Buying gold

Alexland

EdGasketTheSecond said:

You sell it when it is expensive relative to other asset classes. Then you buy one of those other asset classes e.g. stocks when they are cheap as valued by PE or some other measure of value, or real estate when it is back to a realistic multiple of average earnings.

And what is your measure of gold fair value based on a realistic multiple of average earnings?

greendoor665

I've got 20% of my medium term (5-10 year investment horizon) ISA portfolio allocated to a gold ETF, with the rest in VLS80. I chose to allocate 20% knowing that it may well cost me some returns, but would likely offer some protection in the event of a downturn. 20% is a much bigger allocation than some would recommend but every time the stock market has dipped the gold has shot up to act as somewhat of a counterbalance. 

I wouldn't hold gold in a longer term portfolio like a pension though. Over a 30-40 year period it's equities all the way for me, but I believe gold has its place for shorter investment horizons. It has been proven that adding gold to a portfolio improves risk adjusted returns. 

bowlhead99

Alexland said:

EdGasketTheSecond said:

You sell it when it is expensive relative to other asset classes. Then you buy one of those other asset classes e.g. stocks when they are cheap as valued by PE or some other measure of value, or real estate when it is back to a realistic multiple of average earnings.

And what is your measure of gold fair value based on a realistic multiple of average earnings?

Hey, stop with the dumb questions. As we've been told before, an ounce of gold is *always* worth an ounce of gold!

kinger101

greendoor665 said:

I've got 20% of my medium term (5-10 year investment horizon) ISA portfolio allocated to a gold ETF, with the rest in VLS80. I chose to allocate 20% knowing that it may well cost me some returns, but would likely offer some protection in the event of a downturn. 20% is a much bigger allocation than some would recommend but every time the stock market has dipped the gold has shot up to act as somewhat of a counterbalance. 

I wouldn't hold gold in a longer term portfolio like a pension though. Over a 30-40 year period it's equities all the way for me, but I believe gold has its place for shorter investment horizons. It has been proven that adding gold to a portfolio improves risk adjusted returns. 

Are you going to rebalance? 

Malthusian

Alexland said:

EdGasketTheSecond said:

You sell it when it is expensive relative to other asset classes. Then you buy one of those other asset classes e.g. stocks when they are cheap as valued by PE or some other measure of value, or real estate when it is back to a realistic multiple of average earnings.

And what is your measure of gold fair value based on a realistic multiple of average earnings?

Earnings are paid in worthless fiat currency, so the multiple of gold to average earnings is always infinity.

DiggerUK

Bravepants said:.....when exactly is it the time to SELL gold?  I note that some have been holding gold for years. This is more a rhetorical question rather than one for which I'm looking for an actual answer. 

Begs the question, why ask then. 

You sell when you need to or want to. It's as daft as asking when do you sell anything, or when should you take cash out of savings accounts.

Savings were put by for the future at Digger Mansions, we sell as needed now. Our savings pot of gold is paying us back in spades.
Cash savings and equities don't look so hot for now, but let's see how everything pans out..._

bugbyte_2

Bravepants said:

So if now, according to some, is the time to buy gold, when exactly is it the time to SELL gold?

I note that some have been holding gold for years.

This is more a rhetorical question rather than one for which I'm looking for an actual answer.

To me, Gold has a couple of uses, best demonstrated by an example. Say you had £100,000 in equity and bond funds supplementing your pension @ 4% = £4000 pa, and the market crashes 25%. Your holding is now only worth £75,000 but you still take out £4,000 reducing your holding to £71,000. We all know that taking money out during a dip, especially in the early years of draw down is suicidal when it comes to recovery and future value of your pot (there are some really good articles out there on this) so taking that £4,000 out is a really, really bad idea. However, whilst the sun was shining and all was good in the world, you brought 3oz of Gold in coins or a gold fund or whatever for £3,000. As Gold usually (but not always) goes up when funds go down it raises 25% to £4,000. You sell this instead of your funds and low and behold you haven't damaged the long term prospects for your fund pot.

The other major reason which people do not like thinking about is an asset of last resort. Fiat (paper) money is great as long as there is little inflation, but the middle classes of the USA and France at the end of the 18th century, Germany in the 1920's and 30's Argentina in the 1980's and 90's, Venezuela in 2016 to name but a few countries saw their wealth wiped out by hyper inflation. Gold, which is not pinned to any currency, historically keeps its value. Could the west suffer hyperinflation? Trust in western governments would have to evaporate. This is not impossible, just look what happened in southern Europe a couple of years ago - it is my opinion that the Euro stopped Greece and Spain from experiencing a collapse in their currencies.

I personally hold 3-4% physical gold in my portfolio mainly for the top reason. This is of course not a recommendation, just my position on gold and my opinion. 

EdGasketTheSecond

Alexland said:

EdGasketTheSecond said:

You sell it when it is expensive relative to other asset classes. Then you buy one of those other asset classes e.g. stocks when they are cheap as valued by PE or some other measure of value, or real estate when it is back to a realistic multiple of average earnings.

And what is your measure of gold fair value based on a realistic multiple of average earnings?

I said you might switch to real estate when it is a realistic multiple of average earnings; you can see housing is in a bubble now.

To assess whether gold was relatively expensive to say stocks, one could use a DOW priced in gold chart for instance that plots how much it costs to buy stocks in gold e.g.

https://www.macrotrends.net/1378/dow-to-gold-ratio-100-year-historical-chart

That shows stocks as expensive compared to gold.

Overlay the current world lockdown and currency creation and things look more favourable to gold and less favourable to stocks and real estate. Nothing is certain of course, all you can do is examine the evidence and make a choice.

Also as digger says, you might simply sell some gold to buy something you want and use it as money.

eskbanker

DiggerUK said:
Our savings pot of gold is paying us back in spades.

They'll come in handy for a digger....

DiggerUK said:

let's see how everything pans out..._

Didn't realise you were involved with getting the stuff out of the ground in the first place!

Anyway, digression over, back to the more constructive discussion....

Alexland

EdGasketTheSecond said:

I said you might switch to real estate when it is a realistic multiple of average earnings; you can see housing is in a bubble now.

Slightly off topic but a bubble is formed when an asset price rise outpaces underlying fundamentals however by comparing house prices to average earnings (which is just one fundamental) you are missing that lowering interest rates (which is another fundamental) makes the loans more affordable such that the real total amount repaid over the mortgage term is similar to before which is how the prices remain challenging but still affordable for many.

Same goes with stocks by only comparing to historical average P/E is missing that inflation and interest rates are running lower so stock valuations should be based on their ability to earn an above inflation real return. The problem is that gold has no fundamental earning potential so it's irrelevant to compare it's price to something that does as justification of it's fundamental value.