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Gold

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
Parky
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Gold

#387757

Postby Parky » February 18th, 2021, 3:40 pm

Gold is a store of value, right? Not this year though. It's fallen 11% in sterling since January 5th (9.5% in $US). I'm glad I didn't pile into gold last year when all the "experts were telling me to do so. My equities have continued to creep up.

dealtn
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Re: Gold

#387760

Postby dealtn » February 18th, 2021, 3:47 pm

Parky wrote: I'm glad I didn't pile into gold last year when all the "experts were telling me to do so. My equities have continued to creep up.


Weren't they right though?

Over a year Gold is up about 10%, the FTSE100 down about 10%.

Not sure I understand your "Investment Strategy".

staffordian
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Re: Gold

#387762

Postby staffordian » February 18th, 2021, 3:55 pm

Parky wrote:Gold is a store of value, right? Not this year though. It's fallen 11% in sterling since January 5th (9.5% in $US). I'm glad I didn't pile into gold last year when all the "experts were telling me to do so. My equities have continued to creep up.

Surely the point of a balanced and diverse portfolio is that when one asset class falls, the hope is that others might rise. And your post shows this in action.

I doubt many experts* would advise piling into any one area in response to specific events, but plan in a level headed way, then stick to that plan.

*Most so called experts are nothing of the sort, simply lowly newspaper hacks latching onto a press release from someone with a vested interest.

Adamski
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Re: Gold

#387769

Postby Adamski » February 18th, 2021, 4:13 pm

It depends. The current dip could be a buying opportunity, if the vaccine strategy doesn't work. If covid is beaten and economies open up, stocks do well and gold continue to slide.

Eboli
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Re: Gold

#387816

Postby Eboli » February 18th, 2021, 6:35 pm

Parky said:

Gold is a store of value, right? Not this year though...I'm glad I didn't pile into gold last year when all the "experts were telling me to do so


And I suspect there will be many years when this is true. But most would not regard a store of value as something that maintains it value over such a short period. Those who assert gold is a good store of value think in centuries and to be fair over very long periods the value of gold has remained very stable - though, of course, measuring value is a difficulty (normally a basket of goods and services is used). I'm not sure, however, why this point is relevant to an investment strategy unless your point is a good investment strategy is to ignore the "experts". 'Twas it ever thus...

Eb.

dealtn
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Re: Gold

#387819

Postby dealtn » February 18th, 2021, 6:42 pm

Eboli wrote:Parky said:

Gold is a store of value, right? Not this year though...I'm glad I didn't pile into gold last year when all the "experts were telling me to do so


I'm not sure, however, why this point is relevant to an investment strategy unless your point is a good investment strategy is to ignore the "experts". 'Twas it ever thus...

Eb.


Except the experts last year called it right. It is up 10%, beating equities, on the 1 year time frame.

GoSeigen
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Re: Gold

#387842

Postby GoSeigen » February 18th, 2021, 9:20 pm

Parky wrote:Gold is a store of value, right? Not this year though. It's fallen 11% in sterling since January 5th (9.5% in $US). I'm glad I didn't pile into gold last year when all the "experts were telling me to do so. My equities have continued to creep up.


I'm very very happy with my holding of gold and gold mining stocks; all have gained c100% or more over the holding period of around 5 years. The odd month of ups or downs is not of much concern to me.

GS

Spet0789
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Re: Gold

#387845

Postby Spet0789 » February 18th, 2021, 9:32 pm

GoSeigen wrote:
Parky wrote:Gold is a store of value, right? Not this year though. It's fallen 11% in sterling since January 5th (9.5% in $US). I'm glad I didn't pile into gold last year when all the "experts were telling me to do so. My equities have continued to creep up.


I'm very very happy with my holding of gold and gold mining stocks; all have gained c100% or more over the holding period of around 5 years. The odd month of ups or downs is not of much concern to me.

GS


Likewise. I prefer gold mining stocks to gold. Due to their operating leverage you only need about a third as much to add the same amount of covariance (effectively, diversification power) to your portfolio as if you held physical gold.

Lootman
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Re: Gold

#387846

Postby Lootman » February 18th, 2021, 9:38 pm

Spet0789 wrote:
GoSeigen wrote:
Parky wrote:Gold is a store of value, right? Not this year though. It's fallen 11% in sterling since January 5th (9.5% in $US). I'm glad I didn't pile into gold last year when all the "experts were telling me to do so. My equities have continued to creep up.

