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When to re-balance gold, every 3 months or once a year?

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
TopOfDaMornin
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When to re-balance gold, every 3 months or once a year?

#520108

Postby TopOfDaMornin » August 5th, 2022, 2:16 pm

I have a mixed portfolio of HYP shares, ITs, trackers and gold.

I was wondering if anyone has any views on when best to re-balance gold?

I have searched online and views differ from every 3 months to once a year.

TDM

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Re: When to re-balance gold, every 3 months or once a year?

#520109

Postby pje16 » August 5th, 2022, 2:17 pm

If anyone knew the answer
they would work for a month and then retire :D

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Re: When to re-balance gold, every 3 months or once a year?

#520144

Postby spasmodicus » August 5th, 2022, 5:11 pm

when it gets out of balance?

S

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Re: When to re-balance gold, every 3 months or once a year?

#520149

Postby elephanthunt11 » August 5th, 2022, 5:29 pm

You should rebalance when:

A) it creeps beyond your initial desired asset allocation
b) when the ratio to silver reaches a certain point.

"Trading the ratio" - providing costs are acceptable - is an incredibly effective way of increasing the value of holdings.

I will assume no prior knowledge on your part. Therefore -

The gold:silver ratio is currently 1:89.
Sell one ounce of gold and receive 89 ounces of silver. When the gold:silver ratio reaches 1:67 (20 year average from a cursory look on macrotrends) you trade 67 ounces of silver back to gold, leaving you with 1 ounce of gold and 22 ounces of silver. Rinse and repeat.

I have never personally done this, but I know there are precious metal traders who successfully trade the ratio and that's their main strategy of increasing holdings over time.

TopOfDaMornin
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Re: When to re-balance gold, every 3 months or once a year?

#520212

Postby TopOfDaMornin » August 5th, 2022, 7:57 pm

I was more thinking is there a regular frequency to re-balance at?
e.g. 3 months or once a year?

I would defined re-balancing as sell the higher riser (in terms of percentage) of either gold or shares and buy the other one.

For example, origianlly I first bought 8% of my portfolio in gold about a year ago, and now its is about 12% of my portfolio.

TDM

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Re: When to re-balance gold, every 3 months or once a year?

#520226

Postby Bubblesofearth » August 5th, 2022, 9:29 pm

TopOfDaMornin wrote:I was more thinking is there a regular frequency to re-balance at?
e.g. 3 months or once a year?

I would defined re-balancing as sell the higher riser (in terms of percentage) of either gold or shares and buy the other one.

For example, origianlly I first bought 8% of my portfolio in gold about a year ago, and now its is about 12% of my portfolio.

TDM


If you are talking physical gold then I wouldn't rebalance at all. First off it's very costly because of the buy/sell spread. 3 monthly rebalancing would kill you. Someone mentioned silver and the situation for this is even worse given VAT is payable. Again, talking physical here.

Secondly I see gold in a portfolio as insurance against economic woes. Historically it has proven a store of value regardless of whatever chaos is happening elsewhere. It's not something I would want to trade.

Having said this I'm not a fan of rebalancing at all. It works when assets mean revert around each other but it runs the risk of shunting money into an asset that might be in a long-term decline. And it always incurs costs.

BoE

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Re: When to re-balance gold, every 3 months or once a year?

#520230

Postby Itsallaguess » August 5th, 2022, 9:42 pm

TopOfDaMornin wrote:
I would define re-balancing as sell the higher riser (in terms of percentage) of either gold or shares and buy the other one.

For example, originally I first bought 8% of my portfolio in gold about a year ago, and now its is about 12% of my portfolio.


Does this get to the heart of an issue with your original question though...

You've framed the thread title in terms of time-scales, but I think now what you really seem to be hinting at is related to relative performance-differentials, which is likely to be the correct approach to this particular question...

So then the question might be - if an appropriate performance differential was 'met', ignoring any time-scale taken to actually meet it, then would you really still then need a particular time-scale variable to also be met before you thought it appropriate to re-balance?

