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Percent portfolio in Gold


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Buffett has not been a big fan of gold. 

 

That said, at any of the following moments in history, would it be have been easy to predict with certainty that if inflation were to happen, AISC of Gold was going to be eventually as high as $1000+ in 2021 at companies claiming to have the best gold mines (Barrick Gold, Newmont)?:

  • August 1971: U.S. came off the Gold standard in August 1971, but Gold fell from $42.71 in August 1971 to $42.03 in September 1971.
  • February 1974: U.S. inflation exceeds 10%.  Gold price hits $151.22
  • January 1980: Gold hits peak of $677.97
  • Sep 1981: 10-year treasuries rate hits peak of 15.32%.
  • June 1982:Gold drops to $314.79

 

Looking at it today, if inflation hits 10% per year for the next 10 years, i.e. costs multiply by 1.1^10=2.59, would AISC at miners also multiply by 2.59, and in turn, can we expect gold price to also go up at least that much? What is the probability that inflation could run that high for next 10 years, and that Fed will be slow in letting interest rates go up?  If crypto crashes, what percentage of crypto investors run to gold? 

 

Some follow-up questions:

  • What percentage of your portfolio are you putting in gold? 
  • How are you holding gold, e.g. GLD, GLDM, GOLD (Barrick Gold), or NEM (Newmont)?   

 

 

Gold price per oz: 

image.png.edb37f11339854822ccb93ba3226c15a.png

 

10-year treasury rate:

image.png.e4ff529e4c80d1a21e84eed44beb0372.png

Edited by LearningMachine
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Learning Machine...Nice summary...I was in the process of posting something similar. I have never invested in gold. Now am looking at as one of many ways to bet on persistent inflation. Possibly a hedge. Figuring out best way to express bet. I was thinking about 100 bps.

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I have a few gold and platinum coins I like to look at now and again. Platinum is probably a better bargain currently. Used to be a 'gold bug'.  Now I just buy good companies.  Would only buy Barrick if it crashes. Macroeconomic speculation has never worked for me.

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To own gold, one must be very long term, if and when it goes parabolic you will feel it.

In the short term though, higher interest rate will be a headwind to all commodities.

 

The Goldman commodity chief had a nice saying when asked about super cycle phase in oil : "name me the currency, i will tell you when was the super-cycle"

Implying that the boom and bust in the commodities happen at different time when viewed through the lens of different currencies, but we tend to view everything through the USD lens.

 

Gold may be flat in USD terms, but how it is when viewed in local Asian currencies ... are they getting their needed so-called hedge.

 

Oil was peaking in the summer for 2008, when viewed in USD terms, but I bet emerging economies like India really had their super cycle in late 2018-19, when US dollar reigned supreme, making barrel expensive for them in their local currencies.

 

 

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1 hour ago, Xerxes said:

To own gold, one must be very long term, if and when it goes parabolic you will feel it.

In the short term though, higher interest rate will be a headwind to all commodities.

 

The Goldman commodity chief had a nice saying when asked about super cycle phase in oil : "name me the currency, i will tell you when was the super-cycle"

Implying that the boom and bust in the commodities happen at different time when viewed through the lens of different currencies, but we tend to view everything through the USD lens.

 

Gold may be flat in USD terms, but how it is when viewed in local Asian currencies ... are they getting their needed so-called hedge.

 

Oil was peaking in the summer for 2008, when viewed in USD terms, but I bet emerging economies like India really had their super cycle in late 2018-19, when US dollar reigned supreme, making barrel expensive for them in their local currencies.

 

 

Good point that gold is anti-correlated with the USD. I expect gold to moonshot if the rest of the world loses trust in the USD. This happened to some extend in 1979/80 when gold went parabolic (Iran hostage crisis , energy crisis, and high inflation).

 

FWIW, i have a few percent in IAU in my retirement account and regard it as a cash substitute.

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2 hours ago, spartansaver said:

I've been wondering why I have any cash relative to holding gold. For those of you that have a meaningful cash holding, why hold any USD relative to gold?  

In my eyes, cash and gold are currencies. Gold is inflation hedged due to inputs in obtaining it. Cash is more liquid. Both don't really have an intrinsic value since they don't do anything useful, though you could argue gold is slightly more valuable than cash in this regard since it takes effort to mine and purify it.  

 

IMO, the only reason to hold cash is to invest  (purchase an asset, preferably cash generating), or  spend (something that enhances your life in some way). 

 

Holding large amounts of cash without a goal to invest or spend is generally a bad idea due to inflation. Many wealthy people infact borrow to invest for this reason.

 

 

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A portion of my portfolio is just broad based index or index like funds. Within that section of my portfolio I allocate about 10% to inflation protection type vehicles. I have about 5% in a CDN equivalent of GLD. I bought my position back in 2016-2018ish when no one wanted it and I've sort of just left it there since. 

