 (with respect to stocks).
> 
> All these asset classes become black holes of fear and confusion when they're in bear markets. The key to diversification is to ensure that your whole portfolio isn't susceptible to that.


well, we can agree on diversification james, where and how is another story


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## Onagoth (May 12, 2017)

fatcat said:


> gold is a relic of a financial system that lacked computers, blockchains and cryptography ... it will never be used as money again, it can’t be used as money again because it is insufficient for the demands of the modern world


Don't tell that to the central banks of Russia, India and China


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## Karlhungus (Oct 4, 2013)

james4beach said:


> Gold has demonstrated its value in portfolio design and diversification. At least some people own it for justifiable reasons; I can't speak for everyone.
> 
> 
> 
> ...


When looking at long term results - it does matter. It depends what you mean when you say "for best long term results". If you are talking about total return, then I would have to disagree. Holding gold will just drag down your returns. If you spread out your money into Stocks, Bonds, Gold etc you will sacrifice return.


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## fatcat (Nov 11, 2009)

Karlhungus said:


> When looking at long term results - it does matter. It depends what you mean when you say "for best long term results". If you are talking about total return, then I would have to disagree. Holding gold will just drag down your returns. If you spread out your money into Stocks, Bonds, Gold etc you will sacrifice return.


of course it is a drag on results

i looked a two of the more well known hedge fund managers that are known to like gold, john paulson and ray dalio, just to find out how much gold they actually hold, and they hold gold as follows:

paulson: $534,000,000.00 on assets of 18 billion for about 2.97% of assets
ray dalio: $626,959,000.00 on assets of about 100 billion for about .61% of assets


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## lonewolf :) (Sep 13, 2016)

Karlhungus said:


> When looking at long term results - it does matter. It depends what you mean when you say "for best long term results". If you are talking about total return, then I would have to disagree. Holding gold will just drag down your returns. If you spread out your money into Stocks, Bonds, Gold etc you will sacrifice return.


 Gold has been used for thousands of years how many bonds & stocks have traded that long ? Long term gold will still be used when the Canadian & US governments have defaulted on their bonds & the S&P no longer trades.


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## james4beach (Nov 15, 2012)

I'm aware of the criticisms that my 20% gold allocation is too much. I've researched it extensively and believe me, I don't take my asset allocation decisions lightly.

Here's a presentation from a wealth management team at National Bank of Canada, under a Portfolio Manager with $300 million of client assets:
https://www.youtube.com/watch?v=SIPf6Anuch0

Their model portfolio is extremely similar to mine: 20% gold, 30% equity, 50% bonds. So if my allocation and Argonaut's doesn't mean much to you, we also have this mainstream Canadian asset manager who endorses the same gold exposure.

I think anywhere from 10% to 25% gold is a sensible weight.


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## fatcat (Nov 11, 2009)

james4beach said:


> I'm aware of the criticisms that my 20% gold allocation is too much. I've researched it extensively and believe me, I don't take my asset allocation decisions lightly.
> 
> Here's a presentation from a wealth management team at National Bank of Canada, under a Portfolio Manager with $300 million of client assets:
> https://www.youtube.com/watch?v=SIPf6Anuch0
> ...


first, you are a smart guy, i respect your choices since you know what works for you as i do for me

but i cannot for the life of me fathom a portfolio with a 40 year time horizon (you are 35? and lets pick 75 as the end point for the main investing horizon) devoted to an asset like gold which is absolutely occult in its behaviour, it simply doesn’t respond well to any of the known investing guidelines like fed rate, employment, inflation rate, earnings and so on

it is very, very hard to predict how and when gold will be useful ... *and it costs money to own* ... this can’t be overstated ... for long unpredictable periods of time gold is just dead money

50% to bonds over 40 years ? they don’t even compare to stocks over any 40 year period you can come up with

an all stock portfolio will simply outperform over any 40 year period 

you have effectively a savers portfolio james, which is perfectly fine and has served many investors well, it works for you ... and that is what matters

if a 35 year old asked me what to do with their money i would say put 80-85 percent into all equties and 15-20% into bonds and cash mainly to be able to buy on dips ... assuming they weren’t a saver and ultra conservative as you are and then i would say do what you are doing, get some growth with stocks and sleep well at night knowing you are going to survive the downturns 

what possible scenario is going to stop equities, which are the goods and services we all need and want every day of our lives, from being good investments for 40 years ?

nothing even remotely forseeable other than planet wide catastrophe and then all bets are off on what to own ... 

no, wait, in that case, i would put all my money into antibiotics


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## fireseeker (Jul 24, 2017)

fatcat said:


> it simply doesn’t respond well to any of the known investing guidelines like fed rate, employment, inflation rate, earnings and so on


I'm pretty sure this is precisely what James finds attractive about gold.


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## fatcat (Nov 11, 2009)

fireseeker said:


> I'm pretty sure this is precisely what James finds attractive about gold.


of course, it’s the black swan asset, but two things: we don’t even know if, going forward, it will continue to be the black swan asset especially with regard to the rise of cryptos which unarguably are affecting the ownership of gold and 2) as a black swan asset 5% will probably do the job and the other 15% can be put to more productive use in the meantime

if you are going to build a portfolio built primarily for disaster then you are better off just going all gic’s which are predictable, straightforward, easy to manage and so on ... and maybe keep 5% gold for inflation

show me a big money manager with a good track record who has more than 5% in gold, none of the well known standout names do, buffet doesn’t, david einhorn, ray dalio, george soros, none of these guys allocate anything like 20% to gold, many of them go in and out of gold for insurance but as a non-trading asset, they simply don’t own that much gold

there is a reason the permanent portfolio is a boutique strategy favoured by quasi gold bugs

whichbis not to say it may not be perfect for you or james or anyone else


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## james4beach (Nov 15, 2012)

fatcat, what I'm going for is stability and low volatility of the overall portfolio. The gold allocation achieves that due to the diversification into a new asset... the portfolio with 10% or 20% gold is far more stable than say 60/40.

I may have 40 years of investment ahead of me, true, but that's not when I will be pulling out the money. If I buy a house (very likely) I will be liquidating a huge % of my investments. I don't think it makes sense for me to take high equity risk with high vulnerability to sharp drawdowns when my time horizon for this money storage is only on the 5 to 10 year horizon. Additionally, the type of work I do does not provide job security and continuous paycheques over the years. I benefit from stability in my net worth because I frequently do live off my savings.

These short time horizons I have, and frequent needs to withdraw from savings, is not appropriate for the kind of allocations that you would endorse. Having additional portfolio stability with a gold component, even if it means lower returns, is suitable for my scenario.



> an all stock portfolio will simply outperform over any 40 year period


This is just not true. You are speaking with hindsight, looking back at American and Cdn stocks, which I should remind you are pretty much the best performing stock markets in the whole world. Going forward 20 or even 40 years, it is not guaranteed that stocks will dramatically outperform fixed income. There is a high likelihood, but it's not a sure thing.

By the way, I know other young people beside myself. Many of them start investing with the kind of philosophy you talk about (very high equities for great long term outcomes) but then ... uh oh ... they find they need to access that money in just a few years. I've seen this happen countless times. Very few people really have a 40 year time horizon.

My gold & permanent portfolio style is an acknowledgement that I probably don't have a 40 year time horizon for the portfolio. I want more stability and more consistent returns over shorter periods. Heck, I may have to liquidate all my investments in just a few years if I buy a house.

I have enough experience in the investment sphere to see how this plays out. There's the pitch made in the books, "invest for the long term", but that's not what happens in reality, especially not for people my age.

If I already had a house, and a very stable job (like a boomer) then it would be a different story.


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## Onagoth (May 12, 2017)

fatcat said:


> of course, it’s the black swan asset, but two things: we don’t even know if, going forward, it will continue to be the black swan asset especially with regard to the rise of cryptos which unarguably are affecting the ownership of gold and 2) as a black swan asset 5% will probably do the job and the other 15% can be put to more productive use in the meantime
> 
> if you are going to build a portfolio built primarily for disaster then you are better off just going all gic’s which are predictable, straightforward, easy to manage and so on ... and maybe keep 5% gold for inflation
> 
> ...


You speak about asset allocation as if it is a hard a fast science....but it isn't. There is no reason to believe that 5% gold is anymore or any less appropriate than 15%, or 0%. It's all up to the individual investor and their assessment of risk and return.

And GICs aren't necessarily superior to gold in a disaster. GICs return their value in dollars...and you'd better believe the official inflation stats if you're fine with the GIC/gold trade off. BEcause according to many including shadowstats....inflation isn't anywhere near it's official headline rate and that is one of many key reasons to hold gold. Also, no investor out there seems to think that the Canadian or US government would default on bonds, but it could happen, and it could be quite negative for the currency that those GICs are denominated in.

All the names you mention are nothing more than an appeal to authority. None of them know the future and their portfolios aren't always going to be reasonable for anyone who finds themselves at odds with the current financial system (over-reliance on debt and low interest rates). I for one, find no comfort in anything they say. Even someone like buffett who is famous for saying "our famous holding period is forever" didn't seem to mind dumping is highly questionable home capital stake after like 18 months.

No other asset class in the world has a history or reference period as long as gold. And I could very easily argue that cryptos won't change this.


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## fatcat (Nov 11, 2009)

onagoth, with respect, you’re a gold bug, which is perfectly fine, gic’s get killed by inflation, in a catastrophe who knows whether the government will pay back its bonds or guarantee its gic’s, stock can sink into the floor but gold aint going nowhere ... 

assuming you physically have it and are guarding it and going to the massive hassles to actually own the stuff ... or do you let someone else own it for you ? like GLD or CEF ... hmmm, will it be there when you need it ? hmmm ? lets hope so, or do we stuff the safe deposit box and hope the government doesn’t lock us out ... or maybe bury it the backyard and assume nobody ever gets wind and comes over in the middle of the night when we are on vacation 

james, you are completely changing the game by mentioning that you want to buy a house, i assumed you were a lifelong renter, in that case, i would shorten the time horizon and get completely out of gold and maximize returns with good corporate bonds to have money to get the house

then buy the house, then buy the gold to bury in the back yard of your new house, maybe compromise and go with 10% :cheerful:

ps. here is the nyu/stern schools (a standout and well respected business school) running tally of stocks and bonds as investment vehicles

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html


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## Onagoth (May 12, 2017)

fatcat said:


> onagoth, with respect, you’re a gold bug, which is perfectly fine, gic’s get killed by inflation, in a catastrophe who knows whether the government will pay back its bonds or guarantee its gic’s, stock can sink into the floor but gold aint going nowhere ...
> 
> assuming you physically have it and are guarding it and going to the massive hassles to actually own the stuff ... or do you let someone else own it for you ? like GLD or CEF ... hmmm, will it be there when you need it ? hmmm ? lets hope so, or do we stuff the safe deposit box and hope the government doesn’t lock us out ... or maybe bury it the backyard and assume nobody ever gets wind and comes over in the middle of the night when we are on vacation
> 
> ...


I wouldn’t say I’m a gold bug. Certainly I try not to be passionate about it. I like gold for several reasons most of which is that it has no counter party risk (when owned physically) and behaves differently from other asset classes. This is also why I’m opetimistic about crypto’s 

In a better world, gold would be mostly irrelevant. I wish I didn’t need it but given my world view, it’s a requisite


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## james4beach (Nov 15, 2012)

fatcat said:


> ps. here is the nyu/stern schools (a standout and well respected business school) running tally of stocks and bonds as investment vehicles
> 
> http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html


fatcat, we have different philosophies. Here's mine:

I know the historical returns. *But this is hindsight... it has absolutely no predictive value for the future*. IMO there is a culture of high equity ownership these days that is based on the hindsight observation of amazing trailing returns. Everyone is chasing past performance. It is hindsight for one particular country, which let us remember, is a country that rose to become a world superpower with the greatest economic growth in human history (Canada was along for the ride, which is why we've also had great equity performance).

Going forward is a completely different question. Sure, US stocks did great as America rose to become a world superpower. But what are the returns going forward?

My philosophy is: I don't know which asset will perform best. It could be stocks, could be bonds, could be gold, could be real estate. Pick a time period (10 years, or 30 years, whatever) and any one of these could beat the pants off the others. Even as recently as 1960-1980, bonds and gold outperformed stocks. There are countless countries in which gold outperformed stocks by virtue of not imploding with the domestic currency (Iceland, Argentina, Japan). Stocks don't even have that long a history; this common stock ownership by everyone is a relatively modern phenomenon.

Heck, there are only two highly developed countries with major common equity markets, with lots of public participation in modern times: USA and Japan. That statement alone should instantly remind you that stocks are not a sure thing. Japan's stock market went nowhere for something like 32 years! And yet, it's instantly dismissed by anyone who's trying build the case for high equity allocations. ("Oh you can't look at Japan, their market was extremely overvalued, an unfortunate fluke")

All of my chosen assets (stocks, bonds, gold) have the potential to be a great performer over my time horizon. There are cases and precedent for each of them! If the current regime continues, stocks will perform great, bonds will return less, gold might do nothing. But that's just one of many potential outcomes.

The heavy equity allocations that are popular today (like 60% or 70% stocks) are *very* heavy bets on a particular outcome. It's a strong gamble in a single asset class, stocks, even though "great stock outperformance" is not a sure thing. People like you talk about it as a sure thing, but it definitely is not. It _may_ turn out to be the case... it could be that stocks are again the winner for the next 40 years. In which case, congrats in advance!

Or it could turn out that bonds and GICs have the best performance, which certainly was the case from 2000 - 2012 in Canada.

I choose to make a more diverse bet. I have no idea whether stocks, bonds, or gold will be the best performers over my investment time horizon. So I hold some amount of each, in *classic* diversification. Why would I only bet on a single asset when I can bet on several that have solid cases?


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## james4beach (Nov 15, 2012)

And some relevant data. Here are CAGR performances since inception of two really important iShares funds. They're important because they cover two of the biggest equity markets in the modern era, and also illustrate that even long periods (20 to 22 years) do not assure high returns in stocks.

iShares S&P 500 returned 4.94% since inception in 2000.
iShares Japan returned 0.41% since inception in 1996.

They were created when the investments were popular and there was strong demand for them. Think of all the eager investor $ that poured into these at the time... and let's pretend they had the self discipline to buy and hold (which they most certainly did not).

That's 2.7% CAGR for these 20+ year stock investments. This is really worth thinking about.

But you're going to say I'm cherry picking and finding bad looking results, right? And let me guess, when you choose a lower starting point, I suppose that's _not_ cherry picking. Let's remember these giant iShares funds exist because there was investor demand for them. They were created when money wanted to pour in. So the performance since inception is important... it is representative of the kind of experience real people get in real stocks.

And that real experience is pretty bad. 2.7% CAGR for 20+ years. Those investors would have done far better in bonds or GICs.

My advice: don't get overconfident about stock returns, even over multiple decades.


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## cainvest (May 1, 2013)

james4beach said:


> And that real experience is pretty bad. 2.7% CAGR for 20+ years. Those investors would have done far better in bonds or GICs.
> 
> My advice: don't get overconfident about stock returns, even over multiple decades.


Mawer 104 returned 8.2% since inception in 1988, 10 year 10.18, 15 year 7.52 ... just saying


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## james4beach (Nov 15, 2012)

cainvest said:


> Mawer 104 returned 8.2% since inception in 1988, 10 year 10.18, 15 year 7.52 ... just saying


Those are great returns. Depending on the timeframe and the manager's skill (or luck) the outcomes can be very different. Yeah, if you start close to the beginning of the bull market, you get a good result.

What I was pointing out is that there is no assurance that stocks provide you with a high return. If it was assured, then 20-23 years invested in the _two largest stock markets_ in the world, with low fee index funds, would have given a good return. Instead it gave less than 3%... proof that good returns in stocks, or beating fixed income, is not guaranteed.

The MAW104 example also illustrates the survivor bias, another chronic problem in investing. Why didn't you cite one of the giant Pacific or Asian mutual funds, carrying billions of dollars? There used to be tons of these and it's easy to forget how popular those investments were. Nobody cites them because their performance was terrible due to Japanese performance. Today in 2019 when we look back, there is a tendency to focus on the best examples and use them as an argument for the merits of stock investing. But we are forgetting about all the other terrible outcomes, mutual funds that have since been dissolved, that nobody talks about.

Let's say hypothetically that the S&P 500 performs terribly over the next 30 years. Very possible. Well in 2049, some other index fund will be popular. It will have turned out that Brazil was the stellar new global performer. Commentators on forums like this one will be citing the ScotIBC Brazil Empire fund with trailing 30 year return of 15% arguing that this is why everyone should invest in stocks. The obvious couch potato portfolio mix will be 30% Canada and 70% Brazil (because obviously you should be heavily invested in the world superpower). Only an idiot would have invested in the old superpower, the USA, past its prime.

They won't be citing the S&P 500, and they won't be talking about all the underperforming investments, funds, and ETFs. *And most importantly, stock enthusiasts in 2049 will not be talking about the actual performance realized by stock investors who started in 2019*. The usual survivor bias and hindsight bias, it's everywhere in the investment world... just human nature.


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## lonewolf :) (Sep 13, 2016)

As income goes up the value the added income adds to ones life decreases. If a person is creative As income rises there will become a point when more income adds no value to their life. To me it makes no sense to go for income beyond that point & put @ risk losing it all. A less greedy plan would be to put some money into gold in case the system falls apart & you would then still be able to live the life of Reilly spending the gold.


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## cainvest (May 1, 2013)

james4beach said:


> What I was pointing out is that there is no assurance that stocks provide you with a high return.


I believe the majority of investors know there isn't any guarantee investing in stocks or gold,bonds,GICs,etc for that matter. Of course this is why we diversify our portfolios to what we feel comfortable with, some more than others. Without a crystal ball or time machine you're going to have to assume *some risk* because there are a thousand ways this can play out over the next 40 years. Having some gold on hand many not be a bad idea but 10% of your portfolio isn't going to save you if things get real ugly.

BTW, I picked Mawer 104 because I bought some recently doing my yearly portfolio balancing, so it was info that was still in my head. Hope those returns last for another 20 years!


