Gold

DiggerUK

nickyhellard wrote: »

With such low interest rates is it worth investing in gold? If so how? What are the pitfalls?

Gold is a solid and sound investment with a longer than five year time period. If you had averaged in on a monthly basis since its last high in September 2011, it would have cost an average of £892 per ounce. Today it is priced at £1035.

This article will give you the full range of ways to acquire gold.
http://moneyweek.com/a-beginners-guide-to-investing-in-gold/

The pitfall is going all in when prices are at a peak, as in September 2011 when the price was kissing £1200..._

masonic

EdGasket wrote: »

Yes could be. As I said I use SPGP which buys actual securities (and I have found in practice tends to move at twice the % change in the gold price) so has none of those problems but I do see what you mean.

I should probably take a closer look at that ETF then if it is doing something different. Others I have looked at seemed unsuitable to be held long term.

Edit: OK, I understand now. This is in fact not a leveraged ETF, but a gold mining sector ETF. It is 100% equities with no leverage (except a small amount of stock lending), although it is true to say that holding gold miners approximates to a leveraged play on the gold price (except the two can become disconnected for long periods). When you mentioned "2 X leveraged gold" I assumed you were talking about something that directly tracks the gold price.

EdGasket

In practice it is 2X pretty much as good as. Check the price history.

masonic

EdGasket wrote: »

In practice it is 2X pretty much as good as. Check the price history.

I'm not really seeing that. Here is a chart of SPGP (alongside the fund I immediately thought about when considering comparators) vs the ETFS physical gold ETF, which tracks the spot price pretty closely:


So it does appear to be broadly correlated with daily movements in the gold price which is what you would tend to expect. Performance of the gold equities ETF is, however, more similar to the Blackrock fund, with the Blackrock fund looking slightly more defensive (which is something I thought I'd never say of that fund!)

But, when looking in more detail at how well the equities ETF acts as a 2X Gold tracker over longer periods, here is the annualised performance chart, from which we can get 4 years worth of data:



It seems to me that based on 12 month performance data, the gold equities ETF can be anywhere between 0.6X Gold and 4.2X Gold. So it doesn't seem to track the gold price very well at all.

Looking over longer periods is more problematic, as the ETF only has a short history, but since launch it has returned -39%, compared with about -10% from the physical gold ETF over the same period. That doesn't look like 2X to me. Over the last 3 years the performance is 46% vs 19%, which is closer to 2X.

Overall, I'd say this ETF is not a suitable proxy for 2X Gold exposure.

EdGasket

Well I find it a fine etf for leveraged gold at approx 2 times and with none of those derivatives and associated charges. As you say over the last 3 years it has been pretty close to 2X which is what I have found. On a day to day basis, if gold moves 1%, SPGP will move around 2%. It's not exactly 2X but who cares (nit-pick if you like); its leveraged and backed by physical equities paying dividends.

masonic

EdGasket wrote: »

Well I find it a fine etf for leveraged gold at approx 2 times and with none of those derivatives and associated charges. As you say over the last 3 years it has been pretty close to 2X which is what I have found. On a day to day basis, if gold moves 1%, SPGP will move around 2%. It's not exactly 2X but who cares (nit-pick if you like); its leveraged and backed by physical equities paying dividends.

Yes, if you are willing to cherry pick specific start and end dates, then you will be able to find some where it is 2X. You will find others where it is 0.6X and others still where it is over 4X. Long term, it looks closer to 4X at the moment. That may change going forward.

Edit: To get a better long term figure, I looked up the index SPGP tracks (here) and while it was launched in 2011, it does give a backtested performance figure for 10 years. Here is the 10 year chart priced in USD (note that over 10 years, the performance is negative - this is important):


Now here's an equivalent 10 year chart of the gold spot price in the same currency:


Notice how one has fallen over 10 years and the other has risen? Ideally I'd have rebased both to GBP, but I doubt that will change the fact that these two investments are poorly correlated.

Am I missing out dividends when looking at that chart? Maybe. Fortunately, the table below the chart shows 10 year annualised returns. Those were -2.15% based on just price and -1.40% based on net total returns. So the total return index fell about 13% over 10 years while the gold price went up by 112%. That's about -0.1X Gold, in case you were wondering

EdGasket

Well I wasn't trying to prove SPGP was exactly 2X gold anyway (the thread was about gold as an investment and I commented relative to inflation and cash NOT SPGP that you asked about later) so I don't know why you think it so important to prove it isn't?? In my timeframe of the last 3 years I have been in it, it has approximated 2X; if that is not accurate enough for you then sorry!

masonic

EdGasket wrote: »

Well I wasn't trying to prove SPGP was exactly 2X gold anyway (the thread was about gold as an investment and I commented relative to inflation and cash NOT SPGP that you asked about later) so I don't know why you think it so important to prove it isn't?? In my timeframe of the last 3 years I have been in it, it has approximated 2X; if that is not accurate enough for you then sorry!

There is a record of the discussion that led us to this point. It started by you making the claim in post 7:

EdGasket wrote: »

I like to have 5 to 10% of my wealth in 2 X leveraged gold; it did very well on brexit due to the uncertainty and the fall in sterling.

Being of an inquisitive mind, and being unable to find any investment available to me that is actually able to deliver 2X the performance of gold consistently, it seems perfectly reasonable for me to enquire as to how you are achieving that. When I expressed some doubts as to whether your chosen investment was actually able to deliver the returns of 2X leveraged gold, it was you who confirmed "In practice it is 2X pretty much as good as" and invited me to "Check the price history", which I dutifully did.

My findings have been outlined in my last couple of posts on this thread. I did not set out to prove you wrong in your claims about SPGP, but the data was clear and it would have been remiss of me to keep that information to myself.

As someone who is invested in SPGP in the belief that it will give you returns approximating to 2X gold, I would have thought you'd have welcomed the revelation that has only a very poor correlation with the gold price and over long periods has the potential to generate negative returns over a period when the gold price doubles. To be honest, I could not have kept that information to myself because others reading this thread could take away a misleading picture if I refrained from sharing that data. So I apologise if you find it unpalatable.

Of course, you are free to hold the opinion that you have exposure to 2X gold through this fund. Others can use the facts presented here to reach their own conclusions.

If you want some alternative ETFs that have, over the last 3 years, approximated 2X gold here are some options:
iShares MSCI World
ETFS Short CAD Long USD
Global X China Industrials
iShares MSCI Hong Kong Index

Probably those will not approximate 2X gold over different time periods any better than SPGP, possibly they'll be even worse.

atush

Personally, as someone who has invested in gold int he past, and still holds a small amount- post brexit (or post crunch) is the very LAST time to invest in gold.

the only time to invest in gold, as it produces no income, is when others ARE NOT buying it. So in times of plenty when the rice is low.

Which is what i did. And will do in future.

You know the whole buy low sell high thing, and you cant buy low when the price is high.

shortcrust

I'm tempted to sell the little bit of gold I have with the price being so high. I wouldn't buy at the moment. That said, I buy myself a gold sovereign for my birthday every year so cross your fingers for a fall in prices by December...