Precious metals investments

DavidT67

Sovereigns are a quarter troy ounce, Krugerrands and Britannias are one troy ounce, hence lower margins.

Buy Britannias as they are CGT exempt, Krugerrands are not.

cwep2

Precious metals are a useful way to diversify your assets/investments away from stock markets.
They are not great for a long term hold as others have mentioned, there is no "yield" or dividend, so holding for 5-10yrs in a pension isn't terribly appropriate. As we have seen in the last couple of years, higher interest rates can hurt bonds as well as stocks so if you want a more defensive portfolio they can be a useful place to park cash, I would recommend in an ETF for this purpose.

But this comes back to the whole timing the market vs time in the market argument and for most people they are better off with an invest and forget tracker fund which will be quite diverse already. 

I hold some commodity ETFs and Gold ETFs in by portfolio, but this is because I switched out of bonds when interest rates were almost zero and looked like rising and bonds seemed to only have one way to go (down) so these seemed a safe alternative to park cash, they have done fairly well amidst the market turmoil and inflation, but they still make up only a fairly small (<10%) part of my portfolio. If I find myself holding them in 12 months time I will probably switch back to equities or bonds again. I am very a fairly active investor though, I check what's going on pretty much daily, so not typical. 

adam06_2

I hold gold etf as a hedge against inflation. Theory is I can sell my gold etf when it is high like now and use the money to buy stocks which are low. Then when it switches back I can restock my gold etf.

Buying to hedge against a global financial crisis is stupid. Nobody is going to want gold if everyone's money is worthless... You would be better buying tinned food or something.

wmb194

adam06_2 said:

Buying to hedge against a global financial crisis is stupid. Nobody is going to want gold if everyone's money is worthless... You would be better buying tinned food or something.

The hedge is against the type of scenario Turkey and Argentina presently find themselves in i.e. the world keeps turning but your gold can still be exchanged and holds its value, not Mad Max.

Albermarle

adam06_2 said:

I hold gold etf as a hedge against inflation. Theory is I can sell my gold etf when it is high like now and use the money to buy stocks which are low. Then when it switches back I can restock my gold etf.

Buying to hedge against a global financial crisis is stupid. Nobody is going to want gold if everyone's money is worthless... You would be better buying tinned food or something.

Global financial crises are not that unusual, and during one gold is usually a good investment to hold.
It would not be of much use in some kind of Armageddon scenario, but so far this has never happened.

Lomcevak

wmb194 said:

The hedge is against the type of scenario Turkey and Argentina presently find themselves in i.e. the world keeps turning but your gold can still be exchanged and holds its value, not Mad Max.

In what way is gold better than a global portfolio of shares, e.g. a tracker, that should be insensitive to a Turkey or Argentina scenario and would both give yield and (at least in theory) a measure of inflation protection? Or do you mean a hedge against one of the major economies, e.g. the US, going hyperinflationary? In which case we might well be more Mad Max than we'd like, given the contagion effect of the world's de facto reserve currency melting down. 

No snark, I'm genuinely interested in the thought process and if i'm missing something in my thinking. But i've never quite managed to understand then scenario where gold is the only effective hedge.

Lomcevak

adam06_2 said:

I hold gold etf as a hedge against inflation. Theory is I can sell my gold etf when it is high like now and use the money to buy stocks which are low. Then when it switches back I can restock my gold etf.

Isn't this a timing the market issue - particularly trying to pick a point where you don't sell too early (in which case you convert to cash, which then gets obliterated by inflation) and not too late (where you miss the move back)?

cwep2

Lomcevak said:

wmb194 said:

The hedge is against the type of scenario Turkey and Argentina presently find themselves in i.e. the world keeps turning but your gold can still be exchanged and holds its value, not Mad Max.

In what way is gold better than a global portfolio of shares, e.g. a tracker, that should be insensitive to a Turkey or Argentina scenario and would both give yield and (at least in theory) a measure of inflation protection? Or do you mean a hedge against one of the major economies, e.g. the US, going hyperinflationary? In which case we might well be more Mad Max than we'd like, given the contagion effect of the world's de facto reserve currency melting down. 

No snark, I'm genuinely interested in the thought process and if i'm missing something in my thinking. But i've never quite managed to understand then scenario where gold is the only effective hedge.

I think the key difference is what interest rates are doing. It's fairly clear in most cases that in a low interest rate environment stocks will have more value - the present value of future profits is higher, companies can borrow cheaply to expand etc.

One theory is that all the QE which happened and was widely tipped to cause inflation, well it did and didn't. We didn't see CPI go up in the 2010-2020 period as much as people thought given what monetary theory predicted - in fact it remained stubbornly low. But we did see financial inflation - assets went up in value: stocks, bonds, property etc so the price of financial assets in GBP or USD or EUR did go up, and went up a lot. Now we are seeing higher interest rates along with QT (the opposite of QE) so those same financial assets are falling in price and we *are* seeing high CPI.

So in the previous decade and when there was a lot of Covid related financial stimulus in 2020+21 it makes more sense to hedge against inflation in assets that do well in a low interest rate environment as they have other drivers which will turbo-charge their value, but in a high interest rate environment these assets are much less attractive, so at least on a relative bases precious metals and commodities *might* be a better inflation hedge now than they were in most of the last decade.