Gold (for diversification and balance)

coachman12

coachman12 said:

DiggerUK said:

bowlhead99,  "If you already have sufficient wealth and are just happy to hold something without any real term growth expectations and  with the intention of removing the downside"
Just about sums up Digger Mansions..._

Same here----and why should we not have the right to say so?

But it seems, Digger, that we DO have the right to set out our position, just like anyone else, without having to receive hate mail !

sixpence.

bowlhead99 said:

sixpence. said:

Sailtheworld said:

sixpence. said:

dunstonh said:

Do you think now is a good time to be buying gold?    Gold peaks during a financial crisis.   It then falls away during recovery.

NO WAY. This would be for the future. Now is an objectively bad time to be buying gold, but I am preparing to maybe make a purchase in the impending recession...

To be honest if you're able to correctly judge whether the market price of gold is wrong and know the timing of the next recession you probably don't need to overly worry about diversification.

So I feel like you're being sarcastic? Hard to tell on a forum! Obviously no one cane "time" the next recession, but I live in London and business are literally closing everywhere, very few people have been on holiday this year or come here on holiday, the theatres and cinemas have been shut... I think it's pretty obvious one is coming!

Well if it's pretty obvious one is coming, the prices of assets will have already started to reflect that, which is one reason why gold has moved to a high price.

When we get deeper into recession (whether we actually get a technical recession or just something that feels like one) and businesses are making lower profits and laying people off and declining to take on new employees as they are not looking to expand but contract in the face of declining revenues, you would not expect equities to go up in value, you would expect them to fall, yes? And if you are correct that gold price is inversely correlated with equities prices, you would not expect gold to be super cheap while equity prices are on the floor, right?

So, when you are saying that "NO WAY" do you think now is a good time to be buying gold, and that you plan to buy some when we have more of a recession which you think we're on the cusp of, it sounds like you are preparing to make a purchase when consumers have even less money and when  businesses start reporting worse profits and when the prices of equities have started to fall to the floor and gold goes up further, moving in the opposite direction to equities prices? 

To me it doesn't seem particularly logical to be buying gold in the depths of a recession when equities are relatively cheaper than gold. Rothschild said it's time to buy risk assets when there's blood on the streets. Buffet said to be greedy when others are fearful and vice versa. Moving to safe haven assets once we're already in a recession is not something that necessarily works out well. 2009 Q1, a period where the UK had a negative quarter-on-quarter GDP growth of -2.5% was literally the best equities-buying opportunity for the following 11 years, and while gold 

So, "preparing to make a purchase" of safe haven assets once the 'impending' recession has already hit, sounds like you will have missed the boat. And the fact that you think it's "pretty obvious one is coming" sounds like you should have already taken your position for what you know is coming, but if it is really all that obvious presumably the global institutional investors with their trillions to deploy will have already figured it out by now and positioned accordingly, and they will be the ones who will be making profits by selling to you at unattractive prices later.

If you want to use gold 'for diversification and balance' you should presumably already have some in your portfolio, if a portfolio needs it to be 'balanced', no?  What is this plan of yours to instead buy it later when the economy worsens and equities become cheap?

Ahhh nooo I've been misunderstood.
I would purchase equities in a recession.
Gold would be something for future diversification. I am not sure when I would buy it, but not now because I think it's overpriced even in relation to the fact that equities aren't up. Equities will drop in a reccession, gold will rise. Best to buy low. I hope that makes sense. 

Edit: just want to say I think I'm mostly right about equities here. I don't have any strategy for buying gold. I am just thinking of using it diversify in the future

(will respond to other posts later)

sixpence.

This thread is so interesting. I finally had the time to read it.

Market timing and market strategy are NOT the same thing. It is painfully obvious to me right now that equities are over valued and the government is basically just trying to create a buffer (removing stamp duty and the whole eat out scheme) against the next recession. I think they're also trying to get people into exercise because it's free lol

I started reading Andrew Craig’s book How To Own The World, last week. It has lots of great insights on gold and investing generally. He argues that gold is basically your best bet to “buy inflation” and also as a diversifying asset. I feel a bit more educated now. Gold ETF trackers do seem to directly negatively correlate with world equities so it looks like a medium to good long term hold. Hard to say if it’s a good time to buy, on second thoughts, because that actually would be timing the market. Maybe just buy gold and except that it's going to be nuts but ultimately negatively correlate with equities and is therefore a valuable form of diversification AND a hedge a against inflation.

What about a six figure portfolio for the next 10 years: 90% in a VLS 60 and 5-10% in gold. I’m feeling that (just brainstorming strategies here because it's fun)

I don’t really get how gold is defensive honestly (except against inflation) because it seems to grow so much. I think it’s worth owning but not more than 5-10% and maybe even as little as 3%.

Here is a wild article by the author of the book. He says you should own physical gold, which seems a bit… paranoid. He basically only says you should own an ETF if it's medium or short term because that platform might go out https://plainenglishfinance.co.uk/opinion/how-to-buy-gold-part-II I think he is a paranoid guy generally but makes some good points.

DiggerUK

Keep on the case sixpence, you're doing fine.
This is the World Gold Council, free to register, loads of info once you learn how to navigate, the historical stuff is detailed. This is the London Bullion Market Association  Alchemist.  You'll find others as you go forward, enjoy.