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## fatcat (Nov 11, 2009)

james4beach said:


> fatcat, we have different philosophies. Here's mine:
> 
> I know the historical returns. *But this is hindsight... it has absolutely no predictive value for the future*. IMO there is a culture of high equity ownership these days that is based on the hindsight observation of amazing trailing returns. Everyone is chasing past performance. It is hindsight for one particular country, which let us remember, is a country that rose to become a world superpower with the greatest economic growth in human history (Canada was along for the ride, which is why we've also had great equity performance).
> 
> ...


we need to clarify something james, you say that your chosen assets (stocks, bonds, gold ... exactly what i have also) have the potential to perform over your time frame but at the same time you tell me that you want to buy a house 

these are two mutually exclusive aims ... if you want to buy a house you should be setting a time frame to buy and then honing in on that time period like a laser to raise the cash ... so, as is often the case since you write about your asset mix so much, i am just confused

i completely agree 100% that having a broad range of assets to cover as many future possibilities is very smart investing but i don't think that future possibilities are all equal, the chance that gold will go to 10K in a germany style inflation event is not the same as the chance that stocks will tank for 5 or 10 years

you are over-preparing with gold and again, a 20% allocation ... which you have to pay to hold ... is dead money, especially if you want to buy a house which i assume you want to do within the next 5-10 years, so you don't have a 40 year horizon for all events to equal out

regards the returns of the s and p i use the nyu-sloan chart since it is a very respected business school, using it and including dividends i get 9.3% a year since 2000 for the sp 500, your 4.94% is just wrong

finally, equities occupy a unique place in the asset world because everything else is derived from them, equities are basically goods and services, bonds are sold by companies that provide goods and services and government bonds are sold by governments collecting taxes from people who work at the very same companies

if equities fail then bonds, of all kinds, are going to fail, so this alone justifies a higher exposure to equities

equities, the companies that provide the goods and services we all need and use, are the prime asset


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## james4beach (Nov 15, 2012)

fatcat, I think you might not be getting the portfolio design aspect of adding gold into the asset mix. Yes, stocks on their own are not appropriate for my time frame (with house purchase etc). Gold on its own is not appropriate for my time frame. But the resulting asset *mix* behaves in a way that is appropriate for my time frame. It has low volatility and high reliability of annual returns -- this is what I want as a consulting engineer who sees wild swings in my income (0K - 200K) who sometimes adds to savings, sometimes lives off savings, takes time off, etc.

Here are the historical annual returns of my model portfolio (30% stocks, 50% bonds, 20% gold)


```
1997,	9.3%
1998,	10.1%
1999,	2.8%
2000,	3.9%
2001,	0.9%
2002,	4.0%
2003,	7.2%
2004,	5.8%
2005,	9.8%
2006,	11.7%
2007,	4.1%
2008,	0.5%
2009,	9.9%
2010,	11.0%
2011,	6.2%
2012,	5.4%
2013,	2.4%
2014,	11.0%
2015,	4.7%
2016,	6.1%
2017,	5.7%
2018,	1.2%
```
Surely you can see the appeal here. Why the confusion? This ^ behaviour appeals to me and suits my needs. It's awfully consistent year to year, it does not show the highest returns but it shows a consistent return, and it does well during bear markets. It has low volatility and low emotional effect. What is not to love about this?

Most investors would kill for such consistent returns. It's great for anyone who makes arbitrary withdrawals. The series above works out to 6.0% annual return, after ETF fees (and yes after the cost of holding gold)... a solid positive real return. What is not to love?



fatcat said:


> if equities fail then bonds, of all kinds, are going to fail, so this alone justifies a higher exposure to equities


That's faulty logic. There are many periods in history, even in the US, where equities did poorly for a long stretch of time and bonds did just fine. It's not the end of the world if equities perform badly. Other assets can, and do, perform better when that happens.


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## Karlhungus (Oct 4, 2013)

James it is useless to point out that we are using historical stock returns for future planning when you are doing the exact same thing with gold. You have no idea how gold is going to perform in the future - you are basing it on past results.


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## james4beach (Nov 15, 2012)

Karlhungus said:


> James it is useless to point out that we are using historical stock returns for future planning when you are doing the exact same thing with gold. You have no idea how gold is going to perform in the future - you are basing it on past results.


I'm showing that even if you play the same game as fatcat, with historical returns, that a portfolio with a significant gold allocation produces a desirable effect. So if we believe that historical returns are somewhat predictive, _you still want gold_. fatcat has ideological problems with gold, and uses historical numbers to argue for high stock allocations, but even those historical numbers support a gold weighting.

And yes, we don't know how anything will do in the future. All of this is a gamble. Given that uncertainty, I'd rather diversify into multiple asset classes instead of pinning the entire future outcome on just stocks.

Either way you look at it, some % gold is good for the investor. Whether you take the historical returns seriously or not, the argument for gold remains.


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## cainvest (May 1, 2013)

james4beach said:


> I'm showing that even if you play the same game as fatcat, with historical returns, that a portfolio with a significant gold allocation produces a desirable effect.


Gold can provide gains, no doubt. Also good to note that from 2000 to 2012 gold had a great bull run. The twenty years previous to 2000 were not so kind for gold returns showing a significant loss.


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## Karlhungus (Oct 4, 2013)

james4beach said:


> I'm showing that even if you play the same game as fatcat, with historical returns, that a portfolio with a significant gold allocation produces a desirable effect. So if we believe that historical returns are somewhat predictive, _you still want gold_. fatcat has ideological problems with gold, and uses historical numbers to argue for high stock allocations, but even those historical numbers support a gold weighting.
> 
> And yes, we don't know how anything will do in the future. All of this is a gamble. Given that uncertainty, I'd rather diversify into multiple asset classes instead of pinning the entire future outcome on just stocks.
> 
> Either way you look at it, some % gold is good for the investor. Whether you take the historical returns seriously or not, the argument for gold remains.


Again, it depends what you mean when you say "desirable effect". Holding gold, will not give you maximum returns over time. We can either go by historical returns or not, and if we are, gold on average will give you the 3% per year. I dont agree that some % is good for the investor. What is the point of holding gold? If its to reduce volatility, then you might as well go fixed income. I cant see any reason why someone would hold gold in a portfolio.


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## james4beach (Nov 15, 2012)

Karlhungus said:


> Again, it depends what you mean when you say "desirable effect". Holding gold, will not give you maximum returns over time. We can either go by historical returns or not, and if we are, gold on average will give you the 3% per year. I dont agree that some % is good for the investor. What is the point of holding gold? If its to reduce volatility, then you might as well go fixed income. I cant see any reason why someone would hold gold in a portfolio.


I thought I showed it very clearly in post#38. You don't hold it for the absolute performance, you hold it for the diversification effect and volatility reduction for the portfolio. For someone who wants consistency in returns and lower volatility, that resulting portfolio is superior to an all equity portfolio and it's also superior to a 60/40 portfolio.

Going all fixed income is another way to get stability. However, the mix of stocks + bonds + gold provides higher returns while still achieving low volatility.


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## cainvest (May 1, 2013)

james4beach said:


> Going all fixed income is another way to get stability. However, the mix of stocks + bonds + gold provides higher returns while still achieving low volatility.


Just curious as to why you think gold has low volatility, I'm seeing swings of over +/- 25% in recent years.


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## fatcat (Nov 11, 2009)

james, james, james ... you say that i am playing a game with historical returns when, my god man, you are the back-tester extraordinaire 

a cursory glance at your posts show that you love to backtest, in fact, one of the problems i have following you is that you post so damn many numbers on so many hypothetical portfolios

we actually agree on the most important parts here james: you can't predict the future so be invested broadly, own some stocks, some bonds, some growth stocks, some dividend stocks, own across at least 7 or 8 stock sectors, have some rock solid gic's, have some bonds so you stay liquid, have a diversified portfolio that will try and weather as many scenarios as possible

we are in complete agreement here

where we part company is the amount of gold to own, 5% seems fine to me, and is a number that many portfolio managers recommend but anything over that does not seem wise to me at all

but you are you and you are a smart guy so if you want to put 20% into gold be my guest

i just saw a really sobering youtube on the debt in china right now and wow, if that thing pops and takes the rest of the world with it, you will be proven very wise


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## fatcat (Nov 11, 2009)

one more thing james. doesn't this chart scare the crap out of you ?

gold was dead money from basically 1980 to 2008, thats 28 straight years of ... paying .... to own an asset


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## james4beach (Nov 15, 2012)

It doesn't scare me in the least, fatcat, because I'm looking at the overall portfolio's behaviour -- not one component's. The historical data shows that a gold weight was beneficial over that period, for the characteristics that interest me.

From 1980-2008, the portfolio mix which I currently invest with (20% gold) using US data, returned 9% annually, just about 1% less than a traditional 60/40. It exhibited milder declines and its worst year was only -5% versus -14% for the 60/40. Overall it was a smoother experience for the investor, plus it had embedded insurance against currency collapse which 60/40 does not offer.

If that's the "horrible result" looking at the worst period for gold, I think I'm good. Even in the greatest bull period for stocks, and worst period for gold, the portfolio that includes gold shows less risk and volatility. And is more diverse. What a huge win! fatcat surely you are lining up to buy gold right now.


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## fatcat (Nov 11, 2009)

james4beach said:


> It doesn't scare me in the least, fatcat, because I'm looking at the overall portfolio's behaviour -- not one component's. *The historical data shows that a gold weight was beneficial over that period, for the characteristics that interest me.*
> 
> From 1980-2008, the portfolio mix which I currently invest with (20% gold) using US data, returned 9% annually, just about 1% less than a traditional 60/40. It exhibited milder declines and its worst year was only -5% versus -14% for the 60/40. Overall it was a smoother experience for the investor, plus it had embedded insurance against currency collapse which 60/40 does not offer.
> 
> If that's the "horrible result" looking at the worst period for gold, I think I'm good. Even in the greatest bull period for stocks, and worst period for gold, the portfolio that includes gold shows less risk and volatility. And is more diverse. What a huge win! fatcat surely you are lining up to buy gold right now.


i need to understand what the above bolded part means

gold "weight" is beneficial, so it hedges against something ? down years in stocks ? inflation ? what ? ... what does it do ? ... what is the "characteristic" that interests you ?

in a hypothetical all stock portfolio vs a permanent portfolio the hedging aspect of each component becomes useful year by year but by no means does this mean that the overall portfolio will do nearly as well as stocks on a long horizon

sure gold may have a better year than stocks or bonds from year to year

but remember we are holding for 40 years so stocks can have good and bad years and still come out way ahead, as long as you are holding for the long ride, why do you even need gold ?

in other words, you don't need the ballast that gold provides on that time horizon especially when you risk long periods of dead money

the sp 500 has never had more than 3 straight losing years and that was from 1929 to 1932 when it had 4 ... you can point to japan's market which has been dead for 28 years (but still paid dividends) and say that gold is insuring against that but that is a complete outlier and the price you are paying (15% extra in gold) seems to me not worth the hedge for such a possibility

ps. you can say you need gold to smooth the ride so when you are ready to buy a house you will have the capital but that is really the wrong way to go about it, make your move, decide what you want to buy, how much you want to spend and then hone in on that goal with all your resources

and then go back to your long horizon

you seem to me to be rather undecided, you are sort of in for the long haul but sort of want to have money for a house, right ?


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## james4beach (Nov 15, 2012)

The bolded portion, when I say "beneficial" means: reduces volatility, reduces periods of declines. I consider the ballast and smoothing to be beneficial.

fatcat, I can rephrase what you're asking as: why hold any bonds? Why would you want any stability or smoothness to your portfolio, if you're holding for 40 years and stocks will perform best?

I have two answers:

1. most people (maybe not you) prefer less volatility in their investments and more stability
2. stocks may not actually perform the best over 40 years, so it's dangerous to put all your bets on stocks

Or let me flip the question on you. If you are so certain that stocks will perform best over 40 years, why hold back? You should find the most aggressive, highest beta stock exposure ... a small cap index ... borrow and leverage up, and just proceed for 40 years with a leveraged small cap bet.

fatcat, literally every year, you should be buying calls on SPY. Maximum leverage, maximum bullishness on the asset (stocks) you are certain will do great long term.

You're telling me that stability, temporary declines, and the risk that stocks do poorly don't worry you at all. You are completely sure that stocks provide the best return for 40 years. If that's your viewpoint, and aren't concerned with volatility, then just leverage up and "go for broke".



fatcat said:


> but remember we are holding for 40 years so stocks can have good and bad years and still come out way ahead


Stocks may or may not come out ahead after 40 years.


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## lonewolf :) (Sep 13, 2016)

fatcat said:


> the sp 500 has never had more than 3 straight losing years and that was from 1929 to 1932 when it had 4 ... you can point to japan's market which has been dead for 28 years (but still paid dividends) and say that gold is insuring against that but that is a complete outlier and the price you are paying (15% extra in gold) seems to me not worth the hedge for such a possibility
> 
> p


The S&P 500 was not around from 1929 1932. The S&P 500 was introduced March 4 1957

If you use an index with a longer track record such as the DJT if memory is correct there was a time in history where the DJT was lower about 70 yrs after an important top.

Smoke & mirror games are played to make stocks look like they perform better then they really do i.e., in 1928 the DJI divisor was 16.67 not sure what the divisor is now Sept 1 2017 the divisor was @ .1452


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## fatcat (Nov 11, 2009)

james4beach said:


> The bolded portion, when I say "beneficial" means: reduces volatility, reduces periods of declines. I consider the ballast and smoothing to be beneficial.
> 
> fatcat, I can rephrase what you're asking as: why hold any bonds? Why would you want any stability or smoothness to your portfolio, if you're holding for 40 years and stocks will perform best?
> 
> ...


i have no idea how you got the impression that i don’t want to hedge against volatility, i certainly do 

but if i were 35 i would have a 90% stock portfolio probably the sp 500 and some europe and emerging markets and some small amount of cash / bonds and be done with it but i just turned 70 brother and a serious downturn in the market, for even 5 years would kill me if i were in all stocks since i need to withdraw money, it could be a death spiral ... i follow the old maxim of a percentage of bonds equal to your age (which only makes sense after about 50 maybe)

in your case i have a hard time seeing the value of “smoothing” if you are in the market for 40 straight years 

we certainly cannot predict the future but we do know that neither bonds nor gold has come close to stocks for any 40 year period in the last 90 odd years, so while there is no guarantee, we make the smartest bet we can

as borrowing to buy stocks and using options that a whole different game from the average investor whose primary income is their work, their trade, it requires expertise and time that a fulltime worker doesn’t have

i am merely saying that a young person with a long time horizon has the best chance of good returns by holding an all (say 90%) stock portfolio, there is no guarantee, as there is for no investment strategy but it gives you the best chance and diverting 15% (we agree on 5 and are arguing over the next 15, right ? ) to gold simply will provide a drag on returns, once again for the one-thousandth time, gold pays you nothing and have to pay to own it

the answer to our debate is simple, you need to come out of the closet and admit you are a saver 
nothing wrong with that, at some point, i see myself having a 10% stock portfolio and 90% in gic’s

we all need to invest in a manner consistent with our values, our risk tolerance and our goals, you have said you want to buy a house and that your income varies a lot which absolutely gives you cause to be concerned about portfolio smoothing and capital access and availability

i would just say that even government bonds in place of 15% in gold would provide better smoothing even if you miss the gold up movements you will more than make up for it in income earned and peace of mind

gold never gives peace of mind right ? it always causes worry because we never know if we really have it or whether we will really keep it


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## lonewolf :) (Sep 13, 2016)

fatcat said:


> but if i were 35 i would have a 90% stock portfolio probably the sp 500 and some europe and emerging markets and some small amount of cash / bonds and be done with it but i just turned 70 brother and a serious downturn in the market, for even 5 years would kill me if i were in all stocks since i need to withdraw money, it could be a death spiral ... i follow the old maxim of a percentage of bonds equal to your age (which only makes sense after about 50 maybe)


 About 3.3 % different the the current AAII portfollio cash allocation. The current AAII cash allocation is 13.3% The low prior to that was The Jan 2018 peak @ 13% which was the lowest since the dot com top in 2000. The 2002 low the cash allocation was 39%. @ the 2009 low American association of individual investors (AAII) was @ 44.8% cash


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## hfp75 (Mar 15, 2018)

cainvest said:


> Gold can provide gains, no doubt. Also good to note that from 2000 to 2012 gold had a great bull run. The twenty years previous to 2000 were not so kind for gold returns showing a significant loss.


Gold had marginal value while economic conditions were NORMAL. I wouldn't say now that economic conditions are NORMAL. China is the Greece/Italy of asia, the US Fed will print money again in the next recession - more than last time due to so little room to stimulate with interest rates. Economic measures to maintain stability are really reduced/compromised and there is concern over this. Golds historical capacity as currency is being appreciated..... it is a currency that has less (yes less, not none) manipulation. Plus, everyone on the planet knows what gold is.



cainvest said:


> Just curious as to why you think gold has low volatility, I'm seeing swings of over +/- 25% in recent years.


I dont think the intent was to say that Gold has low volatility. It balances a portfolio to have lower volatility.... Macro not Micro here...

* All these retrospective comparators are kinda pointless. Our economy needs to be sliced up ... there is normal Govt/Central bank activities and there is the last decade. From 2008 -> last fall any idiot could have made a bunch of cash by buying almost any US index ETF. The debt generation to stimulate was amazing - this is not NORMAL and now we are stuck with all this DEBT !!! Iceland almost went under as a country due to debt, the PIGS are gonna flounder here again and low and behold China has a ballooning problem, even the US national and corporate debt is a problem, how on earth will it ever be paid back ? How will our NOW society pear back the deficits that are everywhere... our City budget is in deficit, our Provincial budget is in deficit, and our Federal budget is in deficit and we aren't in a recession. 

Our debt load and the speed at which we are acquiring more is unprecedented as you compare backwards over time. I know someone will say there was a point where debt load was high vs gdp but gdp will always just go up which really just validates more debt, or minimizes the high debt we are currently carrying. BUT, But what if the next recession is a bad one, wouldn't that make our debt to gdp also very bad ? validating small debt is easy validating massive debt is pointless.

Debt is the problem and will lead to currency devaluations. That will make Gold your BEST friend. There needs to be a catalyst for this to be realized though... central banks are clever, but when the music finally stops someone will be left standing and the world will start to appreciate that debt is a liability that no one personally wants to actually ever pay back.

Sorry I was on a rant...


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## james4beach (Nov 15, 2012)

hfp75 said:


> I dont think the intent was to say that Gold has low volatility. It balances a portfolio to have lower volatility.... Macro not Micro here...


Right. I have a feeling some of the disagreements in our discussion are based on the portfolio design issue. The *macro* effect of combining different assets. It's a counter-intuitive thing and you need to play with data to see it. Here's one nice web site for doing that.

Gold itself is very volatile, but that's not a concern.



fatcat said:


> i would just say that even government bonds in place of 15% in gold would provide better smoothing


It's true that when looked at in isolation, bonds are more stable than gold. However, the combination of stocks+bond+gold creates a smoother portfolio (sum) than just using stocks+bonds. _Yes, even though gold itself is very volatile_ the portfolio becomes more stable when you add it to the mix. I know that many people doubt this.

fatcat endorses 5% and I agree that even adding 5% brings some of this positive (smoothing) effect. My own studies of this matter have taken me to a higher gold allocation for the reasons I described in the third post of this thread.

Plus, I just don't believe the "story" of stock greatness. I agree that recent results are compelling, but I'm not at all convinced that stocks are a good bet for the long term. See below.



lonewolf :) said:


> The S&P 500 was not around from 1929 1932. The S&P 500 was introduced March 4 1957


It's even worse than that, lonewolf. Reliable data for total returns in stocks anywhere in the world doesn't exist until about 1970. Old stock "indexes" like DJI weren't meant for performance benchmarking over long periods: they were just meant to provide a daily indicator of magnitude and direction. There is a lot of uncertainty about total returns for long periods.