 

 

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54 minutes ago, ICUMD said:

In my eyes, cash and gold are currencies. Gold is inflation hedged due to inputs in obtaining it. Cash is more liquid. Both don't really have an intrinsic value since they don't do anything useful, though you could argue gold is slightly more valuable than cash in this regard since it takes effort to mine and purify it.  

 

IMO, the only reason to hold cash is to invest  (purchase an asset, preferably cash generating), or  spend (something that enhances your life in some way). 

 

Holding large amounts of cash without a goal to invest or spend is generally a bad idea due to inflation. Many wealthy people infact borrow to invest for this reason.

 

 

What do you mean more liquid? I've started to think of gold much more as currency (cash) and if I had to pick one currency, why not pick the one that has a history of over 2k years. I tend to hold large amounts of cash and swing hard at my favorite ideas. I've performed well investing this way, however, I'm wondering if it makes sense for my cash to be in USD or gold. I don't have BRK cash levels so I can convert my gold to USD with little effort. 

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15 minutes ago, spartansaver said:

What do you mean more liquid? I've started to think of gold much more as currency (cash) and if I had to pick one currency, why not pick the one that has a history of over 2k years. I tend to hold large amounts of cash and swing hard at my favorite ideas. I've performed well investing this way, however, I'm wondering if it makes sense for my cash to be in USD or gold. I don't have BRK cash levels so I can convert my gold to USD with little effort. 

By liquid, I mean most transactions are conducted via cash. Gold needs to be converted first which may cause frictional losses over the short term. 

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33 minutes ago, ICUMD said:

By liquid, I mean most transactions are conducted via cash. Gold needs to be converted first which may cause frictional losses over the short term. 

 

I've had this discussion with coworkers who buy physical gold and it doesnt seem to click with them...or me, maybe Im thinking of it wrong. 

 

They go to the "dealer" and buy bars of gold...paying over spot price for the privilege, then hold it for whatever their period is...then go to sell it and sell below spot price. The middle man takes his cut....much like RE buyer/seller commissions. 

 

Obviously different if buying equities tied to gold, miners etc. But the physical stuff has always been a hard pill for me to swallow, then again I have never used a RE agent as a seller either.

 

Imagine if this was the method for all other investments, go to sell shares in a company and you are taking a 1-2% or more hit every time you buy or sell, with real sums of money that can add up. 

 

Interestingly enough, the coworkers that buy physical gold also do not think about it in mathematical returns as it pertains to an investment. For instance if They bought/sold a gold bar for $10 say, and the facilitator of the transaction took a buck, it wouldn't occur to them that they are paying 10% for that ability (just an example) or if you go to the ATM and pull out $20 and they charge you 4 bucks, they just paid a 20% "fee" on that money. Obviously sometimes you just pay the $3-4 for the convenience of getting soe quick cash...but if you are doing this regularly it can add up. Also in the above example if you withdraw $100 your percentage drops from 20 → 4%, my point is, its been my experience that the guys I know buying physical gold are buying it because it goes well in their safe with their gun collection, and its "just a good idea to buy gold" speculation, not investment as I would define it. When I was young I had a friend who's father bought tons of physical gold as invesments (his only investments) because he didnt trust stocks etc, no regard for possible returns or comparing it to other alternatives...just BUY GOLD!! I dont think the majority of posters in an investment forum think of things the same way, but I wonder in the bigger picture are the majority of physical gold buyers sharing the view of my coworkers? Or are there more that think the way we do?  

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Gold as an investment asset from a retail point of view is inevitably going to displaced by crypto IMO. 

 

For central banks and institutions, they are likely to continue allocating for the next several decades.

 

 

Edited by Simba
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1 hour ago, Simba said:

Gold as an investment asset from a retail point of view is inevitably going to displaced by crypto IMO. 

 

For central banks and institutions, they are likely to continue allocating for the next several decades.

 

 

Fiat currencies didn’t replace gold as an investment asset. Why would digital currencies be different?

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I

8 hours ago, Simba said:

Gold as an investment asset from a retail point of view is inevitably going to displaced by crypto IMO. 

 

For central banks and institutions, they are likely to continue allocating for the next several decades.

 

 

 

I mean, obviously, nobody knows, but I will point out that there are some crypto tail risks.  There WILL be more crypto hacks, which will reduce trust - and this is pretty much all about trust.  I'd bet there will be more hacks than gold bars stolen.

 

(of course, the discussion about whether all gold ETFs hold as many bars as they say they do is another topic altogether...).

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I used to keep a few percent in gold (3-5%), but I no longer do.   Crypto is back up to over a 20% position for me with the recent run up even though I sold ~45% of what I owned earlier this year.  I also have a ~2% position in physical Uranium (SRUUF).  

 

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My non-active index based accounts all hold 20% gold. This allocation used to be long term treasuries for rebalancing purposes, but I rotated into gold when treasuries went nuts in 2020. I thought about crypto, but I can't get comfortable with it.  

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