Cheers,

Itsallaguess

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Re: When to re-balance gold, every 3 months or once a year?

#520326

Postby tjh290633 » August 6th, 2022, 2:41 pm

TopOfDaMornin wrote:I was more thinking is there a regular frequency to re-balance at?
e.g. 3 months or once a year?

I would defined re-balancing as sell the higher riser (in terms of percentage) of either gold or shares and buy the other one.

For example, origianlly I first bought 8% of my portfolio in gold about a year ago, and now its is about 12% of my portfolio.

TDM

There is no point in rebalancing if it is not needed. If you have a particular weight for an asset, then you need to establish control limits. Possibly two sets of limits. One where you start to take corrective action, the second where you exit completely. Which parameter is most important is debatable. Income yield, holding weight, contribution to portfolio income and share of portfolio cost are used in other contexts. The analogy is with process control, where proportional action is taken when the parameter exceeds acceptable limits and more drastic action is taken if the extreme limits are breached.

TJH

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Re: When to re-balance gold, every 3 months or once a year?

#522946

Postby vand » August 16th, 2022, 7:31 pm

I don't know why you feel the need to ask this of gold in particular. If you have rebalancing rules they should apply across your entire portfolio.

But really... I 100% do understand why you ask this.. because however illogical, people tend to view different parts of their portfolio differently rather than accepting it as the sum of its parts.

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Re: When to re-balance gold, every 3 months or once a year?

#522977

Postby TopOfDaMornin » August 16th, 2022, 10:20 pm

vand wrote:I don't know why you feel the need to ask this of gold in particular. If you have rebalancing rules they should apply across your entire portfolio.

But really... I 100% do understand why you ask this.. because however illogical, people tend to view different parts of their portfolio differently rather than accepting it as the sum of its parts.




The reason I asked is because I have a portfolio of a number of HYP shares (the majority), index funds and some gold as in SGLN (I Shares Physical Gold).

Originally the SGLN when I bought it was 7.5% of the total portfolio. As gold has risen, it now represents a higher percentage.

So I posted he original question to see people’s views on how and when they would re-balance. For example:
- a particular frequency e.g. yearly
- or when the gold amount exceeds a certain limit e.g. 20% above or below the starting amount

From reading on the subject, particularly related to gold, I get the impression that there is no real evidence to suggest re-balancing gold adds particular value. I could be wrong. However, from a personal point of view I would have thought it would make sense to sell when it reaches a certain threshold e.g. rises or falls 20% above the start amount. However, it would be silly if one was to sell the gold, buy shares….then do the reverse a short time later.

TDM

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Re: When to re-balance gold, every 3 months or once a year?

#522996

Postby 1nvest » August 17th, 2022, 1:24 am

TopOfDaMornin wrote:I have a mixed portfolio of HYP shares, ITs, trackers and gold.

I was wondering if anyone has any views on when best to re-balance gold?

I have searched online and views differ from every 3 months to once a year.

TDM

Once yearly via simple one yearly rebalancing. 1980's/1990's typically saw target % weightings to gold resulting in multiple more ounces of gold being accumulated, something like 6 times more ounces - as stocks did well, gold declined in nominal terms over those years reducing stock to add ounces of gold saw around 10% annualised more ounces of gold being built up. But takes a certain mindset, repeated reducing stocks that had performed great to add to gold that had declined in nominal terms and more so in real (after inflation) terms, for such extended periods, takes a certain character to see that through.

Opting to include or completely dump - much longer. Based on relative valuations such as Dow/Gold or House/Gold ...etc. Consider it as deep portfolio insurance. If 7.5% weighted gold rises to being 50% - such as stocks down, gold up, then selling gold to buy stocks can 'float' the portfolio where otherwise it might be under considerable strain. Dumping gold to buy stocks is inclined to see the rewards following that to be 'well above average'.