Somewhat good (but still unreliable) stock performance going back further can be constructed for the USA. OK, great. So now you have maybe a hundred years of stock data for one country... the world superpower and most successful economy, no less. Historical data doesn't even exist for other countries.

All these people putting their faith in stocks are resting on one country's data, or on only about 50 years of reliable data. Same for the MSCI indices. In my opinion it's not enough historical data, especially to support wild and risky approaches such as 60% or 90% in stocks. And those other performance figures we hear for long term (hundred year) returns? These have all been developed in hindsight, and (IMO) totally invalid. They are not representative of how anyone invested back then.

It's bunk science, actually. 50 years only covers our recent post-war period, a huge global economic boom. Talk about an insufficient sample! We don't even know how stock investors did in countless other economies and countries (France, UK, Italy, Spain) going back centuries. We have no idea how stocks have done.

And yes I know I hold a different opinion than many people out there. Like I said, this stuff is bunk science... especially the expectations of great returns going forward. It's really based on the USA and nothing else -- meaningless.

I started investing around age 19. I'm hoping to live into my 90s. That gives me an investment time horizon of 70+ years, longer than the 50 year history of reliable stock data we have. You think I'm going to gamble on stocks performing the best?


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## cainvest (May 1, 2013)

hfp75 said:


> I dont think the intent was to say that Gold has low volatility. It balances a portfolio to have lower volatility.... Macro not Micro here...


Ah, understood ... so it's strictly a hedge bet against the volatility of stocks. I gather that in long term back testing there is a very good inverse correlation between the stock market and gold prices (i.e. so when stocks are down, gold is up, etc) ?


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## james4beach (Nov 15, 2012)

cainvest said:


> Ah, understood ... so it's strictly a hedge bet against the volatility of stocks. I gather that in long term back testing there is a very good inverse correlation between the stock market and gold prices (i.e. so when stocks are down, gold is up, etc) ?


Yes it's a hedge but it's even better than that. Gold (and commodities) have a negative correlation with both stocks and bonds. This is a very valuable property for portfolio design. Here's an article that includes a correlation grid. Unfortunately the plots aren't very good, though.

https://engineeredportfolio.com/201...-debate-gold-commodities-treasuries-or-reits/

Quoting from the article:



> Now take a look at what adding gold does! This blew me away when I started seeing this phenomenon with gold in an investment portfolio. I hate the idea of investing in a yellow metal which can thank its returns only to the speculation of man. *Yet!… it does wonders when added to portfolios of stocks and bonds.*
> 
> Adding gold significantly helps all metrics. Most noticeable to me is how adding gold to a portfolio of stocks will actually increase the overall returns (rather dramatically) while significantly reducing risk. Over long time horizons gold also shines at reducing variation and minimizing losses. What’s also noteworthy is how adding gold helps even very conservative (bond heavy) portfolios!
> 
> ...


fatcat, take note. If you don't believe a word of what I'm saying and just want to make decisions based on past data ... study the analysis in that article and you will understand my motivations. Note that the author's "best" portfolio is at 20% gold (same as me, Argonaut, and National Bank's Filipiuk Group). This is written by an MBA with an engineering background, not a gold bug.

I will stress again that I'm not endorsing holding just gold. That would be insane! I'm saying that gold should be added to a portfolio of stocks and bonds, so that the 3 assets live together, with annual rebalancing.


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## cainvest (May 1, 2013)

james4beach said:


> Yes it's a hedge but it's even better than that. Gold (and commodities) have a negative correlation with both stocks and bonds. This is a very valuable property for portfolio design. Here's an article that includes a correlation grid. Unfortunately the plots aren't very good, though.
> 
> https://engineeredportfolio.com/201...-debate-gold-commodities-treasuries-or-reits/


Interesting read, have to dig into that more later on.
One question for you, how does your MNT.TO (I believe that's what you have?) track to GLD that is used in the above?


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## james4beach (Nov 15, 2012)

cainvest said:


> Interesting read, have to dig into that more later on.
> One question for you, how does your MNT.TO (I believe that's what you have?) track to GLD that is used in the above?


MNT tracks GLD just about perfectly, but it's in CAD. For example the trailing 1 year return of GLD is +9.8%. Converting that to CAD (in stockcharts.com you can type in "GLD:$CADUSD") it's returned +11.6% ideally in CAD. MNT has gone up +11.8% so it's virtually perfect tracking GLD. It's likely showing a higher return than GLD due to daily pricing volatility, a fluke.

You can hold either GLD, IAU (lower fee than GLD), or MNT in your portfolio and get about the same result. Personally I hold some IAU and MNT plus physical gold bullion.

There's the additional question of how those correlations translate to Canada. According to my own studies with 22 years of data, I'm seeing the same beneficial effects. That is, gold (in CAD) has a negative correlation with Canadian stocks and improves a Canadian-centric stock/bond portfolio. Actually, gold in CAD tends to have an even stronger hedging effect as the USD tends to rise during crises. For example during the worst parts of 2008, the CAD fell, meaning gold (in CAD) went up more strongly. 

Gold in CAD went up +11.7% in 2007, and +28.2% in 2008. The stock/bond/gold portfolio mix I suggested earlier had:
2006: +11.67%
2007: +4.09%
2008: +0.54%
2009: +9.85%

Again, what's not to love about this?

fatcat is correct to criticize the gold ETFs in that they are somewhat derivative structures and there is some uncertainty/risk in the structures themselves. With the Mint's MNT for example, the shares represent a promise of gold from the Mint's stores on an unallocated basis, meaning they do not 1:1 match actual gold. The Mint also has not followed usual corporate accounting practices to get their shares listed, there's been a special exception. There is a possibility of something like a fraud or mismanagement at the Mint that could cause a loss to MNT holders, and there likely wouldn't be any legal recourse against the Crown Corporation.

So I do agree with fatcat that there are some practical problems to holding gold exposure. I do worry about that stuff, which is why I diversify between MNT, IAU and physical. If I had a ton of money I'd probably add GLD to that mix. Theoretically, all of those should perform the same, but there is some risk there.


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## lonewolf :) (Sep 13, 2016)

fatcat said:


> i am merely saying that a young person with a long time horizon has the best chance of good returns by holding an all (say 90%) stock portfolio, there is no guarantee, as there is for no investment strategy but it gives you the best chance and diverting 15% (we agree on 5 and are arguing over the next 15, right ? ) to gold simply will provide a drag on returns, once again for the one-thousandth time, gold pays you nothing and have to pay to own it


 When I do the math gold has out performed the average retail investor in the stock market. 

Source Schumpeter Why the decline in the number of listed American firms?

In 1996 there were 7322 listed stocks on the NYSE

April 22 2017 there were 3671 stocks listed on the NYSE

From 1980 - 2000 there were 300 a year IPOs on averaged on the NYSE

since 2000 there were about 100 IPOs yearly.

The average life expectancy was about 17 years for NYSE stocks

All these stocks that the retail investor has paid money for that have gone to zip. The insiders are making money while the retail investor is getting hosed. Yet the propaganda has the retail investor believing stocks are he best game in town & everyone wins. Like a poker game the money flows to just a few players the weak players lose.

Games are played with the divisor as well as increasing the number of stocks to indexes such as the DJI if memory correct I think it had only 8 or 9 stocks @ one time now there are 30

Gold money is one of the best ways to own physical gold cheaper then holding GLD plus can use gold money like a debit card in difference currencies cant really do that with stocks.


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## Argonaut (Dec 7, 2010)

James is right, Gold has a great diversification benefit due to its low or negative correlation with Stocks and Bonds.

Use this handy backtesting tool to verify yourself: http://www.ndir.com/cgi-bin/downside_adv.cgi
You can go back to 1970 which allows you to experience most market conditions, and have Gold unhedged to the US dollar.

If you take a hypothetical classic 60/40 risk/safety portfolio, most traditional money managers would say to go 60% Stocks and 40% Bonds.
What I say, is that you can actually substitute Gold for the safety component, Bonds, and come out ahead.

If you instead go 60% Stocks, 20% Bonds, and 20% Gold...

- Your returns will be higher
- Your volatility will be lower
- You will have fewer years of drawdown, and a shorter timeframe to recover from losses

Proper diversification is the *ONLY FREE LUNCH IN FINANCE*, and although one may not believe in Gold, you cannot deny its effectiveness in doing the job it is supposed to do in a portfolio.


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## fatcat (Nov 11, 2009)

james references an article which i took a look at and hoped to find some common ground in our ability to get some standard metrics on gold bonds and equities but the author references statistics that differ from the statistics i tend to look at

in order to make sense of the argument we need a common reference set and that seems hard to do

also, we need to look at time lines ... volatility and smoothing make much less sense if you are simply buying over a very long time line like 40 years and for some young people 50 years of just steadily contributing to a set of low cost mutuals or etf’s

we need some common metrics that take into account golds cost of ownership 

i cannot see how an asset that costs money to own and goes dead for long periods of time is going to add value to a portfolio composed of all stocks over 50 years for example, i don’t see it

why do you need low volatility or smoothing or ballast if you have a 50 year time horizon ?


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## james4beach (Nov 15, 2012)

I need lower volatility for many reasons. One reason is that money I invest will not be left alone for 50 years. I would argue that most people, even very young people, simply don't have 50 year time horizons. Inevitably, they need some money sooner, especially in the modern economy where there's no job stability.

Another reason is that my income, like most people's, correlates with the economy/stock market. If I invested 100% in stocks as fatcat endorses, every time there's a global recession, my employment income would go to $0 and then my net worth would tank 40% to 60%. What kind of life is that?

Everyone talks a big game about being ready for volatility, but I saw what happened in 2008 including with young people (my coworkers). People either capitulate and get out of the market when things get _really_ bad, or they experience severe stress (including sleepless nights) and even change how they live life due to the losses. Or people simply need the money.

One reason I'm still investing today, and have consistently invested since 1998, is because I had a pretty safe portfolio that hasn't had catastrophic losses. Having low volatility in my investments has helped me "stay in the game" -- a huge win compared to some of my peers who got wiped out or capitulated. I plan to continue staying in the game _by making it easy on myself_.

Any reduction in volatility I can achieve while still getting a solid positive real return is a big win, in my eyes. It will help me stick with the plan, avoid stress, not put me in a jam when I need money from my savings. This is a no-brainer IMO.


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## cainvest (May 1, 2013)

Just some quick numbers to ponder from the calc Argonaut linked to earlier,
Using $1000 starting for each decade and ending $ value in 2018, 100% Gold vs 100% S&P500 vs 100% Long Cdn Bonds

Year Gold S&P500 Bonds
1970 46019	148143	83717
1980 2921	77357	40492
1990 3788	15485	11183	
2000 4165	2329 3742
2010 1527	3521 1759


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## cainvest (May 1, 2013)

james4beach said:


> Everyone talks a big game about being ready for volatility, but I saw what happened in 2008 including with young people (my coworkers). People either capitulate and get out of the market when things get _really_ bad, or they experience severe stress (including sleepless nights) and even change how they live life due to the losses. Or people simply need the money.


Everyone has a different FUD (fear, uncertainty and doubt) line and one should adjust their portfolio accordingly. If you have a very high FUD factor keep you investments managed through an adviser, DIY is NOT for everyone.


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## humble_pie (Jun 7, 2009)

cainvest said:


> Just some quick numbers to ponder from the calc Argonaut linked to earlier,
> Using $1000 starting for each decade and ending $ value in 2018, 100% Gold vs 100% S&P500 vs 100% Long Cdn Bonds
> 
> Year Gold S&P500 Bonds
> ...



sorry do not understand the above table ...

in 1970 gold was still pegged at USD $36 per ounce on the gold standard. If today it's $1527, it's risen more than 40-fold. By contrast the house where i grew up has risen roughly x 28 over same time period. Barrel of oil, roughly x 20.


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## cainvest (May 1, 2013)

humble_pie said:


> sorry do not understand the above table ...
> 
> in 1970 gold was still pegged at USD $36 per ounce on the gold standard. If today it's $1527, it's risen more than 40-fold.


So if you bought $1000 worth of gold in 1970 @ $36/ounce and left it under your bed until today then sold it at $1527/ounce, how much money did you get from that sale?


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> .... Everyone talks a big game about being ready for volatility, but I saw what happened in 2008 including with young people (my coworkers). *People either capitulate and get out of the market* when things get _really_ bad, or they experience severe stress (including sleepless nights) and even change how they live life due to the losses. Or people simply need the money ...


While I agree lots did ... this is a generalization, seemingly based on those around you.

I did none of the above. Any stress I had was that I would take too long to identify what I wanted to buy. 




james4beach said:


> .... One reason I'm still investing today, and have consistently invested since 1998, is because I had a pretty safe portfolio that hasn't had catastrophic losses. Having low volatility in my investments has helped me "stay in the game" -- a huge win compared to some of my peers who got wiped out or capitulated. I plan to continue staying in the game _by making it easy on myself_.


That's great and it is a factor that many don't pay enough attention to.

At the same time, others like myself have "stayed in the game" with different portfolio makeups so IMO, it is a no-brainer to make one's portfolio fix one's investing style/situation/personality. One of the reasons I like investing is there are so many ways to make money.


Cheers


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## fireseeker (Jul 24, 2017)

james4beach said:


> Another reason is that my income, like most people's, correlates with the economy/stock market. If I invested 100% in stocks as fatcat endorses, every time there's a global recession, my employment income would go to $0 and then my net worth would tank 40% to 60%. What kind of life is that?


I find this a really interesting and important conclusion. 
If I worked at the Royal Bank, I would not own RY stock. The reason, obviously, is that all my future work income is tied to the health of RY -- a massive investment. I should therefore not further raise my risk by investing in the same company. Many people who worked at Nortel or Enron learned this painfully.
With the rising job insecurity James describes, it does argue for a more conservative approach to investing.
Now, we can debate about whether gold achieves that -- I find James' arguments compelling -- but I think the underlying strategy is very sound.


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## Eclectic12 (Oct 20, 2010)

If it's your money with no benefit then sure - avoiding one's employer's stock may be the best move.

If it's a discount options/share plan like some of my co-workers had that guaranteed them a 6% gain on the purchase date then it would be different. They knew about having too much employer stock from former Digital employees. They dealt with it by liquidating everything the day after buying. Being more conservative, I probably would have liquidated half and let the other half ride but sadly have never worked for a company offering such a plan.


As for Nortel ... many who *didn't* work for Nortel have told me they regret their actions so it's not just employees. It boggles my mind that some told me they had $500K to $1 million but didn't sell until the end.


Cheers


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## cainvest (May 1, 2013)

fatcat said:


> why do you need low volatility or smoothing or ballast if you have a 50 year time horizon ?


Plus with Gold's "normal" long term bear markets your current gold investment might sit idle (or drop) for next 20 of those 50 years. In hindsight you can't complain about those great returns from 2000-2012.


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## fatcat (Nov 11, 2009)

james, we are using two entirely different scenarios, you are investing where your investment portfolio functions in a certain way as your part time job

you are using it to supplement income and to save to buy a house, therefore you are much more likely to need to lower volatility than the person i am using as an example, which is someone who works for 40 years and merely adds to their investment portfolio along the way with a limited number of planned withdrawals, their employment income is their life working capital and their investment portfolio is their "nest egg"

most people do dip into the egg somewhat but this is a completely different scenario from yours, their need for "smoothing" and a reduction in volatility is much lower than yours

over the long haul, and 40 years is a long haul, you can ride volatility out quite nicely and if you do need protection, bonds do a better job than gold because they are more predictable 

with gold you are parking 20% of your money in an asset that doesn't pay a red-cent and actually costs you money to own and is entirely unpredictable and virtually only measurable and useful by a single metric, fear, which itself is impossible to measure and it goes for long periods as simply dead money, something the stock market has never done

and no, the non-correlation value is bunk ... the armageddon model is bunk too, better to own diamonds which are transportable, or crypto or scotch than gold 

$100 invested in 1928 in the SP500 including dividends would return $382,850.00 today

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

$100 invested in 1928 would buy you roughly 4.8379 ounces of gold which would be worth $6374.40 today ... minus ... the money, sweat and time it costs you to own it

http://onlygold.com/Info/Historical-Gold-Prices.asp

gold is now a relic as an investable asset, which says nothing about its desirability, its collectability, its value for jewelry which will never go away


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## goldman (Mar 18, 2017)

fatcat said:


> $100 invested in 1928 in the SP500 including dividends would return $382,850.00 today
> 
> http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
> 
> ...


Not a fair comparison here. It's misleading to just compare the returns on the DJIA since 1928 to the returns on gold in the same period, as though it proves gold is a poor investment today. For a period of time the US government made it illegal to own gold and confiscated it. FDR's Executive Order 6102 in 1933 was only ended by Ford by 1974.

Remember that gold was pegged at a fixed value to the USD until the early 1970's. Once it's value was permitted to float free by supply and demand it skyrocketed in value from $36 to 675 in less than a decade. 

chart https://www.macrotrends.net/1333/historical-gold-prices-100-year-chart

Claiming "gold is now a relic as an investable asset" is perhaps just one opinion. 

But lets review the known facts:

Some might be surprised to know that in 2016 the average daily trading volume in gold was 175 billion U.S. dollars worth. ( source: statista.com)

Approximately 190,040 tonnes of gold has been mined throughout history and almost all of this metal is still around in one form or another, and valued over $8 trillion in value. 

About half the world's supply is held in the form of jewelry, 90,718 tonnes worth, approximately 3.8 trillion in value.
About 1.7 trillion worth is held privately for investment or approximate 40,035 tonnes in 2017.
About 33,828 tonnes of gold are held globally by central banks, approximately valued at $1.5 trillion in value.


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## Argonaut (Dec 7, 2010)

Fatcat I don't think you grasp what non-correlation is and how it can affect a portfolio over time. Your historical timeline going back to 1928 is also very silly considering that Gold was pegged to the US Dollar for much of that time. Unless you see a return to the gold standard, it's much better to look at comparative historical performance since the 1970s.

Again, I'm showing two different portfolios composed of 60/40 risk/safety since 1970 using this tool: http://www.ndir.com/cgi-bin/downside_adv.cgi

*Portfolio 1*
30% TSX Composite
30% S&P 500
20% Long Canadian Bonds
20% US Bonds

Average Gain (Geometric): 9.833%
Standard Deviation: 9.992%
Total Value of a $1000 Investment: $99,078.98
Total Down Years: 8 years (16%)

Worst Drops
1973: -18.61%, 3 years to recover
1974: -15.47%, 1 year to recover
2007: -11.91%, 3 years to recover
2008: -10.72%, 2 years to recover
2001: -8.48%, 2 years to recover

*Portfolio 2*
30% TSX Composite
30% S&P 500
10% Long Canadian Bonds
10% US Bonds
20% Gold

Average Gain (Geometric): 10.196%
Standard Deviation: 9.889%
Total Value of a $1000 Investment: $116,435.57
Total Down Years: 6 years (12%)

Worst Drops
1981: -10.90%, 1 year to recover
2008: -8.06%, 1 year to recover
2001: -6.05%, 2 years to recover
1990: -4.40%, 1 year to recover
2002: -3.96%, 1 year to recover

As you can see, Portfolio 2 not only has _higher returns_, _lower volatility_ (standard deviation), but also _fewer and less drastic down years_. But more importantly, it _recovered from those down years quickly_ -- within a mere 1 year, with the exception of 2001 when a small 6% drop took 2 years to recover from.


