Buying gold

EdGasketTheSecond

I gave two examples of what you might use; there are many other measurements to determine whether stocks are 'expensive' but anyone can look them up if interested; there's no point me going through them all on here it would take too long.

So how would you determine if gold was 'expensive' relative to other asset classes then Alexland?

kinger101

bugbyte_2 said:

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. 

Not saying your way is right or wrong, but
(a) many people hold cash to cover dips in equity markets.  Although inflation erodes its value gradually, it's value is much more stable than gold.  
(b) 4% of fund value doesn't give one much of a buffer anyway.  At least, not within a typical pension pot in drawdown.
(c) although gilts only sometimes negatively correlate with equities, they do at least grow more steadily than gold.
(d) Globally diversified funds provide some degree of currency hedging.  It's unlikely a wealthy Venezuelan for example would have had all their assets pegged 100% to the fate of the Bolivar.  
(e) Historically, gold has not held its value, just always some value.  Which might be safer the shares in a particular company.  But who puts all their eggs in one basket? 

EdGasketTheSecond

c) Not true. Bonds can lose significant capital although not for the past 30 years because interest rates have fallen over that period.

e) Not true.

"Although the price of gold can be volatile in the short term, it has always maintained its value over the long term."

From:

https://www.investopedia.com/articles/basics/08/reasons-to-own-gold.asp

and

"Using the set gold price of $35 and the price of $1,586.40 per ounce on Feb. 14, 2020, a price appreciation of approximately 4,433% can be deduced for gold.2 Since February 1971, the DJIA has appreciated in value by 3,221%.6"

From:

https://www.investopedia.com/ask/answers/020915/has-gold-been-good-investment-over-long-term.asp

Bravepants

DiggerUK said:

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..._

I imagined a hypothetical investor with, say, 20 years until retirement. He/she has a mix of assets in his/her portfolio, ideally, he would want the assets to be negatively correlated; when one goes down the other goes up. The investor has this mix of assets because when equities fall, gold rises (or at least that's the theory), thus his portfolio should either stay steady or, even better, grow at a steady rate no matter what happens to equities, or gold, because they are negatively correlated. Ergo, if he gets the asset mix correct at the start he needn't bother selling anything for 20 years. Right? 

DiggerUK

eskbanker said:

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....

If they had retained the thanks button I would have used it. As they did keep said button I have stopped using it........as to "digression over" dream on, this is a gold thread, and "constructive discussion" is not allowed.

Some of my grasshopper novices have much to learn, but they're harmless..._

DiggerUK

Bravepants said:

DiggerUK said:

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..._

I imagined a hypothetical investor with, say, 20 years until retirement. He/she has a mix of assets in his/her portfolio, ideally, he would want the assets to be negatively correlated; when one goes down the other goes up. The investor has this mix of assets because when equities fall, gold rises (or at least that's the theory), thus his portfolio should either stay steady or, even better, grow at a steady rate no matter what happens to equities, or gold, because they are negatively correlated. Ergo, if he gets the asset mix correct at the start he needn't bother selling anything for 20 years. Right? 

What's the question again..._

Prism

EdGasketTheSecond said:

e) Not true.

"Although the price of gold can be volatile in the short term, it has always maintained its value over the long term."

From:

https://www.investopedia.com/articles/basics/08/reasons-to-own-gold.asp

and

"Using the set gold price of $35 and the price of $1,586.40 per ounce on Feb. 14, 2020, a price appreciation of approximately 4,433% can be deduced for gold.2 Since February 1971, the DJIA has appreciated in value by 3,221%.6"

From:

https://www.investopedia.com/ask/answers/020915/has-gold-been-good-investment-over-long-term.asp

You realise that 4,433% is in comparision a terrible return compared to DJIA which is running at 16,315% over the same time frame. You can't just quote some web links to prove your point without checking them

Alexland

EdGasketTheSecond said:

So how would you determine if gold was 'expensive' relative to other asset classes then Alexland?

I can't tell the fundamental value which is the problem. All I could do is hold a fixed proportion in a portfolio which is why I wouldn't want to go too heavy on the allocation.

greendoor665

kinger101 said:

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? 

I probably should, I have not rebalanced (or added new money other than to cover fees) in the 2.5 years this account has been open, but it might be time to do so now with the gold up 40% since the account was opened and the VLS80 up 3%. 

EdGasketTheSecond

Prism said:

EdGasketTheSecond said:

e) Not true.

"Although the price of gold can be volatile in the short term, it has always maintained its value over the long term."

From:

https://www.investopedia.com/articles/basics/08/reasons-to-own-gold.asp

and

"Using the set gold price of $35 and the price of $1,586.40 per ounce on Feb. 14, 2020, a price appreciation of approximately 4,433% can be deduced for gold.2 Since February 1971, the DJIA has appreciated in value by 3,221%.6"

From:

https://www.investopedia.com/ask/answers/020915/has-gold-been-good-investment-over-long-term.asp

You realise that 4,433% is in comparision a terrible return compared to DJIA which is running at 16,315% over the same time frame. You can't just quote some web links to prove your point without checking them

I suggest you check your math; I agree with the figures quoted by investopedia.