July/August 1999 was a attractive time to buy gold. Dow/Gold ratio was high (stocks expensive/gold cheap), you could buy a one ounce Britannia gold coin for £157, just £57 above its legal tender £100 value, so the most you could lose was around a third (lower price than £100, just spend coins as £100 legal tender value). By 2011 gold prices had increased at a 14.6% annualised real rate (17.5% nominal). Such increases saw increased buying, as do most assets that are on a large up-run.

As ever, no one really knows, the optimal choice is only known with hindsight.

Another choice is to not rebalance at all, just buy some, leave it as-is, and either stocks do well and the % weighting to gold fades to being very small, inducing a lag on overall portfolio but a relatively small one, maybe very good instead of great rewards, or if bad times hit stocks and the % gold weighting rises considerably, then sell gold to buy stocks.

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Re: When to re-balance gold, every 3 months or once a year?

#523011

Postby CliffEdge » August 17th, 2022, 8:14 am

1nvest wrote:
TopOfDaMornin wrote:I have a mixed portfolio of HYP shares, ITs, trackers and gold.

I was wondering if anyone has any views on when best to re-balance gold?

I have searched online and views differ from every 3 months to once a year.

TDM

Once yearly via simple one yearly rebalancing. 1980's/1990's typically saw target % weightings to gold resulting in multiple more ounces of gold being accumulated, something like 6 times more ounces - as stocks did well, gold declined in nominal terms over those years reducing stock to add ounces of gold saw around 10% annualised more ounces of gold being built up. But takes a certain mindset, repeated reducing stocks that had performed great to add to gold that had declined in nominal terms and more so in real (after inflation) terms, for such extended periods, takes a certain character to see that through.

Opting to include or completely dump - much longer. Based on relative valuations such as Dow/Gold or House/Gold ...etc. Consider it as deep portfolio insurance. If 7.5% weighted gold rises to being 50% - such as stocks down, gold up, then selling gold to buy stocks can 'float' the portfolio where otherwise it might be under considerable strain. Dumping gold to buy stocks is inclined to see the rewards following that to be 'well above average'.

July/August 1999 was a attractive time to buy gold. Dow/Gold ratio was high (stocks expensive/gold cheap), you could buy a one ounce Britannia gold coin for £157, just £57 above its legal tender £100 value, so the most you could lose was around a third (lower price than £100, just spend coins as £100 legal tender value). By 2011 gold prices had increased at a 14.6% annualised real rate (17.5% nominal). Such increases saw increased buying, as do most assets that are on a large up-run.

As ever, no one really knows, the optimal choice is only known with hindsight.

Another choice is to not rebalance at all, just buy some, leave it as-is, and either stocks do well and the % weighting to gold fades to being very small, inducing a lag on overall portfolio but a relatively small one, maybe very good instead of great rewards, or if bad times hit stocks and the % gold weighting rises considerably, then sell gold to buy stocks.

So is that rebalancing or not?

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Re: When to re-balance gold, every 3 months or once a year?

#523031

Postby Boots » August 17th, 2022, 9:58 am

I rebalance any asset class when it has moved by one fifth of their original allocation. So, in your case of a 7.5% allocation, buy more when it becomes less than 6%, or sell some when it exceeds 9%. In either situation, my aim is to get it back to its target allocation.

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Re: When to re-balance gold, every 3 months or once a year?

#523032

Postby scotview » August 17th, 2022, 10:04 am

I think a more fundamental question, based on the performance of our physical stuff lately, is gold really a good hedge against inflation.

I'm not so sure it is. Of course, the price could just take off......or collapse.

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Re: When to re-balance gold, every 3 months or once a year?

#523037

Postby BT63 » August 17th, 2022, 10:14 am

scotview wrote:I think a more fundamental question, based on the performance of our physical stuff lately, is gold really a good hedge against inflation.

I'm not so sure it is. Of course, the price could just take off......or collapse.