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## cainvest (May 1, 2013)

goldman said:


> Not a fair comparison here. It's misleading to just compare the returns on the DJIA since 1928 to the returns on gold in the same period, as though it proves gold is a poor investment today. For a period of time the US government made it illegal to own gold and confiscated it. FDR's Executive Order 6102 in 1933 was only ended by Ford in 1974.
> 
> Remember that gold was pegged at a fixed value to the USD until the early 1970's. Once it's value was permitted to float free by supply and demand it skyrocketed in value from $36 to 675 in less than a decade.


True but even from 1970 to the end of 2018 with a $1000 investment, Gold = $46,019, S&P500 = $148,143.
Gold did even worse from 1980 but it did better than the S&P500 from 2000-2018, $4,165 vs $2,329.


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## cainvest (May 1, 2013)

Argonaut said:


> Again, I'm showing two different portfolios composed of 60/40 risk/safety since 1970 using this tool: http://www.ndir.com/cgi-bin/downside_adv.cgi


And how do those values change if you start from 1980 and 1990?


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## Argonaut (Dec 7, 2010)

cainvest said:


> True but even from 1970 to the end of 2018 with a $1000 investment, Gold = $46,019, S&P500 = $148,143.
> Gold did even worse from 1980 but it did better than the S&P500 from 2000-2018, $4,165 vs $2,329.


Why look at assets in isolation and totally discount the effects of a portfolio???

If you instead do 50/50 Gold and S&P 500, then you'll end up at $144,328.85 with much less volatility and fewer big drops.

~$144k is not even close to the midpoint of ~$46k and ~$148k so what's going on here? Oh yeah, it's the effect of an overall asset allocation and re-balancing.

Remember, *diversification is a free lunch*.


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## fatcat (Nov 11, 2009)

goldman said:


> Not a fair comparison here. It's misleading to just compare the returns on the DJIA since 1928 to the returns on gold in the same period, as though it proves gold is a poor investment today. *For a period of time the US government made it illegal to own gold and confiscated it. FDR's Executive Order 6102 in 1933 was only ended by Ford by 1974.*


precisely ! ... this is the political risk of owning gold which is significant, i venture to say that if you add up the private holdings and the pension plan of every single member of parliament it will consist of less than 1% gold which means gold has no political protection at all and in a crisis the government will likely simply declare the ownership of gold illegal and stop any outflows from etf's and even block access to safety deposit boxes




> Claiming "gold is now a relic as an investable asset" is perhaps just one opinion.


everything you and i say is just an opinion, cmf is awash in opinions 



> But lets review the known facts:
> 
> Some might be surprised to know that in 2016 the average daily trading volume in gold was 175 billion U.S. dollars worth. ( source: statista.com)
> 
> ...


seriously ? ... the combined wealth of the world is $317 trillion https://www.credit-suisse.com/corporate/en/research/research-institute/global-wealth-report.html ... making central bank gold comprise less than 1/2 of 1% of the world's total assets (*.47%*) ... the above-ground gold total is worth about $7.7 trillion which comprises *2.43%* of the worlds total assets ... its puny and much too small and cumbersome to be useful as a medium of exchange in the world we now live in


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## fatcat (Nov 11, 2009)

Argonaut said:


> Fatcat I don't think you grasp what non-correlation is and how it can affect a portfolio over time. Your historical timeline going back to 1928 is also very silly considering that Gold was pegged to the US Dollar for much of that time. Unless you see a return to the gold standard, it's much better to look at comparative historical performance since the 1970s.
> 
> Again, I'm showing two different portfolios composed of 60/40 risk/safety since 1970 using this tool: http://www.ndir.com/cgi-bin/downside_adv.cgi
> 
> ...


of course i understand what non-correlation is ... i just don't think it matters a damn with regard to gold which is a financial relic, nor does it matter on a 40 year time horizon ... 

your numbers, your raw data is very different from the data i get from stern/nyu: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

i get a return of $109,074.08 on $1000 in a 100% SP500 portfolio from 1970 with 2000-2002 the longest down streak of 3 straight years

again, you include gold as if it merely a standard asset, it isn't, it costs money to own which elevates financial risk by precluding gains on paying assets like dividends, it pays nothing, it incurs significant political risk and very considerable security risk (generally either one or the other and both are bad)

if i had $1321.36 to invest today (the price of an ounce of gold) i could buy 30 shares activision blizzard and get in to e-sports or 142 shares of aurora cannabis or maybe 50 shares of FINX which is an etf that holds a basket of fin-tech stocks

and you want me to put it into gold which i have to what ? ... put in my safe deposit box or pay .35% to MNT just for the privilege of owning it and hope it will be there when i need it ?

sorry, argo, gold's day is done, it will undoubtedly have another moment in the sun but the future belongs to companies (and etf's) like these three and thousands of others who will make trillions in the next 50 years 

while the goldbugs will still be hoping and praying for a tidy disaster to make them rich, it's dead money versus a host of alternatives

in a much smaller, slower, world, gold made sense but that world is gone

it is pretty and 5% seems ok to me ... i guess ... i have a lovely mix of coins that i buy occasionally, not sure why, periodic spells of gold buggery i guess


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## cainvest (May 1, 2013)

Argonaut said:


> Why look at assets in isolation and totally discount the effects of a portfolio???


Simple ... because it gives one a good indication of how that asset is performing over a given time period.

Now let's adjust the time period but use the same allocations as you had starting in 1980.

Without Gold,
Overall Portfolio Stats (1980 to 2018)
Average Gain (Geometric)	10.146%
Average Gain (Arithmetic)	10.565%
Median Annual Gain	10.660%
Standard Deviation	9.684%
Total Growth (%)	4233%
Total Value of a $1000 Investment	$43333.94
Total Down Years	6 years (15%)

With Gold,
Overall Portfolio Stats (1980 to 2018)
Average Gain (Geometric)	9.088%
Average Gain (Arithmetic)	9.442%
Median Annual Gain	10.100%
Standard Deviation	8.825%
Total Growth (%)	2874%
Total Value of a $1000 Investment	$29735.54
Total Down Years	5 years (13%)

Depending on which time window you look at the values can be significantly different, something to consider.


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## james4beach (Nov 15, 2012)

fatcat, if it makes you feel better, you can rename these assets Green, Blue and Purple. All the math still holds. If we're taking historical performance figures as important and meaningful, then the math unquestionably shows a benefit to combining Green, Blue and Purple.

On just about every metric, a portfolio with Green+Blue+Purple is superior to one that just has Green+Blue.

I'm also arguing that, on fundamentals, there is value to holding some Purple because of unique benefits that Purple offers. It doesn't always give those benefits, but when it does... man is one thankful. And you don't suffer by holding Purple because (as shown earlier) there has been no detriment to adding it to the mix.


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## fatcat (Nov 11, 2009)

james4beach said:


> fatcat, if it makes you feel better, you can rename these assets Green, Blue and Purple. All the math still holds. If we're taking historical performance figures as important and meaningful, then the math unquestionably shows a benefit to combining Green, Blue and Purple.
> 
> On just about every metric, a portfolio with Green+Blue+Purple is superior to one that just has Green+Blue.
> 
> I'm also arguing that, on fundamentals, there is value to holding some Purple because of unique benefits that Purple offers. It doesn't always give those benefits, but when it does... man is one thankful. And you don't suffer by holding Purple because (as shown earlier) there has been no detriment to adding it to the mix.


james, colour is precisely the issue, the assets green blue and purple are not equal

i understand full well the concept of diversification and correlation and non-correlation with regard to assets

you and i and argo are all back testing with the assumption that assets are going to behave the same going forward and i don't think they will, gold to me has lost its traditional status and presents a host of ownership problems ... it has became archaic and unnecessary ... better to have your central bank hold lithium or rare earth metals

gold brings with it huge security and political problems i.e. does the etf actually have the gold they say they do ? if they do are you going to be able to redeem in physical or will you be prevented by the government, if the government rules gold ownership illegal, will you be compensated ? if you physically own your gold, will it be safe ? will anyone find out and rob you ?

gold is unique and i don't think you can justify ownership based on any numerical formula or back test you can apply, you have to pay attention to the actual asset itself and the characteristics (cost of ownership, security risk, political risk, non-transportability) it presents

on a 500K portfolio, gold is allocated 100K, that's still a lot of money sidelined, non-earning, requiring a special kind of attention that other assets don't require

we can perhaps agree to disagree on 20% and we will settle on 5% ... 

i will let you and argo have the last words at least in our debate which has been fun


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## goldman (Mar 18, 2017)

fatcat said:


> the combined wealth of the world is $317 trillion https://www.credit-suisse.com/corporate/en/research/research-institute/global-wealth-report.html ... making central bank gold comprise less than 1/2 of 1% of the world's total assets (*.47%*) ... the above-ground gold total is worth about $7.7 trillion which comprises *2.43%* of the worlds total assets ..


These facts point out quite nicely some important economic factors supporting the price of gold. The available above ground supply of this precious commodity is rather limited and rare in comparison to the total global available capital for investment. Ever since great recession was followed by an era of low rates from central banks, the world has been flooded with a supply of easy money. The price of gold rises when there just simply isn't enough supply to meet the increased demand (often seen during times of economic uncertainty, perceived weakness in banks, geopolitics etc). 

Last year's mining activity increased the existing above-ground gold supply by 1.8%. The annual increase in supply isn't keeping up with the massive increase in global debt and monetary supply. The supply and demand data for 2018 showed that demand from jewelry, technology, private investment and central banks was nearly equal to the increased supply from mining production and recycling. 




fatcat said:


> .. its puny and much too small and cumbersome to be useful as a medium of exchange in the world we now live in


Right, this is why the derivatives market is in the hundred of trillions. Instead of exchanging actual barrels of crude, cattle, wheat etc traders enter orders on electronic markets.


Recent data shows gold has an average daily trading volume of 940t at LBMA and over 1000t through COMEX. With over 80 billion worth of gold trading daily on just these two markets alone, this is comparable to the dollar volume traded daily on the NASDAQ. Not exactly a "relic as an investable asset" as you suggest.


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## james4beach (Nov 15, 2012)

And let's not forget that the western world might continue with money printing (low interest rates and QE) for a very long time. We haven't yet seen any fallout from this into inflation rates and currency declines, but that could still happen. A monetary stimulus of this magnitude has never been attempted before in history -- it's experimental.

Experimental means we have no precedent for it and no clue what impacts it might have.

I prefer to keep some protection against that, and gold does the best job of it. If that comes at the cost of some performance drag and upsetting traditional investors for violating their equity-heavy religion, I will take that tradeoff.


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## lonewolf :) (Sep 13, 2016)

fatcat said:


> seriously ? ... the combined wealth of the world is $317 trillion https://www.credit-suisse.com/corporate/en/research/research-institute/global-wealth-report.html ... making central bank gold comprise less than 1/2 of 1% of the world's total assets (*.47%*) ... the above-ground gold total is worth about $7.7 trillion which comprises *2.43%* of the worlds total assets ... its puny and much too small and cumbersome to be useful as a medium of exchange in the world we now live in


 Gold in comparison to the size of the earth is way way way smaller then 2.43% making gold a very good tangible movable investment.


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## james4beach (Nov 15, 2012)

The price of gold (in CAD) reached a 7 year high today. The price is still lower than it was in 2011, but looking at 2012 onward, we're now at a new multi year high. This can be seen in the chart: http://schrts.co/njUkiQxq

Here's a table of calendar year returns of MNT. For the years before it existed, I used the pure bullion price movement with the expense fee subtracted. You can see that, since 2000, gold has been positive in most years. More importantly, *it tends to be strong in years where stocks are down* (2001, 2002, 2007, 2008, 2011, 2015, 2018)

And here's another fact: for the 22 years of data that I have, there is not a single year in which gold and the TSX index were both negative! That's the holy grail of diversification.

That's why gold is a great diversifying asset, or portfolio hedge.


```
2000	-3.18%
2001	7.77%
2002	22.71%
2003	-2.16%
2004	-2.77%
2005	13.57%
2006	22.80%
2007	11.74%
2008	28.20%
2009	6.57%
2010	22.39%
2011	11.87%
2012	3.55%
2013	-24.74%
2014	6.95%
2015	6.36%
2016	4.90%
2017	5.52%
2018	5.87%
```


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## goldman (Mar 18, 2017)

Since 2014 XAUUSD traded below 1370 resistance range and has just recently broken out. Gold investors are looking forward to seeing the price return to the 1600-1800 USD range last seen during 2011-2012.

There's a proven relationship between the changes in real yields and the changes in the price of gold. The real yields (yield over inflation) on US treasuries are falling again towards 0% (and could go negative again soon). The 'opportunity cost' of owning gold is falling and the gold price is rising again. If the Fed cuts rates in the years ahead gold could return to previous highs last seen during a period of rate cuts. 



It also gets interesting for Canadians. If we return to the USDCAD exchange rate of 1.36 from year end 2018 and back to a XAUSD price of 1700, that's potentially a new ATH of 2300 in CAD


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## lonewolf :) (Sep 13, 2016)

DSI 94% gold bulls. Gold looks like it is setting up for a good investment to play the down side though needs to complete wave C up


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## james4beach (Nov 15, 2012)

I like that gold is very volatile, because the big run-ups followed by sharp selloffs really scares off people, resulting in few long term investors. Very few investors even recognize that gold bullion has outperformed stocks since 2000.

I've brought this up before (usually to ridicule) that my gold bullion has outperformed the TSX over the long term. It's been 20 years of gold outperforming stocks.... sssh, don't tell anyone!

To benefit from that you have to be a long term investor who doesn't get caught up in news and narratives of the day. Just decide on a % allocation to dedicate to gold, and stick with it. But only if you are confident you won't be bullied into giving up once the talking heads on TV turn bearish on gold.


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## cainvest (May 1, 2013)

james4beach said:


> Just decide on a % allocation to dedicate to gold, and stick with it.


Hard to say if it'll go for a run but at least gold is back near it's 2012 levels.


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## like_to_retire (Oct 9, 2016)

james4beach said:


> I like that gold is very volatile, because the big run-ups followed by sharp selloffs really scares off people, resulting in few long term investors. Very few investors even recognize that gold bullion has outperformed stocks since 2000.
> 
> I've brought this up before (usually to ridicule) that my gold bullion has outperformed the TSX over the long term. It's been 20 years of gold outperforming stocks.... sssh, don't tell anyone!
> 
> To benefit from that you have to be a long term investor who doesn't get caught up in news and narratives of the day. Just decide on a % allocation to dedicate to gold, and stick with it. But only if you are confident you won't be bullied into giving up once the talking heads on TV turn bearish on gold.


OK, I guess if you look at 20 years, and disregard volatility, you may come out slightly ahead over the last 20 years. Is anyone really ready to hang their hat on that record? That's a big stretch for sure.

My recommendation, when it comes to equities is to look at the last 10 years. This allows for a business cycle, so it's often used to examine chart results.

Below is a chart comparing the last 10 years of the $CDN TSX Composite with dividends against the iShares S&P/TSX Global Gold Index ETF (XGD.TO). Seems like a fair comparison.

The chart shows *TSX up 66.9% and Gold down -23.4%. *

Yeah, Gold is a hedge against inflation. There just isn't any real inflation right now or projected for the future.

Gold has had a nice little run up lately. It's at about a 6 year high after a lot of volatility, and now it benefits from heightened geopolitical concerns and expectations for interest rate cuts. 

Good time to sell.









ltr


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## fireseeker (Jul 24, 2017)

like_to_retire said:


> The chart shows *TSX up 66.9% and Gold down -23.4%. *


The choice of start date -- near the beginning of a 10-year stock bull, with gold already at a decade high -- is probably misleading. I'm not sure it really covers a normal business cycle.

However, even that 10-year chart bears out an important part of James's thesis -- stocks and gold are not correlated. For the last decade, your chart shows stocks handily outperforming gold. Go back another decade, to the 2000s, and it shows gold handily outperforming stock.
Put the two categories together for two decades and you get less volatility, diversification and pretty good results.


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## fireseeker (Jul 24, 2017)

like_to_retire said:


> The chart shows *TSX up 66.9% and Gold down -23.4%. *


The choice of start date -- near the beginning of a 10-year stock bull, with gold already at a decade high -- is probably misleading. I'm not sure it really covers a normal business cycle.

However, even that 10-year chart bears out an important part of James's thesis -- stocks and gold are not correlated. For the last decade, your chart shows stocks handily outperforming gold. Go back another decade, to the 2000s, and it shows gold handily outperforming stock.
Put the two categories together for two decades and you get less volatility, diversification and pretty good results.


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## OnlyMyOpinion (Sep 1, 2013)

I'll take the gold exposure that comes within a tsx index etf within a broader equity/FI portfolio. Yes, I know gold cos are not the same as owning the metal. But having 20% exposure to the metal in my portfolio would be a nonstarter.


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## like_to_retire (Oct 9, 2016)

fireseeker said:


> The choice of start date -- near the beginning of a 10-year stock bull, with gold already at a decade high -- is probably misleading. I'm not sure it really covers a normal business cycle.
> 
> However, even that 10-year chart bears out an important part of James's thesis -- stocks and gold are not correlated. For the last decade, your chart shows stocks handily outperforming gold. Go back another decade, to the 2000s, and it shows gold handily outperforming stock.
> Put the two categories together for two decades and you get less volatility, diversification and pretty good results.


Well, here's two decades as you requested and I fail to see the "less volatility" that you predicted.

Short of the latest uptick in Gold (great time to sell), I would take the TSX over that horrible GOLD volatility over 20 years.

Seriously, GOLD is an inflation hedge. What's your prediction of inflation over the next 10-20 years?









ltr


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## james4beach (Nov 15, 2012)

like_to_retire said:


> My recommendation, when it comes to equities is to look at the last 10 years. This allows for a business cycle, so it's often used to examine chart results.
> 
> Below is a chart comparing the last 10 years ... The chart shows *TSX up 66.9% and Gold down -23.4%. *


OK, so you didn't like my 20 year period, and you chose a 10 year period beginning mid 2009. Which happened to be the bottom in stocks. Yeah... you're going to get a good return for stocks that way. I'd be shocked if you didn't see stocks win, by choosing the stock market bottom 

Obviously these results change with the start date. That's always the case when doing any financial performance comparison.

My point was that gold is a good diversifying asset, and it can perform quite well over long periods (as it's done for 20 years). Of course it won't _always_ perform well in all time periods... nor do stocks.

