No where to hide

[MachineGhost]

Everyone always suspected that the biggest threat to the PP was a rising stock market, and that's pretty much been the story the last couple of years.

That's utter nonsense!  The PP would be DESTROYED without a rising stock market.

[MediumTex]

Everyone always suspected that the biggest threat to the PP was a rising stock market, and that's pretty much been the story the last couple of years.

That's utter nonsense!  The PP would be DESTROYED without a rising stock market.

What I meant was a rising stock market makes PP investors want to have a higher stock allocation.

What seems to pull investors away from the PP isn't the risk of loss in the PP, it's the perceived missed gains by only having a 25% stock allocation.

[mukramesh]

Everyone always suspected that the biggest threat to the PP was a rising stock market, and that's pretty much been the story the last couple of years.

That's utter nonsense!  The PP would be DESTROYED without a rising stock market.

That may be true, but imagine how much more devastating it would be for a Boglehead portfolio! It's all relative.

[buddtholomew]

A conservative BH portfolio is 50/50. Gold could certainly underperform equities in the above scenario so the results are not conclusive with a flat to lower stock market.

[mukramesh]

A conservative BH portfolio is 50/50. Gold could certainly underperform equities in the above scenario so the results are not conclusive with a flat to lower stock market.

True for gold. However I imagine long term treasuries would fare somewhat better than the 50% of the Boglehead portfolio that is in corporate treasuries... assuming low inflation, of course.

Otherwise with high inflation, the theory is gold would be the one offering the protection.

[buddtholomew]

A conservative BH portfolio is 50/50. Gold could certainly underperform equities in the above scenario so the results are not conclusive with a flat to lower stock market.

True for gold. However I imagine long term treasuries would fare somewhat better than the 50% of the Boglehead portfolio that is in corporate treasuries... assuming low inflation, of course.

Otherwise with high inflation, the theory is gold would be the one offering the protection.

PP only holds 25% in LTT and 25% in Cash for a blended duration of approximately 9 years. This duration is "roughly" equivalent to the 50% held in IT-bonds. Not sure where the misconception surfaced that BH's hold corporate bonds - generally total bond market index.

[flagator]

A conservative BH portfolio is 50/50. Gold could certainly underperform equities in the above scenario so the results are not conclusive with a flat to lower stock market.

True for gold. However I imagine long term treasuries would fare somewhat better than the 50% of the Boglehead portfolio that is in corporate treasuries... assuming low inflation, of course.

Otherwise with high inflation, the theory is gold would be the one offering the protection.

What does the forum think about gold price discovery? Do you guys believe that in general gold price reflects true supply and demand out there? If so why, and if not, why not?

Since gold's peak in 2011, it appears to me that the PP was carried by bonds and equities since then. If gold remains stagnant like it has for the last 3 years, for various obvious and not so obvious reasons, how will the PP perform in rising int rate environment?

[MachineGhost]

What does the forum think about gold price discovery? Do you guys believe that in general gold price reflects true supply and demand out there? If so why, and if not, why not?

Since gold's peak in 2011, it appears to me that the PP was carried by bonds and equities since then. If gold remains stagnant like it has for the last 3 years, for various obvious and not so obvious reasons, how will the PP perform in rising int rate environment?

No, its all confidence driven.  The amount of gold discovered is inconsequential compared to the Gold Rush era.  There's a chance mining asteroids could dump a ton of supply, but thats far off in the future.

Gold will be killed in a rising real rate environment as it was for 20-years during the 80's and 90's.

[MediumTex]

A conservative BH portfolio is 50/50. Gold could certainly underperform equities in the above scenario so the results are not conclusive with a flat to lower stock market.

True for gold. However I imagine long term treasuries would fare somewhat better than the 50% of the Boglehead portfolio that is in corporate treasuries... assuming low inflation, of course.

Otherwise with high inflation, the theory is gold would be the one offering the protection.

What does the forum think about gold price discovery? Do you guys believe that in general gold price reflects true supply and demand out there? If so why, and if not, why not?