I'm very very happy with my holding of gold and gold mining stocks; all have gained c100% or more over the holding period of around 5 years. The odd month of ups or downs is not of much concern to me.

Likewise. I prefer gold mining stocks to gold. Due to their operating leverage you only need about a third as much to add the same amount of covariance (effectively, diversification power) to your portfolio as if you held physical gold.

Yes, and also mining companies often pay a dividend. Newmont Mining pays a dividend linked to the price of gold, for instance.

Plus the intrinsic high volatility of precious metals and miners gives good opportunities for using options. I am currently short a 2-month, at-the-money, put option on silver which is giving me 5% of the spot silver price. I have other short put options on gold and platinum miners.

Who says precious metals provide no income?!

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Re: Gold

#387856

Postby moorfield » February 18th, 2021, 11:07 pm

Always believe in your soul.

1nvest
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Re: Gold

#387925

Postby 1nvest » February 19th, 2021, 11:18 am

dealtn wrote:
Parky wrote: I'm glad I didn't pile into gold last year when all the "experts were telling me to do so. My equities have continued to creep up.


Weren't they right though?

Over a year Gold is up about 10%, the FTSE100 down about 10%.

Not sure I understand your "Investment Strategy".

Calendar year 2020 had gold up 20%. For the Permanent Portfolio (25% each in UK stocks (FT250), gold, cash and long term Gilts) that ended the 2020 year up 5%, but since January both Gold and LTG (30 year Gilt) have headed south whilst the FT250 is only marginally up (gold down around -10%, LTG down around -5%). So the PP has given-back/dropped around -3.75%.

Perhaps money is pilling out of gold and Gilts into cash in readiness for deployment into stocks as/when a Covid economic recovery rebound might get underway. ??? Even holding £ cash when the Pound is strengthening could yield reasonable rewards.

Primarily the PP strives to preserve wealth through all events, such as serving Japanese investors well during their post 1990 lost decade(s).

Spet0789
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Re: Gold

#387929

Postby Spet0789 » February 19th, 2021, 11:27 am

1nvest wrote:
dealtn wrote:
Parky wrote: I'm glad I didn't pile into gold last year when all the "experts were telling me to do so. My equities have continued to creep up.


Weren't they right though?

Over a year Gold is up about 10%, the FTSE100 down about 10%.

Not sure I understand your "Investment Strategy".

Calendar year 2020 had gold up 20%. For the Permanent Portfolio (25% each in UK stocks (FT250), gold, cash and long term Gilts) that ended the 2020 year up 5%, but since January both Gold and LTG (30 year Gilt) have headed south whilst the FT250 is only marginally up (gold down around -10%, LTG down around -5%). So the PP has given-back/dropped around -3.75%.

Perhaps money is pilling out of gold and Gilts into cash in readiness for deployment into stocks as/when a Covid economic recovery rebound might get underway. ??? Even holding £ cash when the Pound is strengthening could yield reasonable rewards.

Primarily the PP strives to preserve wealth through all events, such as serving Japanese investors well during their post 1990 lost decade(s).


The right way to think about gold, the PP strategy more broadly or Bridgewater’s All Weather Portfolio (by far the most successful hedge fund strategy over the long term) is scenario diversification.

Gold is in the portfolio as it’s the best long term protection against high levels of inflation of any asset class.

An ounce of gold has paid for a week’s worth of skilled labour (plus or minus a day or two) for the whole of recorded history.

Where I diverge from the PP is that any decision based on a backrest to invest in long term bonds at today’s yields is just daft.

1nvest
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Re: Gold

#387946

Postby 1nvest » February 19th, 2021, 12:40 pm

Where I diverge from the PP is that any decision based on a backrest to invest in long term bonds at today’s yields is just daft.

Many have been saying low yields post 2009 financial crisis was dreadful for long dated gilts, yet over the last 10 years (to year end 2020) such gilts have annualised a 8.5% reward, a couple of years of around +25% gains, a couple more of around +15%, worst year having a -5%. 130% upside 10 year gain, such that even if prices halved it would be more a case of giving back 'other peoples money' rather than a loss.

Fundamentally 0% yields is just a figure. More 'usually' the BoE will tend to raise/lower interest rates to promote/stem under/over economic activity to fulfil its 2% inflation rate target/mandate. The 0% "barrier" however promotes QE to be used instead of interest rate adjustments, but where now the BoE is preparing banks for negative yields, so potentially there's nothing stopping a very low yield from moving even further down, pushing prices even higher. Japan has pushed for higher yields for decades with little/no success.