I also need to correct another piece of misinformation in your post. The 10 year return of gold bullion in CAD is +76% ignoring management fees so it's actually much closer to the return in stocks, despite your attempt to prove the opposite.. Here's a graph of it: http://schrts.co/vCUeQQBh

That's 5.8% CAGR in gold, which I think many people would call very respectable over 10 years. After taking expense fees on MNT, GLD or IAU that would be more like 5.5% CAGR. Well above inflation, and not far behind stocks over your preferred 10 year measure.

The cumulative +76% result is very different than the -23% that you asserted. I have never endorsed holding mining stocks for gold exposure. For diversification, you need the pure asset class (bullion metal).


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## like_to_retire (Oct 9, 2016)

james4beach said:


> OK, so you didn't like my 20 year period, and you chose a 10 year period beginning mid 2009. Which happened to be the bottom in stocks. Yeah... you're going to get a good return for stocks that way. I'd be shocked if you didn't see stocks win, by choosing the stock market bottom
> 
> Obviously these results change with the start date. That's always the case when doing any financial performance comparison.


OK, 10 years doesn't do it for you because of 2009, I'll offer a 15 year chart.









ltr


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## OnlyMyOpinion (Sep 1, 2013)

Well, if I'd jumped into MNT when it started trading Dec 2011, I can understand that I might be at risk of being bullied into giving up.
On a good note, I can certainly see that stocks and gold are not correlated!


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## james4beach (Nov 15, 2012)

like_to_retire said:


> OK, 10 years doesn't do it for you because of 2009, I'll offer a 15 year chart.


This is kind of funny but now you've picked a period where gold has beaten the pants off the TSX. The XGD miners fund doesn't factor into this.

Here's 15 years of XIU (total return with dividends) versus gold bullion in CAD. The cumulative return is +180% for XIU and +248% for gold. http://schrts.co/qdRJVmfK











OnlyMyOpinion said:


> Well, if I'd jumped into MNT when it started trading Dec 2011, I can understand that I might be at risk of being bullied into giving up.


No question that was a bad entry point. Funds tend to come to market once there is enough investor demand, similar to a ton of tech funds being listed in 1999-2000. So that's just a symptom of human psychology, return-chasing.


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## lonewolf :) (Sep 13, 2016)

On Friday traders bought 1.5 billion of GLD & IAU ETF gold shares the highest in history. Gold had back to back DSI 94% gold bull the first 90% plus back to back days since Sept 2011


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## lonewolf :) (Sep 13, 2016)

From the 1438.33 high to last nights 1381.77 low gold declined in 3 waves with wave A & C being a few ticks of being of equal length which indicates the down move was corrective. Gold should move above the 1438.33 high before the bear market from the 2011 high continues.


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## hfp75 (Mar 15, 2018)

From 2011 to now there have been 100s of billions injected to make it all go.... so I’d say it should go higher than 2011....


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## james4beach (Nov 15, 2012)

Then again, all of this has been well known for a long time so I think what we already know and expect of QE has been priced in.

Of course, the central banks can always surprise us with new levels of stupidity.

I also wouldn't rule out the possibility of a deflationary collapse, in which case both stocks & gold would do very badly. Only cash and bonds hold up well in that scenario.

I have no clue what will happen... there are many ways this could play out. Which is why I diversify across all of these  That approach has produced 5.4% CAGR for me for over 3 years. Not bad for a passive bet which doesn't commit to a single asset class.


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## lonewolf :) (Sep 13, 2016)

Not sure about bonds holding up in deflationary crash. Last month i shares investment grade corporate bond ETF inflow was nearly double its previous monthly record. 

On June 21 TLT open interest put call ratio spiked to 3.11 its highest level in over seven years.

Just recently the 30 day DSI was @ 85% bond bulls its highest level since the 86% reading @ the July 2016 peak. 

Price pattern in the 30 year US treasuries futures from the June 20th peak has recently completed a 5 wave triangle pattern @ 155.22 low. Triangles are seen in the last correction before the final move. Across the board seams to be setting up for a deflationary crash though not there yet. 

The DJI should make an all time high in wave D of an expanding triangle then wave E decline below the wave C low of Dec 26 then rally to all time highs which should top out in 2021 then crash below the 2008 low in a series of crashes


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## lonewolf :) (Sep 13, 2016)

A gold bond is similar to a conventional dollar bond. Except the interest is paid in gold & the face value of the bond is paid in ounces of gold. Issuers of gold bonds have gold income such refineries, miners & depositories 

Gold real bills do not earn interest. Instead it sells for less gold then its face value based on the discount rate & time to maturity i.e., if the discount rate is 1% then a 100 oz bill would sell for 99.75 ounces 90 days from maturity.

source monetary metals


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## lonewolf :) (Sep 13, 2016)

Was looking @ the gold 3 month lease chart @ the 1999 bear market low you could lease your gold out @ over 9%. In 2009 -2011 the gold lease rate went negative. Owning gold & leasing the gold can boast profits of owning gold.


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## james4beach (Nov 15, 2012)

In recent days, gold hit $2,000 CAD for the first time in history
https://www.kitco.com/gold-price-today-canada/

Currently it's hovering just below that at $1,991. Exciting times for Canadian gold investors... it's still the best performing asset this millennium.

It's the smallest % weight in my asset allocation, though. All part of a diversified portfolio.


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## james4beach (Nov 15, 2012)

Back above $2,000 again today. I'm surprised how little interest there is in this. Imagine you found a stock ETF with the following stats

Annualized performance (before fees)
10 years: 6.7%
15 years: 9.3%
20 years: 8.5%
25 years: 5.4%

Move in bear market years:
2000 ... -2.60%
2001 ... +8.40%
2002 ... +23.30%
2008 ... +28.80%​

Someone correct me if I'm wrong but I think people would be tripping over themselves to get into that. These are the returns of gold in CAD.


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## lonewolf :) (Sep 13, 2016)

james4beach said:


> Back above $2,000 again today. I'm surprised how little interest there is in this. Imagine you found a stock ETF with the following stats
> 
> Annualized performance (before fees)
> 10 years: 6.7%
> ...


 Last week managed money accounts moved to a net long of 285,082 futures contracts with in aprox 2000 contracts of their record bullish position. These guys chase the market & get caught with large wrong one way bets @ trend reversals. Aug 5 & 6 had back to back DSI 98% bulls (trade futures.com)


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## james4beach (Nov 15, 2012)

New all time, historic highs on gold today. MNT and CGL.C also hitting new all time highs as it tracks.

Aren't you glad your asset allocation has a weight in gold? I sure am.


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## lonewolf :) (Sep 13, 2016)

james4beach said:


> New all time, historic highs on gold today. MNT and CGL.C also hitting new all time highs as it tracks.
> 
> Aren't you glad your asset allocation has a weight in gold? I sure am.


 The rally from 1046 low will retrace fib.618 of the decline from the 2011 high @ 1587

The decline from the 2011 high was 5 waves down

The retrace rally from the 1046 low looks to be tracing out a corrective wave i.e., ABC with wave B contracting triangle Wave C will equal wave A @ 1595 (A common relationship)

Looking to short gold using options near the above mentioned levels.


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## james4beach (Nov 15, 2012)

About a year ago, I bought a small 0.1 oz Maple Leaf gold coin for a friend's baby ... meant to be held in safe keeping. A small thing, size of a penny (quite attractive, see below). Checking the value today, I see that its value has gained 31% since I bought the gift.

It's like giving a mini ETF to someone. You just put it in a box or something, and it performs. Pretty neat I think!

If you're curious, I bought the coin with gold at 1200 USD @ 1.308 = $1570 CAD, and gold is now 1546 USD @ 1.333 = $2060 CAD per oz, an increase of 31% and just about at all time historical highs. And the cost of the coin wasn't too bad. I only paid $26 in excess of the intrinsic gold value of the coin. I feel that around $20 is a pretty reasonable price to pay for an attractive, pure bullion coin that will have value forever.


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## john.cray (Dec 7, 2016)

Hey James,

Did you watch Ben Felix's latest video on Gold: https://www.youtube.com/watch?v=ulgqlQWlPbo ?

I am just curious ... did any of his arguments make you reconsider your (was it 50% ?) allocation to gold?

Cheers


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## james4beach (Nov 15, 2012)

I haven't watched it yet john.cray, I will check it out. My allocation is only 20% gold, quite minimal. It's the smallest weight of anything in my portfolio.

And there is no way I am changing it. If I reconsidered my allocations every time someone made an argument, I'd never stick with my plans... and it's extremely important to stick with the plan. I did a huge amount of research over 2 years. In that time period, I actually adjusted from 25% down to 20% gold. But the plan will not change now. I might re-evaluate in 10 or 20 years.

Remember, asset allocation choices have to withstand market volatility, market craziness, and peer pressure as well.


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## Plugging Along (Jan 3, 2011)

james4beach said:


> About a year ago, I bought a small 0.1 oz Maple Leaf gold coin for a friend's baby ... meant to be held in safe keeping. A small thing, size of a penny (quite attractive, see below). Checking the value today, I see that its value has gained 31% since I bought the gift.
> 
> It's like giving a mini ETF to someone. You just put it in a box or something, and it performs. Pretty neat I think!
> 
> ...


Very nice. I received many of those when I got married and when my kids where born. Ironically, in a jewelry format. When my parents left there home country, they were not allowed to bring anything with them. Many people, especially women back then were not allowed to have their own wealth, as it was 'owned' by the male. As a result, my mother when she arrived to Canada, scrimped and saved and bought .1 oz and 1 oz coins a little bars when ever should could. At the fear of having it taken from her, she wanted to ensure that the females in the family received something. So she had them mounted as bracelets and necklaces and they have been passed down over the years. My girls will never have to worry about everything they have being 'owned' by their spouses, but as a tradition, we have continued with gold coins as gifts. Though I don't mount the coins any more. 

I find it interesting how gold has stood as a symbol of wealth. This was just a total side note when I saw your picture of the gold coin.


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## Topo (Aug 31, 2019)

It seems to me that gold adds value to a portfolio, not because of an intrinsic return, but because of its high volatility and being out of sync with other volatile assets. So for example it works very well in the permanent portfolio, where you get to rebalance between gold, stocks, and LT bonds. That means you are buying low and selling high, which creates a significant portion of its returns.

I can't get a grasp on how gold prices behave. Sometimes it pops on inflation (or in anticipation of inflation), sometimes on deflation, sometimes on weakening of the USD...


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## james4beach (Nov 15, 2012)

Plugging Along said:


> Very nice. I received many of those when I got married and when my kids where born. Ironically, in a jewelry format. When my parents left there home country, they were not allowed to bring anything with them. Many people, especially women back then were not allowed to have their own wealth, as it was 'owned' by the male. As a result, my mother when she arrived to Canada, scrimped and saved and bought .1 oz and 1 oz coins a little bars when ever should could. At the fear of having it taken from her, she wanted to ensure that the females in the family received something. So she had them mounted as bracelets and necklaces and they have been passed down over the years. My girls will never have to worry about everything they have being 'owned' by their spouses, but as a tradition, we have continued with gold coins as gifts. Though I don't mount the coins any more.
> 
> I find it interesting how gold has stood as a symbol of wealth. This was just a total side note when I saw your picture of the gold coin.


Thanks for sharing, that's very interesting that your mother had them mounted as jewelry. I've also seen family members use gold as a store of wealth. It's amazing how many countries around the world have some traditions or historical experiences where gold was vital.

Somehow, I don't think a metal that's been considered precious for 5,000 years ... and which has repeatedly saved families from ruin ... is suddenly going to stop being relevant. Countries appear to agree; they hold about 30,000 tonnes of gold as a store of wealth.



Topo said:


> It seems to me that gold adds value to a portfolio, not because of an intrinsic return, but because of its high volatility and being out of sync with other volatile assets. So for example it works very well in the permanent portfolio, where you get to rebalance between gold, stocks, and LT bonds. That means you are buying low and selling high, which creates a significant portion of its returns.


Yes, this is a very tangible benefit to portfolio design. Low correlation with both stocks and bonds means better diversification, resulting in smoother returns and better returns due to the magic of rebalancing. Counterintuitive, and not something one can see until they play with the numbers.


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## james4beach (Nov 15, 2012)

By the way, for people wondering how I ended up with my crazy 20% gold allocation, the biggest influences on my decision were

(1) Argonaut -- a forum regular -- and his 20% allocation in gold, discussed in his book and described in this thread

(2) the Permanent Portfolio, which is even higher at 25% gold

(3) the math of risk parity, which I won't get into here, but which also told me 20% weight


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## james4beach (Nov 15, 2012)

I had been asking myself what the real return of gold is. Generally I've read that it's had about zero real return after inflation.

In 1872, the price of gold of gold was $18.94
https://www.nma.org/pdf/gold/his_gold_prices.pdf

Today it's $1485. This is over 147 years.
The annual growth rate = (1485/18.94)^(1/147) = 3.0%

US inflation since 1872 has averaged 2.2%
https://www.multpl.com/inflation

Therefore it appears that the real return of gold over 147 years has been positive 0.8%.

Which isn't too bad! It's hardly dead money; gold has preserved purchasing power. In fact, the real return is in the same ballpark as bonds.

And don't we all mostly agree that bonds are worth holding because, despite the low return, they diversify against stocks?


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## Topo (Aug 31, 2019)

The main objection to gold appears to be at it has no intrinsic value; it does not generate any income. Warren Buffet has a saying to the effect that if one had bought a few acres of farm land at the time of the American revolution, it would have generated income many times more than the price of the land. Same with corporations. An ounce of gold would still be an ounce of gold.

Historically, it seems to have provided a good store of value. It seems to respond to inflation and deflation alike. 

If one invests through ETFs, there would be a 0.4% to 0.5% cost to owning gold, which should be taken into account.

Personally, I don't own gold but could see allocating up to 10% and aggressively rebalancing it. I thought about writing covered calls on GLD as a way to make it a "productive asset", but the premiums do not appear to be high enough.


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## james4beach (Nov 15, 2012)

Yes if you add gold to the portfolio you *must* rebalance it annually. Part of the benefit is the weak correlation and the opportunity for volatility harvesting... you need to rebalance to realize this advantage. (Stocks & bonds have the same, but to a lesser extent, because bonds aren't volatile)

I agree that gold has no intrinsic value (other than its useful chemical/industrial uses), but would make the counter argument that stocks don't really trade on intrinsic value either (which was thoroughly described by Shiller in his famous work). All of these things are human constructs. Equities have an intrinsic value, yes, that is FAR below where the market values them. In the blink of an eye, the market P/E of 30 can shrink to 10 or less. *Stocks prices, too, are a figment of the human imagination [in short time horizons]*

The wildly changing stock market multiple tells us that _most_ of the pricing isn't on fundamentals. I think Shiller's study showed that only at about 40+ year horizon does stock market movements appear to track economic fundamentals quite well. If you deal with shorter horizons such as 20 years... _the movements are anyone's guess._

Therefore I believe that the "rationality" and "fundamental-driven" reasons for stock investment are FAR over hyped.

I think that for the time horizon that most people deal with in real life, including me, at perhaps 5 to 25 years, nobody is going to capture stock market fundamentals-driven performance. You may get lucky and catch the market on a P/E expansion cycle (1980-2000 and 2009-today), and most people mistake *that* for fundamentals-based stock performance.

Honestly, at under 25 year time horizon, I see very little difference between stocks & gold. Each could do literally anything. I think it would be crazy to just hold one or the other, a gamble on what it may do.

But another reality is that there are very few places where people store wealth. Stocks, bonds, gold, commodities, real estate -- that's pretty much it. Dalio's concept is that you should pretty much hold all of these because that way, no matter how money sloshes between those things, you benefit over time. It's also one of the core ideas behind the Risk Parity concept.

However if you were to just pick one in isolation (e.g. just hold stocks, or just hold gold) you could get absolutely destroyed, at under 25 yr horizon.


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## Topo (Aug 31, 2019)

Those are good thoughts and argue for maximum diversification. Bonds are an exception among those assets, in the sense that at maturity one is guaranteed (most of the time) to receive their principal and along the way get paid interest. Of course the return is before tax and is nominal. In real terms and after tax one could easily see a loss over time. RRBs would alleviate the inflation problem, but taxes would depend on what type of account it is placed in. There is also an issue of whether CPI tracks true inflation.

Personally, I like real estate more. Land could be thought of as a store of value and should on average track inflation. The structure depreciates over time, but could provide some income. But it is not a passive investment (unless one buys REITs) and it is not practical to rebalance yearly (I guess one could do so by taking a line of credit).


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## james4beach (Nov 15, 2012)

Thanks Topo, and yes I agree that bonds are the exception. They actually do have a predictable return and are less of a wild card (a big reason why I have 50% bonds/GICs). There's still uncertainty, but focusing on say a timespan like 10 years, their return is FAR more certain than either stocks or gold.

I like the real estate concept too, but don't own any.

Increasingly, I have been thinking about how investing is the art of balancing these long term returns (such as the very long term expected strong return of stocks) against things like short term needs and volatility. A very difficult art!


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## hfp75 (Mar 15, 2018)

john.cray said:


> Hey James,
> 
> Did you watch Ben Felix's latest video on Gold: https://www.youtube.com/watch?v=ulgqlQWlPbo ?
> 
> ...



I dont totally disagree with his positions, HOWEVER, his comparisons have been during a time when interest rates have been all been above zero. 

I would argue that our world is different now as we hover around the ZERO rate and possibly lower than that, old statistics will prove to be bad future predictors.

Holding cash will be deflationary (inflation), investing in (safe) bonds will also be deflationary (- rates).... why not just hold gold ?

IMHO negative rates merely just prove that money and the economics as we know them are not functioning properly, why hold more money ?

There are a few references that support my above position in the video and in the comments.....


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## james4beach (Nov 15, 2012)

I should clarify again that gold should be a small % of the portfolio. Argonaut and I both have 20%, others obviously do less. I used to use the Permanent Portfolio but the 25% gold felt too high to me.

Argonaut's position is described in his thread: https://www.canadianmoneyforum.com/showthread.php/132442-The-6-Pack-Portfolio


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## james4beach (Nov 15, 2012)

Gold just hit a new all time high price of a little over $2446 CAD per oz. The two gold bullion tracking ETFs in Canada (MNT and CGL.C) are, obviously, hitting new highs as a result. I hold both.

Here's the longest term chart I can make on stockcharts, 29 years. This is gold in CAD. The price is now significantly above its previous 2011 high.










Since I had the charts handy, I also calculated the performance for this entire time 29 year span. The total cumulative return for gold was 486%. That works out to annualized return = 5.86^(1/29)-1 = 6% CAGR

How does that compare to stocks? The $TSX (without dividends) cumulative return was 301%. That's = 4.01^(1/29)-1 = 4.9%. To that, we can add the roughly average 2% dividend yield and figure the TSX total return was 7% CAGR

So over 29 years, gold's performance was just a bit less than the Canadian stock market. Both gold bullion [ *6%* ] and stocks [ *7%* ] have good _real returns_ over this very long time span.


