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Coinage

scotview
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Coinage

#303998

Postby scotview » April 29th, 2020, 5:52 am

As a hedge against...…..the end of the world, I've been buying some silver and gold coinage.

What has surprised me is that some of these coins are works of art. The Canada birds of prey and wildlife silver series are absolutely beautiful.
Some gold coins are also stunning eg the gold American 1 ounce Buffalo or the UK Royal Arms 1 ounce gold coin.
The American silver dollar is a beautiful, large coin with a lovely American eagle coat of arms design.

OK, maybe these coins are an investment(?) for an absolute worst case scenario but to hold them gives you a sense of what REAL money used to be like. My wife kind of summed it up by saying that at one time someone could have laoded up their wagon with flour and provisions with a single silver dollar.

Not too sure that our fiat system has the same authenticity.

1nvest
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Re: Coinage

#304072

Postby 1nvest » April 29th, 2020, 11:13 am

scotview wrote:My wife kind of summed it up by saying that at one time someone could have loaded up their wagon with flour and provisions with a single silver dollar. Not too sure that our fiat system has the same authenticity.

Originally (around the year 750) a (Saxon) pound weight of silver was £1. That £1 could be exchanged for a lot so it was sub-divisioned into smaller amounts - and 12 divisions were considered convenient for its capacity to be split multiple ways, 1x12, 2x6, 3x4, 4x3, 6x2, 12x1 ... hence the old penny (12 pennies to a shilling, 20 shillings (240 pennies) to a Pound) type currency evolution.
OK, maybe these coins are an investment(?)

As a investment asset, you have to trade silver/gold, perhaps 50/50 with stock and yearly rebalance. The cycles can be very long so its a long term investment, same as for stocks. During the 1980's and 1990's for instance the price of gold declined something like a third, but rebalanced 50/50 yearly with stock and you're safe would have contained around 7 times more ounces of gold. When the cycle does rotate/flip, the accumulation of such stock purchase power as/when stocks do dive/gold soars can more than negate the stock value losses, and as that progresses so you'll see declines in ounces of gold in your safe, increase in share certificates being held (now more electronic than physical certificates/shares)

Some investors like to hold a bond bullet, such as rolling 10 year Gilts (buy a 10 year gilt, hold it for a year so it has 9 years remaining until maturity, and then swap that for another 10 year Gilt ... repeatedly). Others opt for a barbell, equal amounts of 1 year gilts and 20 year gilts - which combined will compare to a 10 year bullet. Another variation is to hold a barbell of stock and gold, two volatile extremes - that similarly broadly reflect a central 'bond' bullet, but in a more volatile fashion. https://tinyurl.com/ydhfngho

Take a 2x leveraged stock fund, that borrows the same amount again as what you invest in the fund in order to double up the amount of stock exposure, and invest half into that, half into bonds and in effect what the fund is borrowing is countered by the bonds that you buy/hold. https://tinyurl.com/y8at3bww

If your bonds reward more than the cost the fund pays to borrow, then so your overall reward will be higher. These all have the same reward expectancy in my book https://tinyurl.com/y79udxw2 but clearly over that period all of the alternatives beat the straight 100% in stock (Vanguard 500 fund). Primarily because 10 year treasury rewards have been higher than what funds have paid to borrow money. Typically funds pay around the same as shorter dated gilt yields in order to borrow for short amounts of time (leveraged stock funds re-borrow daily in order to roll positions) and intermediate bond gains have exceeded that https://tinyurl.com/yc7q8gbd

Fundamentally you can hold whichever of the assets you more prefer. Many like 50% broad stock index, 50% intermediate bonds, others might opt for 75% stock, 25% gold. Whilst both broadly have similar reward expectancy, over sub periods one will tend to better the other, depending upon relative valuations at the start and end dates/sequence of returns ...etc. Compare for instance this (1972 start date) https://tinyurl.com/ycnozqg6 and this (1980 start date) https://tinyurl.com/y7jmbsrb A reason why most prefer 50/50 stock/bond over 75/25 stock/gold is indicated in the lower Annual Returns chart, where 50/50 stock/bond tends to have the lower negative side volatility. A smoother ride. For some however lower tax risks, no counter party risk ...etc. factors warrant accepting higher interim volatility (a bumpier ride) for the greater tax savings/counter party risk reduction (or whatever).

Personally I'm not particularly bothered either way, instead I use it as a relative valuation measure. Useless at identifying which stocks are better value I just go with broad index funds. Alone I have no idea whether the price of gold is fair/expensive/cheap. With some regression analysis however I identified 1986 as being a 'neutral' start date and use that to assess relatively valuations https://tinyurl.com/yaspv52o and use that to rotate into/out/between the assets that have deviated the most. In effect let the market calculate and paint a image of what may be cheap/expensive. Trading those deviations typically adds >1% to annualised rewards IME, which helps to offset the overall portfolio fees/costs etc. (and some).

stevensfo
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Re: Coinage

#305443

Postby stevensfo » May 3rd, 2020, 7:03 pm

scotview wrote:As a hedge against...…..the end of the world, I've been buying some silver and gold coinage.

