Gold anyone?

Kendall80

I chose FS global resources at the start of the month over the Investec Global gold fund. While the FS fund has grown by 5%, the more 'gold heavy' Investec fund has jumped 10%. The beginning of a revival maybe?

LiamJ

Who knows. But having a small percentage in gold funds is a bit of insurance against everything else tanking. Trouble is, it's very hard to know when to sell, so you're still holding the gold fund well into the next trough.

kidmugsy

If I had access to a local safety deposit I would probably buy gold coins - Sovereigns or Britannias. If I gave up the insistence on being local, I could use the Royal Mint's new scheme. Since gold is an insurance against fiat currency disaster, I'd prefer not to have that money in funds.

Ryan_Futuristics

Well here's what Warren Buffett says about gold:

"(It) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

The problem with gold is that it has two major insurmountable shortcomings. It is "neither of much use nor procreative" according to Buffett. While he does allow for the caveat that gold has some small industrial and decorative use, the demand for either purpose is insufficient to use up all of the gold we are digging out of the ground just to hide it away again is a bank vault. However, his bigger issue with gold is that it can't be used to produce anything of value. Its value rises and falls based on what someone else is willing to pay for it, not based on its ability to generate income for its owner.

http://www.fool.com/investing/general/2014/09/13/why-warren-buffett-hates-gold.aspx

I used to hold some but never felt it was a particularly productive part of my portfolio

DiggerUK

Ryan_Futuristics wrote: »

Well here's what Warren Buffett says about gold......

Quoting what Buffet said on gold is fairly pointless......he also had a lot to say about Tesco a while back.

That approach just leads to a war of quotes, which leads us all nowhere fast. Anybody interested in gold should do their research, make a decision, and learn from their actions.

My opinion on Buffet is that nothing about him passes the smell test anyway. A bit 'aroma de ponzi' if you want my opinion.
But what do I know, I've also bought a lot of physical gold.
..._

Ryan_Futuristics

DiggerUK wrote: »

Quoting what Buffet said on gold is fairly pointless......he also had a lot to say about Tesco a while back.

That approach just leads to a war of quotes, which leads us all nowhere fast. Anybody interested in gold should do their research, make a decision, and learn from their actions.

My opinion on Buffet is that nothing about him passes the smell test anyway. A bit 'aroma de ponzi' if you want my opinion.
But what do I know, I've also bought a lot of physical gold.
..._

Well he's managed a 20% average annualised return on his fund for the last half-century - so probably knows a thing or two

Also perhaps a bit of a non-sequitur to imply his decision to invest in Tescos undermines his opinion on gold - at the time, investing in Tescos was probably the right decision ... but to predict the subsequent accounting scandal you'd had to be an actual prophet

I don't buy the idea that gold's any better a store of wealth than currency ... As Rand says, they're both essentially just tokens for productivity (completed or yet to be) ... Buffett's perspective is that the real value in his portfolio is the productivity it represents - whether we're paying dollars, gold coins, BitCoins or bartering each other's daughters in post-apocalyptia, what you're producing in tangible goods/services is the only real asset

bowlhead99

DiggerUK wrote: »

Quoting what Buffet said on gold is fairly pointless......he also had a lot to say about Tesco a while back.

That approach just leads to a war of quotes, which leads us all nowhere fast. Anybody interested in gold should do their research, make a decision, and learn from their actions.

If you look hard enough at anyone making quotes, you will find people contradicting themselves, and being proved wrong in some investments even though they looked like they were a master when dealing with others.

The Tesco failure for Buffett doesn't invalidate his comments on gold though.

I mean with Tesco he thought they would have growth prospects in the US and internationally, they had a dominant position with barriers to entry caused by their great economies of scale and leading brand... but he got caught out when they couldn't deliver on their expansion expectations in cracking the US, and the chinks in the armour at home with a change in peoples shopping patterns, reaction to solid new market entrants in a recession etc etc.

Whereas with gold, he is right that it doesn't do anything. It sits there, produces no income, and in fact you have to pay to store and insure it; contrasted with shares in a productive company or bonds in companies or governments where the financial instruments pay you to be the holder.

That is not going to have been a fundamentally incorrect call by Buffett. A block of gold on a shelf is not suddenly going to start paying income or generating something. It functions as a speculative commodity, which means it could be a useful hedge against inflation and it may become more valuable in a crash relative to equities and bonds when their values fall through the floor. The reason the gold goes up relatively in a crash is that your shares and bonds are producing 50% of the income they produced in the glory years while the gold can say it is producing 100% for the income it produced in the glory years (albeit, still nil!).

But Buffett is right to say that gold does not produce inherent value gains it just rewards (or hurts) speculators which is a zero sum game. Whereas holding something that produces value also has a speculative element but also an underlying ongoing gain.

You can't say that there's no point listening to Buffett being eloquent about gold because he might be wrong about it like he was on Tesco. Gold is not going to start generating income if you leave it long enough. While Tesco could fail if you leave it long enough.

I do agree though, we should not get caught up in quotes from so-called geniuses. And hey, there might be a great scientific, engineering or chemical use for gold that has hitherto been unexploited but generates great fundamental (non-speculative) underlying industrial demand twenty years in the future.

But presuming that it's better to have a chunk of a commodity instead of an income producing business is pure speculation. If that speculation is that there could be a use for it in the future, or that there could be a crash during which it becomes more valuable, rather than an interest rate rise that makes it relatively much less valuable than things that pay income, it is still speculation.

Having said this I do have a PPSG physical ETF/ETC tracker somewhere as well as a few gold coins and even some bitcoins. And shares in some speculative Aim companies in various sectors. Speculation is fun. It can be lucrative. It just isn't reliable. But anything that can give you a value gain in one hand while you are getting a loss on the asset in your other hand, should at least be considered even if you ultimately dismiss it for the same reason Buffett dismisses it or an anonymous forum poster dismisses it.

sterlingstash

Really interesting post. Some pretty unusual investments like wine or classic cars or watches have been doing well in recent years, but whilst those have no productive value either, and are just based on what rich folk are willing to pay for them, the significant difference with gold is that the new junk isn;t valued the same as the historical stuff.

How is your balanced portfolio doing DiggerUK?

Bud_Fox

Big money to be made with gold over the next few years. Keep an eye on Japan.

sterlingstash

Go for it Bud! Fill yer boots! Do you take broken jewellery?

James_B.

DiggerUK wrote: »

Quoting what Buffet said on gold is fairly pointless......he also had a lot to say about Tesco a while back.

That approach just leads to a war of quotes, which leads us all nowhere fast. Anybody interested in gold should do their research, make a decision, and learn from their actions.

My opinion on Buffet is that nothing about him passes the smell test anyway. A bit 'aroma de ponzi' if you want my opinion.
But what do I know, I've also bought a lot of physical gold.
..._

That's me convinced. What does Buffet know, eh? He's nothing, compared to a bloke called DiggerUK on the Internet, who doesn't seem to understand what a ponzi scheme is and, I suspect, has yet to make his first hundred million investing, let alone billions.