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## james4beach (Nov 15, 2012)

like_to_retire said:


> My recommendation, when it comes to equities is to *look at the last 10 years*. This allows for a business cycle, so it's often used to examine chart results.



Sure, let's do that. MNT hasn't been around that long, but I can use $GOLD:$CADUSD on stockcharts to calculate the return. It's a cumulative 112% gain which works out to 7.8%. Let's even make this realistic and subtract another 0.4% for the gold ETF fee, leaving us with 7.4% CAGR for gold.

The XIC return is 4.5% CAGR for Canadian stocks, including dividends.


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## james4beach (Nov 15, 2012)

Beware, MNT has been trading with a large premium recently. When I looked last week, it had 5% to 6% premium, so it isn't exactly tracking gold bullion. And it has a very wide bid/ask spread. This tells me that the MNT market maker isn't doing their job well.

Before trading MNT, make sure you go to the Mint's web site at this link. Click on Investors, Net Asset Value.

During trading hours, look at the iNAV (intraday NAV) to see what the fair value is. Don't overpay for it! Put in a reasonable limit order, _not a market order_. People like me are in the market too... let's trade at good/fair prices between us.

CGL.C has been tracking gold more closely and has a tighter bid/ask so this is another perfectly good option.


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## james4beach (Nov 15, 2012)

james4beach said:


> I need lower volatility for many reasons. One reason is that money I invest will not be left alone for 50 years. I would argue that most people, even very young people, simply don't have 50 year time horizons. Inevitably, they need some money sooner, especially in the modern economy where there's no job stability.
> 
> Another reason is that my income, like most people's, correlates with the economy/stock market. If I invested 100% in stocks as fatcat endorses, every time there's a global recession, my employment income would go to $0 and then my net worth would tank 40% to 60%. What kind of life is that?
> 
> ...



I posted this a little over a year ago, but I want to draw attention to it again. The question was: if stocks usually perform best long term, why invest in bonds & gold at all? What is the benefit of diversifying, instead of investing 100% in stocks for 50 years?

It should now be crystal clear.

Do investors really have 50 year horizons? How about people whose jobs have now disappeared? And there are a LOT of them. The recession hit, and stocks crashed. What if these people want to tap into their hard-earned savings? What's the point of having all these investments if you can't liquidate them when you actually need money?

And how about stress during volatility. You bet there was stress! There were people selling in a panic. Several close friends of mine told me they got out of stocks in the middle of last month's crash. One has an MBA. The other has degrees from MIT & Stanford. Due to volatility, they were unable to stick with a long time horizon.

My own consulting income has plummeted. As I described a year ago, my income correlates with equities... as do many people's. Investing in 100% stocks would be setting myself up for a double whammy of income loss, plus net worth loss. No thanks.

I think that investing in a mix of stocks + bonds + gold is a "no-brainer".


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## cainvest (May 1, 2013)

james4beach said:


> I think that investing in a mix of stocks + bonds + gold is a "no-brainer".


For those that are looking at buying gold, is now a good time to buy it or will it fall significantly when the economy picks back up?


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## james4beach (Nov 15, 2012)

cainvest said:


> For those that are looking at buying gold, is now a good time to buy it or will it fall significantly when the economy picks back up?


That's a tough one. It seems unappealing buying gold at its highs and it certainly could fall a lot! But you can also take a 'portfolio' view of this. Let's say a person decides that their portfolio needs some gold for additional stability. If that long term decision is made, then when is the right time to start? I think you can immediately start taking steps towards the new target allocation, but it doesn't have to be done all at once.

Maybe the way to do this is to focus on deciding the asset allocation. Do some research, figure out what % stocks/bonds/gold you want... a plan you can commit to. Once that decision is made, you can start making adjustments maybe by initially shifting 5% weight. If your asset allocation calls for 10% gold, it doesn't have to be done all at once.

Example: a few years ago, my target was 25% stocks / 25% gold. I revised that to 30% stocks / 20% gold, and I made that change gradually over several months.


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## fireseeker (Jul 24, 2017)

Echoing James's take on the portfolio view: 

Three months ago, on Jan. 17, MNT was priced at $21.18 and XIU was at $26.37.
On April 17, MNT was priced at $27.25 and XIU at $22.01.

From a portfolio perspective, you would be buying one component high and another low. The balancing effect is already in place.


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## MrMatt (Dec 21, 2011)

I prefer gold mines in politically stable countries.
If they have AISC in the $1200 range, it's just a question of exactly how profitable they will be.


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## cainvest (May 1, 2013)

james4beach said:


> That's a tough one. It seems unappealing buying gold at its highs and it certainly could fall a lot! But you can also take a 'portfolio' view of this. Let's say a person decides that their portfolio needs some gold for additional stability. If that long term decision is made, then when is the right time to start? I think you can immediately start taking steps towards the new target allocation, but it doesn't have to be done all at once.


One could buy now on the long term portfolio outlook and in the long timeline (> 30 years) the differences likely won't matter much. 

BUT 

Given the market conditions are far from normal right now I'd personally wait for some stability on higher priced items before adjusting long term portfolio goals, like adding gold. Just like I waited (1-2 months) for this years purchases to rebalance on stocks which "currently rewarded me" I believe the reverse is quite likely the same for gold. While a 25% drop in gold over the next 6 months wouldn't kill a long term portfolio it also wouldn't hurt to wait and see if the current situation has it elevated above normal.


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## james4beach (Nov 15, 2012)

That sounds sensible cainvest. But I'll add: any time you have an asset which performs well over the long term, it will _often_ be at or near its all time highs. This is kind of a mathematical consequence of being a well-performing asset  On any given week, it's more likely to be "high" than "low".

I think people run into this problem with stock investment as well. Someone becomes convinced that they should own stocks. Then they look at the price chart and immediately think: yikes, look how high it is! So they wait... and wait... and wait. It keeps going higher. Eventually stocks drop a bit, or plummet, but maybe not any lower than when they started waiting.

I think firmly deciding on your asset allocation is the key step, but after that, I think one should be cautious about too much waiting / market timing. It's probably better to start implementing your allocation change in baby steps. But yes it is a serious dilemma.


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## cainvest (May 1, 2013)

james4beach said:


> I think firmly deciding on your asset allocation is the key step, but after that, I think one should be cautious about too much waiting / market timing.


Yes sticking close to your asset allocation is a good idea but you were saying above that someone was changing it, as in the quote below ...



james4beach said:


> Let's say a person decides that their portfolio needs some gold for additional stability. If that long term decision is made, then when is the right time to start?


So all I'm saying is now is likely not a good time to adjust your asset allocation to include gold. If you chart MNT vs MAW104 since 2012 (MNT starting point) you'll see gold had no gains for 7 years then, some gains in 2019 and big gains during the pandemic. IMO adjusting your portfolio to now include (say 20%) gold is too risky as it's fairly likely when/if the economy picks back up gold will fall again.

And for those that already have their fixed asset allocation of gold you wouldn't be buying it now as your allocation would force you to put money into other areas.


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## james4beach (Nov 15, 2012)

james4beach said:


> Beware, MNT has been trading with a large premium recently. When I looked last week, it had 5% to 6% premium, so it isn't exactly tracking gold bullion. And it has a very wide bid/ask spread. This tells me that the MNT market maker isn't doing their job well.



I want to repeat this warning, because I saw an even higher 7% premium to NAV today. It would be a mistake to buy MNT right now at these high premiums to underlying value. In the blink of an eye, you could lose that 7% premium even if gold is stable.

If you're looking to buy, alternatives like CGL.C or one of the US ones are better right now.

I've tracked the MNT premium/discount over the years. It's been as low as -2% and as high as +7%. The average of my samples since 2016 is 0%


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## librahall (Apr 11, 2020)

james4beach said:


> I want to repeat this warning, because I saw an even higher 7% premium to NAV today. It would be a mistake to buy MNT right now at these high premiums to underlying value. In the blink of an eye, you could lose that 7% premium even if gold is stable.
> 
> If you're looking to buy, alternatives like CGL.C or one of the US ones are better right now.
> 
> I've tracked the MNT premium/discount over the years. It's been as low as -2% and as high as +7%. The average of my samples since 2016 is 0%


Hi James, I should have seen your warning earlier! I bought MNT late last month. I show MNT has a 7.7% premium to NAV today. The NAV of MNT dropped by 3% while CGL.C only dropped by 1.5% today. I am thinking of selling them all(to realize 2% capital gain) before losing that 7.7% one day. And then buy CGL.C for my gold part of PP. Do you think it's a good idea? Thank you.


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## james4beach (Nov 15, 2012)

That's a tough question and I don't really know the right solution. My RRSP holds entirely MNT as shown in this other thread, and I have no intentions to sell any of it (until my annual rebalancing time). It's true that it's sitting at a premium, but there is also a "cost" to placing any trades due to the money you lose on the bid/ask spread... so trades incur cost (or friction). I also think MNT has a premium for a good/plausible reason and I don't feel a need to sell it just because of 7% or even 10% premium.

But here would be the approach I would take if I felt I wanted to cash out on that premium. It's a bit tricky to do in practice. First, calculate the real time fair value. Then take note of the bid and ask price. The goal is to only sell it at a premium to fair value.

I would place a limit sell order just below the existing limit prices. For example someone else in the market might be asking 27.98. I would drop it a bit further and ask 27.96 _as long as it's still a sufficient premium to NAV_. You might then see other traders bring their ask prices down further. Remember that you have to have the lowest asking price to get the trade.

Definitely *do not* sell as a "market" order, because then you're accepting whatever bid price someone shows, and it's no longer selling at a premium.

I would do this early in the day and let the limit sell order sit. Maybe a buyer will come along and buy from you at this premium; maybe not. Maybe other sellers will drop their asking price further... this is all a healthy activity that actually drives the MNT price towards NAV.

At the end of the day, if I successfully sold any at the premium I wanted, then I'd probably roll that money into CGL.C

But as you can see, this is not a straightforward process and it's kind of tricky to realize your gain.


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## librahall (Apr 11, 2020)

james4beach said:


> That's a tough question and I don't really know the right solution. My RRSP holds entirely MNT as shown in this other thread, and I have no intentions to sell any of it (until my annual rebalancing time). It's true that it's sitting at a premium, but there is also a "cost" to placing any trades due to the money you lose on the bid/ask spread... so trades incur cost (or friction). I also think MNT has a premium for a good/plausible reason and I don't feel a need to sell it just because of 7% or even 10% premium.
> 
> But here would be the approach I would take if I felt I wanted to cash out on that premium. It's a bit tricky to do in practice. First, calculate the real time fair value. Then take note of the bid and ask price. The goal is to only sell it at a premium to fair value.
> 
> ...


Hi James, 
Actually, I went ahead and sold most of my MNT today. I used the same approach as you suggested above with a little luck for sure. 

















More luckily, I bought CGL.C at a low price. 










My findings are:

MNT does have a premium to NAV as high as 8.9% today;
MNT does have a much wider spread(10 cents/share) than CGL.C(1-3 cents/share);
Although both of them are tracking the price of Gold, MNT and CGL.C could go quite differently as shown above.


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## james4beach (Nov 15, 2012)

That sounds good! You took advantage of the premium, and also helped move the price closer to fair value. You did everyone a favour and were paid to do it


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## hfp75 (Mar 15, 2018)

I actually like the mnt premium. Yes you need to be aware of it, but it works more like real gold. Call a RCM dealer and ask what a gold maple is selling for, then subtract the spot price.... there is the same premium on physical that there is with mnt. Probably cause there is a process in place to convert your mnt into physical via the RCM and that option as far as I know doesn’t exist with other gold ETF’s.


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## james4beach (Nov 15, 2012)

hfp75 said:


> I actually like the mnt premium. Yes you need to be aware of it, but it works more like real gold. Call a RCM dealer and ask what a gold maple is selling for, then subtract the spot price.... there is the same premium on physical that there is with mnt. Probably cause there is a process in place to convert your mnt into physical via the RCM and that option as far as I know doesn’t exist with other gold ETF’s.


Except it doesn't always work like that. I've also seen MNT go as far as 1.5% discount to NAV. It's not a steady premium.

According to the records I've kept, this large MNT premium only appeared when the shutdown started. One possible explanation is that the mechanism of redeeming MNT for physical gold (normally available) may be offline due to the shutdown. So perhaps the premium is there because large unit holders aren't able to redeem units.


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## hfp75 (Mar 15, 2018)

Possible, but I bet most people buying MNT are not planning to redeem for physical. I would bet that most people that are buying it, like the fact that it is a Crown Corp and thus your purchase is backed by the RCM / the Queen. The fund also does not expand and contract to suit market demand. So, there are a few factors at play, there is true supply / demand behind the price which is supportive of real market value. You could say that the MNT premium might actually be a local/Canadian version of the GVZ (Gold Volatility Index) its just that there is no daily graph available to show the premium/discount. Also, if just say MNTs price is accurate, it could highlight a flaw in what might be considered a manipulated gold price, so maybe what we consider golds price, is being manipulated artificially down. I also think its a scam that when gold ETFs need more gold, so they can sell more shares, it just seems to happen overnight, and when they need to liquidate gold or erase units, it also happens overnight and I sit thinking did they ever really have the physical to support the outstanding units? and if so, How on earth can they acquire and disperse so much so fast. I guess in the end, I like MNT, it just requires that investors understand that there is a 'premium/discount' to be aware of. 

Also, say when MNT is high and I rebalance (sell), I capitalize on the premium. Thats a free 1-7%, and one day when its down/discount and I need to grab some more (buy) to hit my target, hopefully I am at fair price or a discount. This system sees me profiting on the discount/premium. Its kinda timing the market but I cant help that this product works in this capacity. 

My wifes pension will be moved into a LIRA in 2 months and if MNT has a premium I will be buying CGL, as its a good second option until I can get MNT at a neutral price or hopefully a discount.


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## librahall (Apr 11, 2020)

Today MNT shows an 11% premium to NAV so I contacted RCM for their explanation. Below is what I hear from them via email. FYI. 

"Thanks for your inquiry. As of early March we have seen the premiums on physical gold bars and coins begin to increase significantly due to supply chain disruptions related to the impact of the covid-19 pandemic. Production at mines, mints and refineries has been adversely impacted while commercial air transport is operating at much reduced levels, meanwhile the demand for bullion has increased significantly. One of the key differences between ETRs and other gold investment listings is that ETRs are exchangeable for physical (EFP), i.e. they have embedded monthly right to redeem for physical gold. Another consideration is in terms of structure - ETRs do not have the daily creation mechanism of ETFs, there is a set number of ETRs outstanding and we may only issue new ETRs from time to time. As you mentioned in your message there is now a substantial premium on physical gold over the spot gold price that is widely quoted. The premium to NAV for gold ETRs has likewise grown to trading currently at the highest levels since the IPO in 2011. Whether this premium remains elevated or declines from here if production returns to normal and supply chains improve is difficult to determine. I've attached a note from CIBC that shows an example of the dislocation that we've seen recently between the spot and physical market prices. The May gold futures contracts on COMEX expire tomorrow as well which may contribute to volatility."


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## calm (May 26, 2020)

The only reason gold is not 10 thousand an ounce is because there is paper gold.
Economic Terrorists are printing paper gold in the same way that the Federal Reserve is printing dollars.
With this Covid-19 economic collapse many people asked to redeem the paper gold for physical gold and were unable to do so. Those Economic Terrorists who sold the paper gold will soon need to declare bankruptcy because it was all a scam and they do not have the physical gold.


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## Topo (Aug 31, 2019)

It is surprising to see such a high premium for MNT. I wonder why it is not arbitraged away. Institutional investors (and even retail investors) could short MNT and go long an equivalent in CGL.C or GLD. That could be a very good return without exposure to the volatility of gold. There is of course a possibility that the premium will grow resulting in losses. 

If I owned MNT, I would immediately sell it, buy back the underlying in other gold ETFs (resulting in no net change in gold exposure) and pocket the difference. It may not be there after things settle down.


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## james4beach (Nov 15, 2012)

Topo said:


> It is surprising to see such a high premium for MNT. I wonder why it is not arbitraged away. Institutional investors (and even retail investors) could short MNT and go long an equivalent in CGL.C or GLD. That could be a very good return without exposure to the volatility of gold. There is of course a possibility that the premium will grow resulting in losses.


It is a good question. One issue in Canada is that we have a lot of ETFs, but not a lot of institutional market makers or authorized participants. Sometimes it's hard to get an institution interested in this kind of market-making... there has to be enough volume, etc to make this worthwhile.

You can see from the bid/ask spreads on MNT that it is lacking in market-making. Why exactly, I don't know, but that's the reality. Well one reason is obvious... they don't have the same creation and redemption method as regular ETFs. So an institution can't one day decide to "make the market" in MNT. To really do this, they would have to redeem for physical gold. That's a whole different ball game than electronic trading and basket creation/redemption.

MNT is not an ETF. It does not have the usual ETF mechanisms, so it can't be easily arbitraged the same way (talking about the ideal arbitrage, where you substitute it for its precise underlying thing).



> If I owned MNT, I would immediately sell it, buy back the underlying in other gold ETFs (resulting in no net change in gold exposure) and pocket the difference. It may not be there after things settle down.


This makes sense if you think gold ownership through MNT is equivalent to paper gold owned elsewhere. Personally I am not sure they are equivalent, which is why I don't do what you are suggesting. I think that there may be a tangible benefit holding a gold obligation backed by Canada. As I mentioned somewhere else, MNT is almost like a gold-backed digital currency. It's a certificate/ claim of gold, backed by The Queen.

One consequence of doing the arbitrage you suggest is that you may be selling a fundamentally more valuable thing, for a run-of-the-mill paper gold obligation. It's not a terrible idea, and I thought of doing the same, but decided to hold onto MNT.

On the other hand, when I was filling up my TFSA with new purchases, I did actually buy CGL.C instead of MNT, because I didn't want to buy at the premium.


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## james4beach (Nov 15, 2012)

A counter-argument to my own view above is that, if we consider the history of Great Britain, there is a long history of The King/Queen not honouring their gold obligations. Britain devalued (against gold reserves) several times, for example 1931.

So from that perspective, someone may argue that the gold promise of a commercial institution (like Blackrock) could be *superior* to a Crown corporation. So maybe it really is a good trade to sell MNT, pocket the premium, and buy CGL.C.


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## Topo (Aug 31, 2019)

james4beach said:


> A counter-argument to my own view above is that, if we consider the history of Great Britain, there is a long history of The King/Queen not honouring their gold obligations. Britain devalued (against gold reserves) several times, for example 1931.
> 
> So from that perspective, someone may argue that the gold promise of a commercial institution (like Blackrock) could be *superior* to a Crown corporation. So maybe it really is a good trade to sell MNT, pocket the premium, and buy CGL.C.