What has surprised me is that some of these coins are works of art. The Canada birds of prey and wildlife silver series are absolutely beautiful.
Some gold coins are also stunning eg the gold American 1 ounce Buffalo or the UK Royal Arms 1 ounce gold coin.
The American silver dollar is a beautiful, large coin with a lovely American eagle coat of arms design.

OK, maybe these coins are an investment(?) for an absolute worst case scenario but to hold them gives you a sense of what REAL money used to be like. My wife kind of summed it up by saying that at one time someone could have laoded up their wagon with flour and provisions with a single silver dollar.

Not too sure that our fiat system has the same authenticity.


I actually became interested in gold and silver coins via my coin collecting hobby and had never thought of it as investing before TMF. Yes, they are beautiful, aren't they? Especially the silver Lunars and Pandas.

Apart from the fact that it was in the USA, I can't remember the name of the website I used to read, but they had a section on gold/silver coins and the forums were amazing. Silver was going to $40-$50/oz and the only reason it wasn't already at $50 was because of some shady price manipulation etc. There were Mad Max scenarios and posts hinting that if you didn't believe that price were going MUCH higher, then you were some kind of commie traitor. I stopped visiting the website soon after.

The endless arguments and discussions about gold vs fiat money will go on for ever, but the fact is that pounds and dollars are backed by bloody huge and powerful countries full of people, factories, farms, experience, infrastructure and knowledge. Gold and silver coins are pretty and CAN be sold, but you can't eat them or build a house out of them. Their value is in someone willing to give you something in return. There is most definitely a place for gold/silver in a portfolio, but it's quite a narrow place, sort of between hyperinflation and Armageddon.

Hyperinflation could possibly be survived by sitting tight with a house and diversified portfolio. Armageddon? Have you ever been to Runcorn on a wet Saturday afternoon? :-)

Steve

1nvest
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Re: Coinage

#305843

Postby 1nvest » May 5th, 2020, 1:51 pm

Gold and silver coins are pretty and CAN be sold, but you can't eat them or build a house out of them. Their value is in someone willing to give you something in return. There is most definitely a place for gold/silver in a portfolio, but it's quite a narrow place, sort of between hyperinflation and Armageddon.

I disagree. Over the last 120 years, precious metals (silver when on the gold standard, gold after the US came off the gold standard in August 1972 - but for easier clarity I'll just refer to that as being 'gold' henceforth) would have bought around the same amount of shares/stock value at the end (recent), as at the start. Both share prices and gold broadly paced inflation. That excludes dividends. There were considerably fluctuations along the way however, and at times the gold purchase power of stock (and stock purchase power of gold) ... varied considerably.

50/50 of both, yearly rebalanced 'traded' those fluctuations. Accumulated more ounces of gold at times, deployed gold to add shares at other times. That induced a positive slope such that you ended with both more shares and more ounces of gold being held at the end date compared to the start date. A broad 1.5% annualised positive sloped trend line.

Dividends averaged around 4%, so with 50/50 stock/gold you forewent 2% of dividends. But in return you gained 1.5% in shares/ounces-of-gold accumulation.

On a straight mathematical measure that's 4% real versus 3.5% real type reward differences between all stock and 50/50 stock/gold. 50/50 stock/gold however had lower volatility, was a more stable/steady growth progression line. Another factor is that dividends were taxed and at times heavily (typically when inflation/interest rates/dividends were relatively high - i.e. when broad economic stress was evident, so taxes tended to be increased).

If broad dividend taxation was assumed to be 20% (historic average was > 33%), then a 4% all stock dividend reward might have seen 0.8% paid in taxes, whilst 50/50 would have seen half that, 0.4%. In net terms the two more closely aligned in overall total reward.

But if you just bought/held gold, didn't trade it (such as via yearly rebalancing), then yes it was a drag. Broadly the same price appreciation as stock (and with considerably variability of that along the way), and none of the dividends.

There are three main forms of investment rewards, price appreciation, dividends/interest and volatility capture/trading. Some investors focus purely on one (or two) of those alone, Options traders for instance focus primarily upon volatility, high yield investors on dividends, growth investors on price appreciation. There is no one best choice, each have their time with or against the tide. The more diverse choice is to target all three.

Follow this US example link https://tinyurl.com/y8h9dtkx and tick the 'inflation adjusted' checkbox in the Portfolio Growth chart, and of the two stock/gold 50/50 has provided a more stable real growth line than all-stock (I've set that example to draw a 2%/year SWR income i.e. 2% of the start date portfolio value that is uplifted by inflation as the amount drawn in subsequent years (steady/consistent inflation adjusted income)).


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