My guess is that one day, whenever, inflation will rapidly spike and we'll see interest rates rise substantially and yes the PP's 25% gilt exposure will take a serious hit. Potentially however the other PP assets will compensate, as has been the case in the past of rising/spiking inflation, or if not adding substantial amounts into high yielding gilts at that time will 'pay back' that 'cost'. Either you can totally drop the Gilts and wait/time the market, which often doesn't work out as expected, or just ride along as-is, which more usually works out better. Same for stocks, more often timing simply doesn't work out well. Typically missed gains whilst waiting for a 'correction' are greater than the cost of the correction.

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Re: Gold

#387955

Postby 1nvest » February 19th, 2021, 12:59 pm

Gold is in the portfolio as it’s the best long term protection against high levels of inflation of any asset class.

Yes gold tends to do well during periods of negative real yields. When inflation is raging gilt/stock yields wont tend to rise as high as they're priced to multi-year averages/expectations which will tend to be lower than the peak inflation rate, inducing negative real yields being evident and at which time the price of gold will tend to spike heavily upwards. Harry Browne portrayed the PP as more often having just a single one of the assets doing well, and where the upside gains from that was more than enough to offset the losses in the other assets. And that is backed up be empirical evidence, Japan, Iceland, UK, US ...etc. historically, where overall real rewards have tended to remain relatively consistent through thick and thin. He also suggested that you'll hate one or more of the assets, but it required the full package in order to work correctly, they mesh and work as a wealth preserver only as a whole.

Scroll down this portfoliovisualizer link and tick the inflation adjusted tickbox for the chart

https://tinyurl.com/1pug2p9n

That's for a 4% SWR (4% of portfolio value initial withdrawal rate, where that amount is uplifted by inflation each year as the amount drawn in subsequent years).

A all-stock investor starting that in January 2000 would have seen their portfolio value having more than halved in real (after inflation terms) by 2003 and a decade into that seeing their portfolio down to just 25% of its former value. In contrast the PP maintained/grew the portfolio value (better preserved wealth).

Over other periods all-stock will do very well, and whilst the PP might lag those great rewards and be more 'average' those average rewards will still tend to be good-enough.

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Re: Gold

#387983

Postby mc2fool » February 19th, 2021, 2:52 pm

Spet0789 wrote:Gold is in the portfolio as it’s the best long term protection against high levels of inflation of any asset class.

An ounce of gold has paid for a week’s worth of skilled labour (plus or minus a day or two) for the whole of recorded history.

Real (inflation-adjusted) gold prices per ounce back to 1915, deflated by US (CPI) with the most recent month as the base. The vertical bars are US recessions.

Image

Actual prices (unadjusted for inflation).

Image

Both charts snapped from https://www.macrotrends.net/1333/historical-gold-prices-100-year-chart

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Re: Gold

#388024

Postby 1nvest » February 19th, 2021, 6:01 pm

When money/gold were convertible at a fixed (pegged) rate ("on the gold standard"), holding cash deposited and earning interest was more appropriate than holding physical gold. At any time you could convert that cash into physical gold, whilst having seen that cash expanded by interest payments during the time it was deposited.

A different era. Pretty much when the UK was the primary reserve currency investors (lenders to the state) were paid a real return for having lent. Similarly the state in effect paid investors for it to store their gold securely. Since the US stepped up to take over the primary reserve currency position that has evaporated and states have increasingly reversed that, to nowadays its entering the complete opposite where investors have to pay to lend to the state.

Pre 1968 (prior to President Nixon opting to end the gold-standard as a means to help the US pay down the cost of the Vietnam war) when gold was still pegged, its more appropriate IMO to factor in gold+short term gilt combined returns as a indicator of 'gold value appreciation'. Going back further, the 1800's, and most investors simply lent to the state in return for a reasonable real return such that both parties were content with that arrangement/deal. That stability/security also facilitated better personal planning for individuals. A pretty much assured 3% real reward for instance is far far better than a maybe 5%, may 0% (or worse). But that's the way of the present world, much risk has been directed towards individuals where previously the state tended to collectively de-risk individuals. Look for instance how inflation bonds (Index Linked Gilts) availability has since 2008 in effect been removed. And finance risk is not the only risk expansion - increasingly collective healthcare funding is being migrated over to individuals - great if never needed, not to so good if you're one of the unlucky ones with longer term health issues.