The premium that MNT carries suggests to me that the market is more in agreement with your original position (MNT is safer than gold ETFs). My view is that MNT would be safer and would justify a slight premium (maybe 1 or 2%), but 15% is bizarre. So I would be willing to take the small risk for the arbitrage. However, if I were a buy-and-hold investor, I would look for an opportunity to revert back to MNT. 

There was this interesting story about (originally West) Germany keeping gold reserves at the NY Fed. During the financial crisis it was alleged that the authorities in NY demurred when the Germans wanted to audit the gold. But this was later denied and Germany got all of its gold back even though it took a few years.


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## james4beach (Nov 15, 2012)

Topo said:


> The premium that MNT carries suggests to me that the market is more in agreement with your original position (MNT is safer than gold ETFs). My view is that MNT would be safer and would justify a slight premium (maybe 1 or 2%), but 15% is bizarre. So I would be willing to take the small risk for the arbitrage. However, if I were a buy-and-hold investor, I would look for an opportunity to revert back to MNT.


No question this is an unusual situation and we're all just guessing at the true cause. But I have also been thinking about to my previous favourite physical position, the Central Fund of Canada. This was a closed end fund and had a rather static amount of bars sitting in a vault.

At times, it had a premium to NAV (and got quite large). At times, a discount. CEF had been around for decades and had shown this pattern... it's not like anyone was arbitraging it back and keeping it exactly at NAV.

The reason this is relevant is because I happily held CEF for the long term despite these fluctuations in premiums and discounts. And in hindsight, I think it was the right idea. Some of those premium and discount periods lasted a long time, and I don't think I could have traded around it using GLD and SLV equivalents.

In hindsight, I am glad I simply held CEF for the long term without getting caught up on deviations from NAV. It's kind of inevitable for a closed end fund, and MNT is a similar structure.


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## james4beach (Nov 15, 2012)

For people who are interested in adding a gold weight to their portfolio, this might not be a bad entry now with CGL.C at 19.60. The price has come down off its highs.

Of course, it could fall a lot further. Gold behaves differently than stocks... which is a big part of the appeal


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## Topo (Aug 31, 2019)

Part of the price drop is due to strengthening of the Canadian dollar, which has jumped about 7% since its mid March lows. 

In the long run, I am bullish on gold, given we are beginning a whole new decade of low-interest rates.


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## calm (May 26, 2020)

90 percent of my buying 13 oz last January is because I believe that China is soon going to introduce a gold backed currency to complete against the Greenback.

Other than that ...... no chart ..... no graph ...... no accounting has any truth to it any more.

They just printed Trillions out of thin air and are now trying to convince us that it now has value. And the only way they continue to claim the dollar has any value is because they will nuke you if you claim or pretend otherwise.

The U.S. financial system is like that circus game of Fish Pond and where you throw a line into a blind spot and a circus employee attaches an ornament.

I need to see the proof that all those ETF's which sell paper gold really have the physical gold on hand.

We all know that is untrue.


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## hfp75 (Mar 15, 2018)

calm - I do think that MNT/MNS is correctly supplied...


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## calm (May 26, 2020)

hfp75 said:


> calm - I do think that MNT/MNS is correctly supplied...


Are you a dealer or something.
I did not deliberately mean to insult you.
I am sorry. I have no idea what MNT/MNS is/was.
I don't trust nobody. What good is a piece of paper on the morning that China opens the currency?
Is that when people intend to run around trying to cash in the chips?
In all the confusion, you will have no time to demand the physical.
Imagine how long is the line up at the mint going to be? Longer than the Covid-19 bank line I would imagine.
In my mind if you have enough trust to buy paper gold, well ..... you might as well just buy U.S. currency. Same type of trust.

If not physical gold, I would be buying some land or property. Even if it is a swamp.
You will still have something of value when/if the GreenBack collapses.
I am 72, but if I was 32, I would be looking for a swamp.


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## goldman (Mar 18, 2017)

$2400 CAD bit of a nice gain there since my OP for this thread =D


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## ConfusedOne (Sep 3, 2017)

I know there's no point in trying to time the market but if you do not have a portion of your portfolio allocated to gold, would now be a time to start a position given the price? Or would it be prudent to wait for an economic recovery? Buying at such a high point seems wrong.


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## james4beach (Nov 15, 2012)

ConfusedOne said:


> I know there's no point in trying to time the market but if you do not have a portion of your portfolio allocated to gold, would now be a time to start a position given the price? Or would it be prudent to wait for an economic recovery? Buying at such a high point seems wrong.


That's a very difficult question. This could be the peak price in gold before it drops for many years to come, or this could be the lowest price in gold you'll ever see going forward. Both are possible.

I would look at this a different way. Have you settled on a finalized investment plan, or asset allocation that you believe in? I would think very hard (and take your time) deciding on the asset allocation that you want. Once you are 100% committed to the idea, then go and implement it. And if that means buying gold, then yes, buy whatever gold is needed to accomplish that plan.

I say this because you don't want to be buying (or selling) assets just in reaction to moods or popular opinions of the day. The worst thing would be to buy gold just because it looks like a good idea today, maybe because you heard some analyst say that inflation is now a danger, or you heard some gold nut with some end of the world theory.

Those are good ways to lose money. You could change your mind in the future.

So I would suggest spending the time and energy deciding on your asset allocation plan. Consider the pros and cons. Consider the potential flaws with it. Look at historical results, both the bad and good. *Make sure you are absolutely convinced that the plan is solid.*

This forum is a good place to bounce your asset allocation plan off others.

Then, write the plan down somewhere. For example, mine says: 20% gold, 30% stocks, 50% bonds. Am I convinced that this plan is good? Yes. Will I stick with it no matter what? Yes. Do I feel it's a good fundamental plan, and not just a knee-jerk reaction to current conditions? Yes.


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## wayward__son (Nov 20, 2017)

J4B, long time reader, big fan. for many years i have had an AA that looks very similar to yours. in recent years i began to really worry about currency debasement and that worry has not abated (lol). i view it as a risk in both deflationary (policy response) and inflationary environments. how are you thinking about this -- the gold and then equity making up 50% meant to suffice? i know that when i set my own AA, end of 100 year global sovereign debt cycle and debt jubilee (via debasement ) were not top of mind (perhaps a deficiency in my planning). i think these things are now more than tail risks on anything longer than a 1-2 year timeline (and possibly even in the short term) and the consequences severe enough that for me they justify revisiting the AA, moreso than other attempts at market timing. very interested to hear your thinking on this.


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## calm (May 26, 2020)

It is my understanding that if I was to sell my gold today, I would be paying a 50% Capital Gains tax.


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## james4beach (Nov 15, 2012)

wayward__son said:


> J4B, long time reader, big fan. for many years i have had an AA that looks very similar to yours.


Thanks!



wayward__son said:


> in recent years i began to really worry about currency debasement and that worry has not abated (lol). i view it as a risk in both deflationary (policy response) and inflationary environments. how are you thinking about this -- the gold and then equity making up 50% meant to suffice?
> . . .
> i think these things are now more than tail risks on anything longer than a 1-2 year timeline (and possibly even in the short term) and the consequences severe enough that for me they justify revisiting the AA, moreso than other attempts at market timing. very interested to hear your thinking on this.


Checking if I understood your concern... Considering that equities and gold are the traditional assets for safety against currency destruction, you're wondering if the 50% in these is enough to offer protection, when the other 50% is in fixed income -- and therefore vulnerable.

I was going to respond "yes I think it's OK" when I first saw your post, but I decided to take some time to do a bit of studying before posting.

For this, I think Argentina is a very useful case study. Let's look at Argentina, from the perspective of an Argentinian investor in their local currency. The numbers below are a bit rough, but reasonably accurate.

*~ Case Study: Argentina ~*

Their currency has been disintegrating over the last 10 years. Using the USD as a reference, the Argentine Peso has been depreciating at a rate of 28% per year. The currency has lost 92% of its value: it's basically been wiped out.

Here are the 10 year annual returns of each of the asset classes in their local currency. Note that stocks includes domestic & foreign, analagous to "XIC and XAW" for us.

Stocks: 33% cagr
Gold: 43% cagr
Bonds: 10% cagr

Clearly, this is a total disaster for fixed income investors. This is the horror scenario that people like Dalio sometimes talk about. The net return in USD (which we're using as a stable reference) is 10% less 28% depreciation = -18% per year.

Losing money at 18% per year is catastrophic. This is a great illustration of the danger of bonds during high inflation / money printing / devaluation. Just three years of that and you've lost half your capital!!

My asset allocation is 20% gold, 30% stocks, 50% bonds. How would that work out for an Argentinian?

The overall return would have been roughly 24% annually. The NET return after considering currency destruction is: 24 - 28 = *-4%*

Losing money at 4% is not quite as catastrophic. In fact this result is probably within the "noise" considering that I calculated all of this pretty crudely. This is almost a ZERO result.

*~ Argentina Result ~*

So is "20% gold and 30% stocks" enough to preserve capital during extreme currency destruction?

The Argentina case study shows that it's pretty darn close to a zero result, which means capital is mostly preserved.

One might be tempted to look at these numbers and say, oh boy, I should weigh much more in stocks and gold (and get rid of bonds). But think of what would have happened if this currency destruction happened while stocks also crashed (globally) which is a possibility!

Balancing these risks is VERY hard. If you weigh more into stocks or reduce bonds, you might get better preservation of capital, but you also might catch a weak stock market -- that would give a much worse result.

I think the 20/30/50 allocation does reasonably well in all the economic conditions, including currency destruction.


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## wayward__son (Nov 20, 2017)

james4beach said:


> Checking if I understood your concern... Considering that equities and gold are the traditional assets for safety against currency destruction, you're wondering if the 50% in these is enough to offer protection, when the other 50% is in fixed income -- and therefore vulnerable.


yup, exactly that



james4beach said:


> The overall return would have been roughly 24% annually. The NET return after considering currency destruction is: 24 - 28 = *-4%*


this is far better than i would have expected. very interesting stuff.


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## librahall (Apr 11, 2020)

I started to regret that I sold MNT for CGL.C back in May. It seems MNT does have a reason for its high premium. Plus, MNT has a much lower management fees(0.3%) compared to CGL.C(0.5%).
















MNT









CGL.C


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## MrBlackhill (Jun 10, 2020)

Happy to hold KL at the moment.


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## james4beach (Nov 15, 2012)

wayward__son said:


> this is far better than i would have expected. very interesting stuff.


It's a better result than I expected as well. Note that my calculations are based on 50% bond weight at the 10 year maturity (like XBB, VAB).

Many investors would see these figures and say: this clearly shows why you need to be entirely in stocks & gold. Those are the only assets which protected against currency collapse and the bonds were a disaster.

The problem is that the bonds are needed for volatility reduction. For example if you look at the US markets with equal weight stock/gold allocation, you get some insane drawdowns such as 33% drop in 1980 ... 26% drop in 2008 ... 20% drop in 1974, etc.

*Adding the weight in bonds cuts those declines in half, and this is the main reason to hold bonds. The bonds are not for performance; they are for stability. This is widely misunderstood by people who complain about the zero yields of bonds. We're holding them for stability, not performance.*

If someone has no concerns at all about volatility then perhaps they should invest in 50% stocks, 50% gold, and skip bonds entirely. It's an OK idea. Just don't expect to do well if we get deflation.

So that's the tradeoff. If you want or need stability (such as in retirement or withdrawal mode) then you need bonds


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> The overall return would have been roughly 24% annually. The NET return after considering currency destruction is: 24 - 28 = *-4%*


Based on that calculation, a currency destruction of 100% would mean 24 - 100 = -76%. Not sure that makes sense, how could you still have 24% of your money left?

Isn't the calculation 1.24 * (1 - 0.28) = 0.8928 = -10.72% ?

100$ invested goes up to 124$, meanwhile currency loses -28% which means losing 34.72$ which means there's 89.28$ value left.
100$ invested losing -28% currency which means 72$ value left and goes up 24% to 89.28$.


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## james4beach (Nov 15, 2012)

I'm applying average annualized rates to all of this. These are calculation shortcuts that I've used over the years but maybe the approximation doesn't work so well with larger numbers like these? Not sure.

I'll try another method with some real numbers. 10 years ago the exchange rate for ARS/USD was 0.254 and today it's 0.014 ... that's the 94% currency wipeout. Ouch.

Say the investor started with 10,000 ARS = 2,540 USD
Assuming investments gain at 24%, ending value = 10,000 * 1.24^10 = 85,944 ARS
The final value in US dollars = 85,944 * 0.014 = 1,203 USD

Over this decade, 2540 USD turned into 1203 USD, which is -7% CAGR.

My original estimate was 4% annual loss, but this calculation shows 7% annual loss. That's painful, certainly, but still better than the wipeout.

The frightened Argentinian who went entirely into stocks & gold instead, fleeing bonds entirely, would have enjoyed 38% annual return for an ending value = 10,000 * 1.38^10 * 0.014 = 3,507 USD ... total preservation of capital.

Which is why people who are very afraid of inflation and devaluation pile into stocks and gold. I can't blame them.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> I'm applying average annualized rates to all of this. These are calculation shortcuts that I've used over the years but maybe the approximation doesn't work so well with larger numbers like these? Not sure.


_(Yes, you can use approximations with addition/subtraction instead of multiplications for rates between about -5% to 5% and for only one operation. [Because if a stock increases by 5% one hundred times and decreases by -5% one hundred times, you'll end up with a net result of -22%.] I put this message in parenthesis as I didn't want to distract from the main discussion, sorry.)_


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## fireseeker (Jul 24, 2017)

librahall said:


> I started to regret that I sold MNT for CGL.C back in May. It seems MNT does have a reason for its high premium.


Maybe I'm missing something: What are you concluding is the reason?


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## Topo (Aug 31, 2019)

For the Argentine investor, any security denominated in a stable currency (USD, Euro, Mexican Peso, etc) would have been a boon. They could have bought US treasuries or bunds and they would have done okay. 

Of course there is no reason to believe that USD or the Yen would not suffer the same fate as the Argentine Peso. So currency diversification is the key. With a global stock ETF such as VXC, one not only taps into the world equity premium, but also gets at least some protection against inflation/currency devaluation.


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## james4beach (Nov 15, 2012)

Topo said:


> So currency diversification is the key. With a global stock ETF such as VXC, one not only taps into the world equity premium, but also gets at least some protection against inflation/currency devaluation.


Right, which is why it's so important to hold foreign securities, without currency hedging. For Canadians that could mean ZSP, XAW, XWD, VXC and such.

Gold is basically a currency that cannot be devalued by governments printing money.


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## MrBlackhill (Jun 10, 2020)

Question. All those ETF you guys are talking about still have >50% exposure from US market. Why not buying a combination of XMI & XEC in order to have exposure to foreign markets? They have mutually exclusive exposures and absolutely no North American exposure. Seems easier to control the foreign diversification, not?

That way you could decide whether you go 70% N. America, 20% EAFE, 10% Emerging Markets or 85% N. Am., 10% EAFE, 5% EM, or...


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## Topo (Aug 31, 2019)

MrBlackhill said:


> Question. All those ETF you guys are talking about still have >50% exposure from US market. Why not buying a combination of XMI & XEC in order to have exposure to foreign markets? They have mutually exclusive exposures and absolutely no North American exposure. Seems easier to control the foreign diversification, not?
> 
> That way you could decide whether you go 70% N. America, 20% EAFE, 10% Emerging Markets or 85% N. Am., 10% EAFE, 5% EM, or...


I think the global market cap is preferable in terms of simplicity. I haven't found a good reason to slice and dice it, whether for equity or currency exposure.


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## ConfusedOne (Sep 3, 2017)

Why not a one-fund solution for global equity?

*Vanguard - VEQT (MER 0.25)*
US (41.7%)
Canada (30%)
World (21.2%)
Emerging Markets (7.1%)

*iShares - XEQT (MER 0.20)*
US (46.91%)
Canada (23.53%)
World (24.01%)
Emerging Markets (5.21%)


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## MrBlackhill (Jun 10, 2020)

Topo said:


> I think the global market cap is preferable in terms of simplicity. I haven't found a good reason to slice and dice it, whether for equity or currency exposure.


Thanks, makes sense.

I guess I was asking that as it would better fit my investment style. I'm stock-picking North American stocks and I buy ETF only for the exposure I can't have from stock-picking and I like to control my strategy between sectors, foreign exposure, stock correlation, etc.


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## Topo (Aug 31, 2019)

MrBlackhill said:


> Thanks, makes sense.
> 
> I guess I was asking that as it would better fit my investment style. I'm stock-picking North American stocks and I buy ETF only for the exposure I can't have from stock-picking and I like to control my strategy between sectors, foreign exposure, stock correlation, etc.


If you are stock picking your Canada and US allocation, then yes, those choices make sense to broaden the exposure to EAFE and emerging markets.


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## james4beach (Nov 15, 2012)

john.cray said:


> Hey James,
> 
> Did you watch Ben Felix's latest video on Gold:
> 
> ...


I am gradually, sequentially going through each Ben Felix video and finally got to gold.

As I posted elsewhere (forget where) there is definitely some bias showing. And he is spinning facts to support his bias as can be expected by someone who receives an education in the mainstream, equity culture of today.

He cited a paper about gold's real return (keeping up with inflation) since the 1970s. He says that in this modern day timeframe, gold did not keep up well with purchasing power. But then he cites an extreme, historic data point going back thousands of years. At that point he makes a joke that if your time horizon is a few thousand years, you will be OK. But otherwise, he implies, we don't have a basis to think gold keeps up with inflation.

Wrong. I even showed the data source and calculation in post #118. There is pricing data for gold available in the 1800s and 1900s both in Britain and US, so let's not pretend that we "didn't know the price of gold" in the past.

From this data, we know that gold has kept up with inflation over time periods such as 100 years and 150 years.

Gold _is_ volatile, *and so are stocks*. The really nice returns in stocks that all of these PWL types cite ... the long term real returns ... are based on about 100 years of historical data. We also have real returns for gold over similar time frames.

It's true that in these long time frames, stocks have superior real returns, but gold is also showing about 0% real return meaning that it does keep up with inflation.

Not only that, but of course we actually know that gold has preserved value over even longer timeframes (as Ben jokes about) when stocks didn't even exist. Gold was preserving purchasing power long before the concept of stocks came into existence.

It's pure spin / bias to recommend stocks based on ~ 100 year performance, but then disregard gold performance data which exists for the same ~ 100 year horizon.


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## hfp75 (Mar 15, 2018)

I also take the position that the price of gold was stifled for a large portion of the 20th century


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## james4beach (Nov 15, 2012)

james4beach said:


> I am gradually, sequentially going through each Ben Felix video and finally got to gold.
> . . .
> It's pure spin / bias to recommend stocks based on ~ 100 year performance, but then disregard gold performance data which exists for the same ~ 100 year horizon.


I think the primary mistake Ben makes is disregarding the long term performance of gold. A liquid asset that preserves purchasing power over many hundreds of years is an enormous success story. There are few other things in world history that can make the same claim.

He's saying that we have no clue what the return of gold will be in our shorter time horizons. Yes he's correct, the return could be just about anything!