Keep up to date with the Sunday Telegraph and Weekend Financial Times, (my papers of choice) Since lockdown I get them delivered, ST each week, FT on the first weekend each month. It's nice to get back to a leisurely read in the summerhouse with a "tray of tea". Trust me, retirement rocks..._

_

dont_look_now

sixpence. said:

It is painfully obvious to me right now that equities are over valued

So what asset class is obviously good value now? You can't say "everything is overvalued" because this is about capital allocation, and capital has to be allocated somewhere. This is about the relative attractions of placing capital in different asset clases now. (You are free to say "cash".)

and the government is basically just trying to create a buffer (removing stamp duty and the whole eat out scheme) against the next recession. 

I would recommend ignoring people who complain that markets are distorted because the government is doing something. The government is always doing something. Investors need to live with that reality, not be preparing to say: "My investments would have done well, if it wasn't for that pesky government!"

sixpence.

dont_look_now said:

sixpence. said:

It is painfully obvious to me right now that equities are over valued

So what asset class is obviously good value now? You can't say "everything is overvalued" because this is about capital allocation, and capital has to be allocated somewhere. This is about the relative attractions of placing capital in different asset clases now. (You are free to say "cash".)

and the government is basically just trying to create a buffer (removing stamp duty and the whole eat out scheme) against the next recession. 

I would recommend ignoring people who complain that markets are distorted because the government is doing something. The government is always doing something. Investors need to live with that reality, not be preparing to say: "My investments would have done well, if it wasn't for that pesky government!"

The SNP is overvalued. That is all I'm saying. The price of shares does not accurately reflect the current economic crisis.
I think you misunderstand me... I'm not blaming the government but (am I crazy here?) it's so darn obvious that the s*** is about to hit the fan. We have to have a recession. If we don't, then economics wouldn't be working in the logical way.

I just read that Ray Dalio (who predicted the 2008 recession and profited from it) has predicted another recession or even a depression. He suggests not trying to time the market but that one hold this portfolio to weather the storm: 30% equities 55% bonds 7.5% gold 7.5% commodities. That's not a bad shout away from my suggestion

dont_look_now

As already covered, we will officially be in a recession when 2020 Q2 GDP figures are released. Yes, this is very obvious. But no, it doesn't make shares obviously overvalued, because share prices have attempted to adjust to incorporate that information.

The point about the relative attractions of cash and shares (and other asset classes) is vital. Do you expect bumper returns from holding cash starting now, e.g. interest rates rising while inflation stays low? If you did, that might make cash relatively good value, and shares relatively bad value. If, OTOH, you instead expect low returns from both cash and shares, with interest rates being kept low because the economy is weak, and returns from shares subdued for the same reason, then it doesn't follow that shares are over-valued at all. It may well be that we should expect low real returns from all asset classes starting from here, including shares, cash, gold, bonds, and anything else. The level of expected returns generally, and the relative value of different asset classes, are completely orthogonal. Shares cannot be over-valued unless some other asset class (e.g. cash) is under-valued.

(And I'm not sure why you're taking a dig at the Scottish National Party . Typo?)

Linton

sixpence. said:

dont_look_now said:

sixpence. said:

It is painfully obvious to me right now that equities are over valued

So what asset class is obviously good value now? You can't say "everything is overvalued" because this is about capital allocation, and capital has to be allocated somewhere. This is about the relative attractions of placing capital in different asset clases now. (You are free to say "cash".)

and the government is basically just trying to create a buffer (removing stamp duty and the whole eat out scheme) against the next recession. 

I would recommend ignoring people who complain that markets are distorted because the government is doing something. The government is always doing something. Investors need to live with that reality, not be preparing to say: "My investments would have done well, if it wasn't for that pesky government!"

The SNP is overvalued. That is all I'm saying. The price of shares does not accurately reflect the current economic crisis.
I think you misunderstand me... I'm not blaming the government but (am I crazy here?) it's so darn obvious that the s*** is about to hit the fan. We have to have a recession. If we don't, then economics wouldn't be working in the logical way.

I just read that Ray Dalio (who predicted the 2008 recession and profited from it) has predicted another recession or even a depression. He suggests not trying to time the market but that one hold this portfolio to weather the storm: 30% equities 55% bonds 7.5% gold 7.5% commodities. That's not a bad shout away from my suggestion

In 2013 Ray Dalio predicted a recession in "2-4" years.   As to his portfolio to weather the coming storm - I see exactly the same one given in 2017.  There are other US commentators who make a living out of such predictions.  Of course sometimes they are right.

DavidT67

"The SNP is overvalued. That is all I'm saying."

What have you got against the Scottish National Party? 

Now if you mean the 'S&P 500' yes I agree.

EdGasketTheSecond

dont_look_now said:

sixpence. said:

It is painfully obvious to me right now that equities are over valued

So what asset class is obviously good value now? You can't say "everything is overvalued" because this is about capital allocation, and capital has to be allocated somewhere. This is about the relative attractions of placing capital in different asset clases now. (You are free to say "cash".)

and the government is basically just trying to create a buffer (removing stamp duty and the whole eat out scheme) against the next recession. 

I would recommend ignoring people who complain that markets are distorted because the government is doing something. The government is always doing something. Investors need to live with that reality, not be preparing to say: "My investments would have done well, if it wasn't for that pesky government!"

Gold and especially silver are good value now; extremely good value.

Of course markets are distorted by the FED and other gov'ts QE and by the various 'programs' such as bond including corporate bond buying, even when those bonds are junk. Just look at any measure such as market cap to GDP on the S&P500, dow to gold ratio, without much effort you can clearly see that the stock markets are overvalued.