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Re: Gold

#388072

Postby Spet0789 » February 19th, 2021, 10:50 pm

1nvest wrote:
Where I diverge from the PP is that any decision based on a backrest to invest in long term bonds at today’s yields is just daft.

Many have been saying low yields post 2009 financial crisis was dreadful for long dated gilts, yet over the last 10 years (to year end 2020) such gilts have annualised a 8.5% reward, a couple of years of around +25% gains, a couple more of around +15%, worst year having a -5%. 130% upside 10 year gain, such that even if prices halved it would be more a case of giving back 'other peoples money' rather than a loss.

Fundamentally 0% yields is just a figure. More 'usually' the BoE will tend to raise/lower interest rates to promote/stem under/over economic activity to fulfil its 2% inflation rate target/mandate. The 0% "barrier" however promotes QE to be used instead of interest rate adjustments, but where now the BoE is preparing banks for negative yields, so potentially there's nothing stopping a very low yield from moving even further down, pushing prices even higher. Japan has pushed for higher yields for decades with little/no success.

My guess is that one day, whenever, inflation will rapidly spike and we'll see interest rates rise substantially and yes the PP's 25% gilt exposure will take a serious hit. Potentially however the other PP assets will compensate, as has been the case in the past of rising/spiking inflation, or if not adding substantial amounts into high yielding gilts at that time will 'pay back' that 'cost'. Either you can totally drop the Gilts and wait/time the market, which often doesn't work out as expected, or just ride along as-is, which more usually works out better. Same for stocks, more often timing simply doesn't work out well. Typically missed gains whilst waiting for a 'correction' are greater than the cost of the correction.


Bond yields can go negative. I’m not saying that owning bonds yielding 1% can only earn you 1% pa - clearly the mark to market on a fixed income rally can give you a better return. But there’s no question that backtested performance of a fixed income portfolio with a 5% starting yield tells you little about the likely returns investing today.

The fixed income market is utterly overbought by institutional buyers who, for different reasons, MUST buy bonds (central banks and pension/insurance).

A private investor who buys long-dated bonds needs their head examined in my view.

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Re: Gold

#388088

Postby 1nvest » February 20th, 2021, 12:44 am

For US data, in the 2.5% 20 year treasury yields run up to the early 1980's 14% US treasury yields a constant rolled 20 year Treasury total return gained 60%. Yes more like 2% annualised instead of 6% annualised type cash rewards, so could in that sense have been considered a -4% annualised relative loss, but equally in effect having bought into a 20 year 14% yields that subsequently compensated.

In 1974 when stocks dropped around -25%, a 25% PP weighting to that = -6.25%. Combined long dated treasury and cash earned around 7%, which when weighted 50% = +3.5% .... i.e. partially negated the losses from stocks. Gold gained 66%, so +16.5% when weighted to 25%. So the collective PP pretty much offset/matched inflation that year. All-stock at that point would have had to subsequently make over 50% to 'catch up' with the PP/inflation (and assuming the PP remained unchanged).

Perhaps no more/less mad than that of having held long dated gilts since post 2009 financial crisis when yields were low and many suggested buying/holding gilts was madness but where rewards have been pretty good and built up a reasonable reserve of 'other peoples money' to help offset any declines as/when they might occur.

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Re: Gold

#388101

Postby JohnW » February 20th, 2021, 4:54 am

Spet0789 wrote:A private investor who buys long-dated bonds needs their head examined in my view.

Here's another perspective:
'the best answer to low interest rates is not necessarily to sell your bonds and put all of your money in stocks. Instead, consider mixing in some long term bonds to raise the average maturity of your bond portfolio. As you can see from the chart, doing this at low interest rates will increase both the upside and downside potential of your portfolio, so be careful about adding too much risk.'
https://portfoliocharts.com/2019/05/27/ ... convexity/

dealtn
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Re: Gold

#388146

Postby dealtn » February 20th, 2021, 10:41 am

JohnW wrote:
Spet0789 wrote:A private investor who buys long-dated bonds needs their head examined in my view.

Here's another perspective:
'the best answer to low interest rates is not necessarily to sell your bonds and put all of your money in stocks. Instead, consider mixing in some long term bonds to raise the average maturity of your bond portfolio. As you can see from the chart, doing this at low interest rates will increase both the upside and downside potential of your portfolio, so be careful about adding too much risk.'
https://portfoliocharts.com/2019/05/27/ ... convexity/


So the "best" answer is to buy a more volatile outcome? What was the question?


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