Gold tends to be a hedge against a falling Dollar and/or negative real interest rates and/or jumps at the prospect of QE inflating things in the future.
So it is generally a hedge against losing buying power, but like all assets it can price-in the near future before it happens, leaving investors disappointed when the event happens and gold does the opposite as the anticipators take their profits.
There is also evidence that governments don't like to see a rising gold price because it's indicative of their poor management, so there are plenty of rumours that gold is intentionally battered at psychologically important times to give the impression that it doesn't do what it's supposed to.

If the Fed flinch and stop raising rates before a real interest rate is achieved, gold is likely to rise significantly as a result of continuation of negative real rates and the probable falling Dollar as the hope of real returns on cash Dollars fades.

I don't think it will be long before the Fed stop raising rates because the economic slowdown is clear to see. Also Mr.Bond-Market reckons the Fed will stop raising within a few months and only make one more 75bp rise or a couple of 25-50bp rises before they're done.

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Re: When to re-balance gold, every 3 months or once a year?

#523170

Postby AWOL » August 17th, 2022, 4:03 pm

BT63 wrote:There is also evidence that governments don't like to see a rising gold price because it's indicative of their poor management, so there are plenty of rumours that gold is intentionally battered at psychologically important times to give the impression that it doesn't do what it's supposed to.


Which governments do this? Could you give recent examples of these trades? What are there stated objectives? Usually when governments trade, at least the democratic ones' treasuries and reserve banks, they have a mandated target that they are trying to support or will otherwise give guidance. I am struggling to think of anything since the gold standard that fits these rumours but it would be difficult to hide.

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Re: When to re-balance gold, every 3 months or once a year?

#523232

Postby BT63 » August 17th, 2022, 7:18 pm

AWOL wrote:
BT63 wrote:There is also evidence that governments don't like to see a rising gold price because it's indicative of their poor management, so there are plenty of rumours that gold is intentionally battered at psychologically important times to give the impression that it doesn't do what it's supposed to.


Which governments do this? Could you give recent examples of these trades? What are there stated objectives? Usually when governments trade, at least the democratic ones' treasuries and reserve banks, they have a mandated target that they are trying to support or will otherwise give guidance. I am struggling to think of anything since the gold standard that fits these rumours but it would be difficult to hide.


For starters, in 1999, Bank of England governor, Eddie George, said:
'......We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The US Fed was very active in getting the gold price down. So was the U.K.....'

Also a metals trader called Andrew Maguire from Kinesis Money has plenty to say about how precious metal prices are 'managed'.
And GATA.

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Re: When to re-balance gold, every 3 months or once a year?

#523277

Postby AWOL » August 17th, 2022, 10:14 pm

I have seen that quote before, has it ever been confirmed that was what he actually said? I don't think the 1999 UK gold sales have ever made much sense beyond them being Gordon Brown carving his own bold path.

I guess reserve banks would intervene in the gold market if financial stability required it as is true of any other core financial market. Crypto may one day join this list but today remains largely disconnected from the global and national financial systems.

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Re: When to re-balance gold, every 3 months or once a year?

#524014

Postby 1nvest » August 20th, 2022, 3:24 pm

CliffEdge wrote:
1nvest wrote:
TopOfDaMornin wrote:I have a mixed portfolio of HYP shares, ITs, trackers and gold.

I was wondering if anyone has any views on when best to re-balance gold?

I have searched online and views differ from every 3 months to once a year.

TDM

Once yearly via simple one yearly rebalancing. 1980's/1990's typically saw target % weightings to gold resulting in multiple more ounces of gold being accumulated, something like 6 times more ounces - as stocks did well, gold declined in nominal terms over those years reducing stock to add ounces of gold saw around 10% annualised more ounces of gold being built up. But takes a certain mindset, repeated reducing stocks that had performed great to add to gold that had declined in nominal terms and more so in real (after inflation) terms, for such extended periods, takes a certain character to see that through.

Opting to include or completely dump - much longer. Based on relative valuations such as Dow/Gold or House/Gold ...etc. Consider it as deep portfolio insurance. If 7.5% weighted gold rises to being 50% - such as stocks down, gold up, then selling gold to buy stocks can 'float' the portfolio where otherwise it might be under considerable strain. Dumping gold to buy stocks is inclined to see the rewards following that to be 'well above average'.