But we also have no clue what the return of stocks will be in our time horizons. There have been periods of 30-40 years where stocks did terribly, falling short of the supposed 5% real return.

The sad truth is that in our limited, mortal time horizons, we are not assured ANY of these returns from anything. Here's all we know: stocks have a long term 5% real return, bonds 2% real return, gold 0% real return. All of these are long term returns, which may or may not continue going forward.

*Here's my logic*: there are no guarantees about any of these returns. All 3 assets (stocks, bonds, gold) have performed well through history, so I will hold all three. Any one of them could turn out to be a total "dud" and useless for the next 10 20, or 30 years. I would rather diversify across all 3, instead of concentrating my bets in just stocks or bonds. This gives a higher likelihood of a successful outcome.

It could turn out that gold performs horribly for the next 20 years. That would not mean I've made a mistake here. It could turn out that stocks perform horribly for the next 20 years. Again, not a mistake. I actually expect one of these three to be very disappointing going forward.


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## james4beach (Nov 15, 2012)

I just want to point out that gold is hitting new record high (all time high) prices almost daily, valued in CAD. Things that routinely hit new all time highs are usually said to be in a bull market.

Since gold is a currency, it must be quoted in relation to another currency. The pair that is relevant to Canadian investors is Gold vs CAD. Here's the chart going back to 2011.

The previous all time high was $1882 back in 2011, but you can see that we've been higher than this ever since mid 2019. This chart shows $2481 but this morning it's higher at roughly $2490.

The Canadian Dollar appears to be rapidly losing value against gold. Maybe they can print more money and reduce interest rates further to fix this. (that's a joke)


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## calm (May 26, 2020)

If I remember correctly, about 3 months ago this referenced website (Natural News) has been de-ranked from FaceBook because of conspiracy stuff ...
------
Credit card companies now blocking Americans from buying gold or silver
Banks Rejecting Credit Card Purchases of Precious Metals; Cutting-Off Entire Credit Lines of Consumers who try
By Ethan Huff
July 21, 2020








Banks Rejecting Credit Card Purchases of Precious Metals; Cutting-Off Entire Credit Lines of Consumers who try


I have gotten at least three reports over the past two days, of consumers who were trying to purchase Precious Metals (Gold, Silver, Platinum) using...




halturnerradioshow.com


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## james4beach (Nov 15, 2012)

calm said:


> If I remember correctly, about 3 months ago this referenced website (Natural News) has been de-ranked from FaceBook because of conspiracy stuff ...


Well that is normal. You aren't supposed to use credit cards to buy other money, and there are various limitations on what you can buy using credit cards.

Can you use credit cards to buy Euro currency notes?


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## calm (May 26, 2020)

james4beach said:


> Well that is normal.


I never tried to buy gold with a credit card.
I can take a cash advance I guess and then buy gold?
But cash advances are high interest.


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## james4beach (Nov 15, 2012)

calm said:


> I never tried to buy gold with a credit card.
> I can take a cash advance I guess and then buy gold?


Yes and credit cards treat certain categories of purchases as instant cash advances, including crypto currencies by the way.


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## james4beach (Nov 15, 2012)

calm said:


> I never tried to buy gold with a credit card.
> I can take a cash advance I guess and then buy gold?
> But cash advances are high interest.


I read this post again and wanted to add: in case you are actually thinking of doing this, please don't buy gold with borrowed money.

Cash advances are very high interest, yes.


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## MrBlackhill (Jun 10, 2020)

Gold on its way to 2000$? It just went from 1800$ to 1900$ in a matter of a week.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> Gold on its way to 2000$? It just went from 1800$ to 1900$ in a matter of a week.


Currently $2,550 CAD, gold just hit another all time historic high price. Again, I suggest watching the price in CAD since that's what is relevant to us.

Remember, this is a currency pair.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> Currently $2,550 CAD, gold just hit another all time historic high price. Again, I suggest watching the price in CAD since that's what is relevant to us.
> 
> Remember, this is a currency pair.


True, and anyway 2000$ USD is just a psychological threshold. Well, then gold just recently hit 2500$ CAD, a psychological threshold from a Canadian point of view.


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## calm (May 26, 2020)

james4beach said:


> I read this post again and wanted to add: in case you are actually thinking of doing this, please don't buy gold with borrowed money.
> 
> Cash advances are very high interest, yes.


I am not into buying more gold.
I just thought that the demand must be huge if credit card companies were not allowing purchases.
But you straightened that out for me.
I purchased 13 ounce waffers on January 27th at the TD bank and buried it in my sisters back yard.
Listed at 2,082.74 Canadian dollars ($1,580.58 American) per ounce January 27, 2020.





Gold Price in Canadian Dollar (CAD) - Live Price and Historical Chart | GoldBroker.com


Gold price in CAD (Canadian Dollar). Historical chart and real-time quote (live price per gram, ounce, kilo) on the LBMA, yearly performance in Canadian Dollar.




www.goldbroker.com


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## librahall (Apr 11, 2020)

# MNT vs CGL.C

While gold price including CGL.C went up almost 1% today, MNT.TO price dropped 3.83% and it's premium/discount to iNAV also dropped to 8.6%(the lowest point probably in the past one month).


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## james4beach (Nov 15, 2012)

librahall said:


> # MNT vs CGL.C
> 
> While gold price including CGL.C went up almost 1% today, MNT.TO price dropped 3.83% and it's premium/discount to iNAV also dropped to 8.6%(the lowest point probably in the past one month).


Thanks for sharing. That sounds encouraging, glad to see this normalizing.


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## calm (May 26, 2020)

I think that each time an embassy closes during this dispute between the U.S. and China will result in a 100 dollar bonus for gold investors.
If America introduces sanctions against China, then China will introduce a gold-backed currency.


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## hfp75 (Mar 15, 2018)

Glad I sold my MNT and swapped to CGL.C a while back for a 15% premium !!! 

Wish I owned more Silver... my 3% allocation to MNS is just so small, but I bought it like 20% ago....


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## librahall (Apr 11, 2020)

MNT is trading at 2%+ premium to NAV today. Maybe a good chance to buy if it continues to drop toward 1% premium?


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## james4beach (Nov 15, 2012)

librahall said:


> MNT is trading at 2%+ premium to NAV today. Maybe a good chance to buy if it continues to drop toward 1% premium?


Hoping it stays low and close to NAV. As I add more money to my investments, I'll need to buy more gold (eventually) and I was concerned that I couldn't buy MNT at such high premiums.


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## JosephK (Nov 7, 2012)

Anyone have any suggestions for buying physical silver? I was looking at a few suppliers and the premiums seem crazy high compared to the premiums on gold.


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## Spudd (Oct 11, 2011)

JosephK said:


> Anyone have any suggestions for buying physical silver? I was looking at a few suppliers and the premiums seem crazy high compared to the premiums on gold.


My suggestion would be not to do it. It's illiquid, the bid/ask spread is high, and you have to store it somewhere.


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## :) lonewolf (Feb 9, 2020)

JosephK said:


> Anyone have any suggestions for buying physical silver? I was looking at a few suppliers and the premiums seem crazy high compared to the premiums on gold.


 Gold money.com


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## librahall (Apr 11, 2020)

james4beach said:


> Hoping it stays low and close to NAV. As I add more money to my investments, I'll need to buy more gold (eventually) and I was concerned that I couldn't buy MNT at such high premiums.


I was able to closely monitor the price premium of MNT last week and bought some at 1.46% premium. It has bounced back almost 10% till now. So happy


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## james4beach (Nov 15, 2012)

librahall said:


> I was able to closely monitor the price premium of MNT last week and bought some at 1.46% premium. It has bounced back almost 10% till now. So happy


Wow, great job! Wish I had done the same. I still think MNT is a superior holding to CGL.C, and lower fee as well.

Another thing I like about MNT is how easy it is to calculate (and verify) the underlying value. Each unit is simply a claim on 0.XXXX of an ounce of gold; I like this structure.

Apparently the one downside is that the price does not track the underlying value too precisely.


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## hfp75 (Mar 15, 2018)

librahall said:


> I was able to closely monitor the price premium of MNT last week and bought some at 1.46% premium. It has bounced back almost 10% till now. So happy


I was watching the premium slide down to normal but missed the rebuy. It was 2.5% and then I got caught working for a few days and ect, ect, ect... well anyways I still own CGL.C and got a 15% premium for free before. If MNT drops down to 2% premium or less I am swapping back !!!! 

Missed it last week and my tracking right now shows a 9% premium right now.... and growing it was 8-8.5 on Friday if memory serves correct...

$2022.79*$1.33*0.0105781=$28.46 (Fair Price) $31.00 (actual price) $2.54 / 8.93% (Premium)


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## librahall (Apr 11, 2020)

I bought it at $28.13 on July 29. Today MNT closed at $31. So it's up exactly 10%. I placed 3 limited orders on July 29. The other two were even lower but hadn't been filled. I believe $28.13 is the lowest on that day. A little bit of luck for sure.


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## james4beach (Nov 15, 2012)

With MNT, we know how many ounces of gold each unit represents.

With CGL.C it seems a bit murkier. I saved this snapshot a few weeks ago:
15,500,000 shares outstanding
133,915 ounces of gold held in the trust

Today, it's
16,000,000 shares
137,915 ounces

I'm confused by that. The number of shares has increased by 3.23% but the amount of physical gold has increased by only 2.99%. What's going on here?

Alternate view: 1000 shares previously represented 8.64 ounces gold. Today, it represents 8.62 ounces of gold. That means that each unit has lost 0.23% of gold. Perhaps this is due to the MER? That would be pretty reasonable, but I would want to keep an eye on this over a year.

The big question is: how much gold (per unit) is lost over one year? With MNT the answer is 0.35% gold lost, per year, due to the Mint's fees.


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## calm (May 26, 2020)

Cassandra Syndrome
From Wikipedia
The Cassandra Syndrome is a term applied to those whose predictions of doom are initially dismissed, but later turn out to be correct. This denotes a psychological tendency among people to deny and disbelieve such predictions. The person making the prediction is caught in the dilemma of knowing what will happen but not being able to convince others.
Cassandra (metaphor) - Wikipedia 

Executive Order 6102
From Wikipedia








Executive Order 6102 - Wikipedia







en.wikipedia.org





The biggest “physical” gold market in the world is run by the London Bullion Market Association (LBMA), which publishes statistics on the volume of gold and silver traded by its members. However, these statistics show spectacular trading volumes involving more metal than could possibly exist. Of course, much of the same metal could be sold and resold many times every day. But Jeffrey Christian of the CPM Group testified at a hearing of the US Commodity Futures Trading Commission, as he had already pointed out in a 2000 report, that the London bullion market is actually a fractional-reserve gold-banking system built on the presumption that most gold buyers would never take delivery of the metal they own, but rather would leave it on deposit with account s of the LBMA members from whom they had bought it.

The GATA study on LBMA statistics supports estimates by Christian that a good portion of the gold bought and sold by LBMA members does not actually exist, and that most gold sales by LBMA members are highly leveraged based on only a notional quantity of gold. LBMA does not disclose the level of transactional leverage or how much gold is due from LBMA members that does not actually exist. Like the Fed’s gold swap arrangements, the transactions are based only on market participant claims on gold supposedly held by custodians, but those claims are backed only by the credit worthiness of the custodians, and not by the amount of gold the claimants actually possesses. The gold market then is as vulnerable to panic runs, as the over-leveraged banking system if all gold market participants suddenly demand actual delivery of all the gold they supposed own.
By Henry C.K. Liu
Nevember 11, 2010




__





Labor Markets de-linked from the Gold Market


Dollar Hegemony



henryckliu.com


----------



## wayward__son (Nov 20, 2017)

MNT going crazy again today. Meanwhile PHYS which has allocated gold with the very same mint trading at a discount. what a head scratcher.


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## Topo (Aug 31, 2019)

james4beach said:


> With MNT, we know how many ounces of gold each unit represents.
> 
> With CGL.C it seems a bit murkier. I saved this snapshot a few weeks ago:
> 15,500,000 shares outstanding
> ...


I believe the reduction should equal the expenses. The MER would be an important part of it, but there could be bid ask spread (on the gold bars), etc, similar to TERs on stock funds.


----------



## james4beach (Nov 15, 2012)

Topo said:


> I believe the reduction should equal the expenses. The MER would be an important part of it, but there could be bid ask spread (on the gold bars), etc, similar to TERs on stock funds.


Thanks and good point about bid/ask on the physical bars.


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## james4beach (Nov 15, 2012)

Some very interesting news came out today. Warren Buffett, who never has been bullish on gold before, has *sold banks* (and completely liquidated Goldman Sachs) and bought Canada's Barrick Gold.

See article at Fortune

Barrick, the gold miner, is the only new holding added to Buffett's portfolio.

This is huge. Buffett sold various dividend stocks, various banks (JPM, GS, WFC) and _bought a gold miner_. He has turned bearish on banks and bullish on gold.


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## Thal81 (Sep 5, 2017)

Interesting move... buying the gold metal when it's at an all time high would be dumb, but buying the company that produces gold and therefore currently sells it at a high price, sounds smart.


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## Beaver101 (Nov 14, 2011)

james4beach said:


> Some very interesting news came out today. Warren Buffett, who never has been bullish on gold before, has *sold banks* (and completely liquidated Goldman Sachs) and bought Canada's Barrick Gold.
> 
> See article at Fortune
> 
> ...


 ... so gold is now a buy & hold value stock and banks ain't with Warren Buffet and team??? Interesting ...


----------



## MrBlackhill (Jun 10, 2020)

__





BERKSHIRE HATHAWAY INC Top 13F Holdings


Detailed Profile of BERKSHIRE HATHAWAY INC portfolio of holdings. SEC Filings include 13F quarterly reports, 13D/G events and more.




whalewisdom.com





I think it's better to have the complete view. I personally don't see anything big. Selling airlines when we all know airlines aren't going back up soon, seems obvious. Buying a small position on a gold miner when gold is at all-time highs, makes sense to me. About banks... well that's 2 banks out of the 32% finance sector allocation and their fundamentals aren't that good at the moment.

Berkshire portfolio has around 32% into financial sector. Or should I say 57% of the non-AAPL holdings, considering AAPL represents 44% of the portfolio. BAC and AXP are untouched from his top 5 representing 18% of the portfolio.

Big sells on WFC (-26%) and JPM (-61%), that's true. Sold all of GS, which was only 0.17% of the portfolio anyways.

Sold all of the airline holdings, which represented about 3% of the portfolio. But that's nothing compared to Q4 2009 to Q1 2010 when the allocation in transports sector went from 13.21% to... nothing.

And, yes, GOLD has been bought, which represent... 0.28% of the portfolio. Still, it's the biggest move on the buy-side when looking at the change on portfolio allocation.

Top buys from a portfolio allocation viewpoint :

GOLD (+0.278%, new holding) [now 0.278% of the portfolio]
LSXMK (+0.18%) [now 0.74% of the portfolio]
STOR (+0.095%) [now 0.29% of the portfolio]
KR (+0.042%) [now 0.37% of the portfolio]
SU (+0.025%) [now 0.16% of the portfolio]
Top sells from a portfolio allocation viewpoint :

WFC (-2.28%) [now 3.00% of the portfolio]
JPM (-1.928%) [now 1.03% of the portfolio]
DAL (-1.168%) [completely sold]
LUV (-1.088%) [completely sold]
UAL (-0.398%) [completely sold]
Top buys from a holding viewpoint :

LSXMK (+37%) [now 0.74% of the portfolio]
STOR (+31%) [now 0.29% of the portfolio]
SU (+28%) [now 0.16% of the portfolio]
KR (+15%) [now 0.37% of the portfolio]
New holdings :

GOLD [now 0.278% of the portfolio]
Top sells from a holding viewpoint :

SIRI (-62%) [now 0.15% of the portfolio]
JPM (-61%) [now 1.03% of the portfolio]
PNC (-41%) [now 0.28% of the portfolio]
WFC (-26%) [now 3.00% of the portfolio]
MTB (-15%) [now 0.23% of the portfolio]
Sold out :

DAL [was 1.17% of the portfolio]
LUV [was 1.09% of the portfolio]
UAL [was 0.40% of the portfolio]
AAL [was 0.29% of the portfolio]
QSR [was 0.19% of the portfolio]
GS [was 0.17% of the portfolio]
OXY [was 0.12% of the portfolio]
Portfolio top holdings :

AAPL (44.18%)
BAC (10.85%)
KO (8.83%)
AXP (7.13%)
KHC (5.13%)
Sector allocation :

Information technology (44.18%, 1 holding : AAPL)
Finance (32.01%, 16 holdings, biggest : BAC [10.85%])
Consumer staples (15.01%, 6 holdings, biggest : KO [8.83%])
Communications (4.07%, 9 holdings, biggest : CHTR & VRSN [1.31% each])
Consumer discretionary (1.87%, 3 holdings, biggest : GM [0.93%])
Healthcare (1.86%, 4 holdings, biggest : DVA [1.49%])
Materials (0.55%, 2 holdings : GOLD [0.28%] & AXTA [0.27%])
Real estate (0.29%, 1 holding : STOR)
Energy (0.16%, 1 holding : SU)
Transports (0.00..%, 1 holding : UPS)
Worth noting :

44.18% of the portfolio is only 1 holding : AAPL, which is the only information technology holding (let's talk about diversification?)
Only 1 holding in real estate : STOR (0.29%)
Only 1 holding in energy : SU (0.16%)
Portfolio has 44 holdings, top 5 holdings represent 76.12% of the portfolio and top 10 holdings represent 87.75% of the portfolio (again, let's talk about diversification?)
There were more sells than buys


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## sags (May 15, 2010)

Peter Schiff has been recommending buying the gold mining stocks over bullion for some time now.

He says the stocks have not kept up with the rise in the gold price and are undervalued.

I always consider the gold miners a higher risk though, as they have all the problems of manufacturing, labor, servicing debt, and laws and regulations etc.

Gold bullion.........you just buy it and stick it in the safety deposit box for 30 years and then cash it out.


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## librahall (Apr 11, 2020)

Any thoughts?


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## calm (May 26, 2020)

Scotiabank to pay $127M in fines for traders' price fixing of precious metals
Fines are for failing to detect, stop traders from making fake trades designed to manipulate prices
The Bank of Nova Scotia has agreed to pay more than $127 million US in fines to settle criminal investigations into a price manipulation scheme in the price of precious metals that some of its traders were engaged in.
The bank has agreed to a deferred prosecution agreement (DPA) to settle separate probes by the Department of Justice and the U.S. commodities regulator, the Commodity Futures Trading Commission (CFTC).
According to an agreed upon statement of facts, between January 2008 and July 2016, four precious metals traders employed by Scotia in New York, London and Hong Kong made bogus trades to try to manipulate the price of gold, silver, platinum and palladium futures contracts.
By Pete Evans
August 19, 2020


https://www.cbc.ca/news/business/scotiabank-spoofing-fine-1.5692117


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