Gold, lost its Glister?

gadgetmind

gadgetmind wrote: »

And it's paid out around 12% on top of this as dividends,

Here are total return (divis reinvested) figures.

FTSE 100 total return index
28/4/2010 3575
10/4/2013 4539

Looks like a 25%+ return to me, which shows how periods with FTSE valuations being low actually *increases* your total return if you re-invest dividends.

Note that smaller caps and other markets have done better, and you could also boost your return by holding bonds and rebalancing. You could even hold gold and rebalance if you wanted, and many multi-asset funds and ITs do exactly this.

sabretoothtigger

So how would that work, hold 5% gold then if it halves in value increase the portfolio to 10% gold or just add till its 5% again

I kinda do that, I keep bonds and gold as my little reserve cache. If market sells off then I expect, nay I demand these two fair alot better which should mean I can use them to fund a top up on other parts of the portfolio.

Of course I hold emerging bonds and obviously gold itself does not do so well with strong dollar or markets current ideas of safety assets.
My bonds are up in general over 3 years, it kinda worked and they pay out 5%. The dollar is flat in general

gadgetmind

sabretoothtigger wrote: »

So how would that work, hold 5% gold then if it halves in value increase the portfolio to 10% gold or just add till its 5% again

Normally you'd wait for things to get out of kilter (which is best judged by using some mechanical rule rather than gut instinct) and you then rebalance back to your target allocation.

I kinda do that, I keep bonds and gold as my little reserve cache. If market sells off then I expect, nay I demand these two fair alot better which should mean I can use them to fund a top up on other parts of the portfolio.

Yup, that's exactly right. A rebalanced portfolio of assets with low correlation to each other will over time out-perform any individual asset class.

Doshwaster

If Gold itself is doing badly the the gold mining companies are doing even worse. My Blackrock Gold and General has fallen off the proverbial cliff in the last few months and is one of the 10 worst performing funds out there.

http://www.investmentweek.co.uk/investment-week/news/2258997/the-ten-worst-performing-funds-in-q1

bowlhead99

Goes back to what I was saying much earlier in the thread. Gold mining companies are heavily leveraged to the price of gold and other largely fixed costs of production (fuel, labour).

If it takes you one barrel of oil costing $100 and a hundred hours of labour at $10 ph to dig and process an ounce of gold, you have costs of $1100. If you sell the ounce for $1600 last month you made $500 profit. If you sell it for $1400 this month you made $300.
So you lose 40% of your recurring profits when gold only dropped 12.5%. Not great for business.

There are obviously other factors at play for miners - interest rates on their finance costs, expectations of future movements in prices etc. But basically the falling gold price from $1700-1600 in Q1, and $1600-1400 soon after, can't be good news. A natural resources fund will have been hit badly by sentiment and will be well placed to recover long term for the same reasons above: gold at $2000, profits through the roof.

Of course the short term movements could be in either direction from here...

gadgetmind

bowlhead99 wrote: »

gold at $2000, profits through the roof.

Yet, historically, little of this sees its way back to shareholders.

sabretoothtigger

Its not the price its the margin. This is why gold and oil move together because so much energy is needed to get gold.
The operations where they just pick up nuggets are quite rare I think.

I know at least one of the biggest mines is on top of one of the 7 peaks, worlds highest points so cant be that cheap to recover

gold 2000 oil 150 most likely

the short term movements could be in either direction from here...

we recovered all the missing prices from the fast drop which means speculators have worked easy money on both sides. down and up, Im told its most likely to resume trend which is down

Of course the long term is still up but thats a long argument both sides must have. Perception is fed has solved problems, everything to improve now

gadgetmind wrote: »

Yet, historically, little of this sees its way back to shareholders.

Its the guys who sell shovels who make the most. Buy JCB :j

gadgetmind

sabretoothtigger wrote: »

Its the guys who sell shovels who make the most. Buy JCB :j

I used this approach very well in the past for both oil and technology.

bigadaj

JCB kit is a bit small, you need to be looking at CAT, komatsu and some of teh German engineering companies for that.

As stated earlier gold, despite being highly inert, is now mined as a complex compound, with chemical engineering processes to process even before refining.

The newest mining operations are scarily speculative, I know of mines in the drc which are just starting with go,d concentrations of well under 2 Grammies per tonne, so less than 2 parts per million.

sabretoothtigger

I have CAT and Deere in agricultural funds, overlaps to general mining equipment needed. Also I often take up oil service companies as they can be like a kinda of rolls royce market modelled steady aftermarket fees regardless of spot price.

I have APF also which is a royalty firm, they dont mine anything themselves. Thats good because of rising costs, I guess it doesnt really stop the rot from lower spot.

Ironically gold mines suffer greatly from inflation

well under 2 Grammies per tonne

1 gram is the limit maybe. It depends if you had a football field of 1 gram per ton, you'd go for it because that is such a simple idea.
If its on mountain side, it might really require 5 grams to offset all the extra costs

Ive read RNS reports, 8 ounces per ton and the price fell - badly!
I guess they cherry picked that result and I was the only one taken in