July/August 1999 was a attractive time to buy gold. Dow/Gold ratio was high (stocks expensive/gold cheap), you could buy a one ounce Britannia gold coin for £157, just £57 above its legal tender £100 value, so the most you could lose was around a third (lower price than £100, just spend coins as £100 legal tender value). By 2011 gold prices had increased at a 14.6% annualised real rate (17.5% nominal). Such increases saw increased buying, as do most assets that are on a large up-run.

As ever, no one really knows, the optimal choice is only known with hindsight.

Another choice is to not rebalance at all, just buy some, leave it as-is, and either stocks do well and the % weighting to gold fades to being very small, inducing a lag on overall portfolio but a relatively small one, maybe very good instead of great rewards, or if bad times hit stocks and the % gold weighting rises considerably, then sell gold to buy stocks.

So is that rebalancing or not?

Individual personal choice. Personally I rebalance once/year according to a stochastic of the Dow/Gold ratio with 1 low, 50 high settings. For 2022 that started the year with 39% gold being indicated. In the early 1980's indicated low gold weighting, at end of 1999 indicated high gold weighting. Broadly that choice uplifted a otherwise 5.8% real to 8% real.

End of 2021 Dow at 36,400 and $ price of gold $1820, so 36400/1820 = 20 Dow/Gold ratio
( 20 - 1 ) / ( 50 - 1 ) stochastic ( (current - low) / (high - low) ) = 0.388 (39% gold weighting indicated)

1 low and 50 high stochastic settings is just reflective of containing historic levels i.e. at times a little over a single ounce of gold bought a Dow index share, at other times 40 ounces of gold were required to buy a Dow index share (1 Dow share bought 40 ounces of gold).

For example pre 2008/9 financial crisis had you holding around 50% gold, then after stocks took big hits that reduced to 15% gold being indicated, but where since 2010 that's reverted back up again to more recent 40% gold type weighting. 2001 pre dot com and it was pretty much shouting that stock valuations were high, suggesting just 20% weighting to stocks, after the dot com bubble burst it reverted to indicating 50% stock.

In effect lets the collective expertise of the stock and gold markets determine how much, leaving you just to decide when to rebalance - such as once yearly (end/start of Fiscal years is a reasonable once yearly choice as that has the added advantage that you might rebalance in the old or new financial years (or a combination of both) according to whichever might be the more tax efficient).

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Re: When to re-balance gold, every 3 months or once a year?

#524018

Postby 1nvest » August 20th, 2022, 3:45 pm

AWOL wrote:I have seen that quote before, has it ever been confirmed that was what he actually said? I don't think the 1999 UK gold sales have ever made much sense beyond them being Gordon Brown carving his own bold path.

I guess reserve banks would intervene in the gold market if financial stability required it as is true of any other core financial market. Crypto may one day join this list but today remains largely disconnected from the global and national financial systems.

Exactly. The central banks control/own the Bank of International Settlement which is behind Basel III (gold), they are not going to allow the gold market to get out of hand (non fiat/custodial) and risk core fiat/depository. No different to how there's intervention to support housing, stocks, bond, inflation, deflation "stability". Printing money, revising interest rates, taxation, rules ... can all be changed to fend of collapses.

All fiat/depository systems collapse/fail sooner or later, those with key interest in their current versions of those look to prolong that collapse as long as possible. Near the final end-play likely the likes of investors being able to buy/hold gold would be prohibited, which is a indicator to load up on gold in regions outside of such controls. If a US citizen loaded up on London held gold when the US prohibited US citizens from holding investment gold within the US - then they'd have seen a 70% gain from that gold relatively quickly (couple of years).

In other cases such as 20% inflation and treasury yields, the most common taxation rate was increased to near 40%, such that the average private investor saw a 20% interest reduced by 8%, yielding a net -8% real outcome. Again just manipulation/control. In effect a partial default, but where semantics are directed so as to seem to 'never have defaulted'.


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