Since gold's peak in 2011, it appears to me that the PP was carried by bonds and equities since then. If gold remains stagnant like it has for the last 3 years, for various obvious and not so obvious reasons, how will the PP perform in rising int rate environment?

In a rising interest rate environment cash may become the leader in the portfolio.

If T-bills are paying 8-10% (or more) it can dampen a lot of losses elsewhere in the portfolio.

People have gotten used to cash doing nothing in the PP, but that is a relatively recent development.

[Xan]

PP only holds 25% in LTT and 25% in Cash for a blended duration of approximately 9 years. This duration is "roughly" equivalent to the 50% held in IT-bonds. Not sure where the misconception surfaced that BH's hold corporate bonds - generally total bond market index.

Which are, if not majority, significantly made up of corporate bonds.

[MachineGhost]

PP only holds 25% in LTT and 25% in Cash for a blended duration of approximately 9 years. This duration is "roughly" equivalent to the 50% held in IT-bonds. Not sure where the misconception surfaced that BH's hold corporate bonds - generally total bond market index.

Which are, if not majority, significantly made up of corporate bonds.

[img width=800]http://i58.tinypic.com/11afhuq.png[/img]

[buddtholomew]

PP only holds 25% in LTT and 25% in Cash for a blended duration of approximately 9 years. This duration is "roughly" equivalent to the 50% held in IT-bonds. Not sure where the misconception surfaced that BH's hold corporate bonds - generally total bond market index.

Which are, if not majority, significantly made up of corporate bonds.

If you say so.

[rickb]

What does the forum think about gold price discovery? Do you guys believe that in general gold price reflects true supply and demand out there? If so why, and if not, why not?

At this point, the gold price is driven almost entirely by the COMEX futures price although who's driving the price flips back and forth between COMEX and the LBMA "fix".  See http://www.kitco.com/ind/Skoyles/2013-0 ... rrors.html

The COMEX price has virtually nothing to do with "true supply and demand" but is rather a function of how many speculators are willing to bet long vs. how many are willing to bet short.  Or, more precisely, the total amount of money speculators are willing to bet long vs. the total amount of money speculators are willing to bet short. 

A significant portion of the short bet (which depresses the price) is from less than a handful of traders, widely suspected to be mostly JP Morgan (who is a bullion bank and involved in one way or another in essentially all of the gold ETFs).  Why they would, in their own account (as opposed to their customers' accounts), have a very large short position on gold is kind of a mystery.  If their short position is as large as widely believed, they can effectively dictate the price (reducing their short position makes the price go up, increasing it makes the price go down).  The Hunt brothers attempted to corner the silver market in the late 70s from the long side and were ultimately banned from the market.  However, they never controlled as much of the silver market (from the long side) as JP Morgan is alleged to control of the gold market (from the short side).

Does the price of gold reflect true supply and demand?  Hell no.

[Stewardship]

Or, more precisely, the total amount of money speculators are willing to bet long vs. the total amount of money speculators are willing to bet short.

AKA supply and demand 

[MediumTex]

Or, more precisely, the total amount of money speculators are willing to bet long vs. the total amount of money speculators are willing to bet short.

AKA supply and demand 

The central banks of the world are the biggest holders of gold, and if they really wanted to drive the price of gold down all they would need to do would be to start dumping gold on the market and whisper to Wall Street that it was going to continue for a long time (which would cause them to take large short positions, which would put even more downward pressure on the price).

I tend to think that the price of gold is what it is, and I don't know if the Fed really cares that much about its price.  Why would they?  Outside of PP investors, jewelers, dentists and a bunch of doomers, who cares what the price of gold is?  It's a tiny market compared to the stock and bond markets around the world, and no one is on a gold standard anymore so gold movements don't affect currency exchange rates.

All I know is that the Fed would love for consumers to begin forming some expectations of future inflation, and a great way to do that would be to have the price of gold start rising, so to the extent that the Fed is interested, I would think that they would want the price of gold to rise, not fall.

[Libertarian666]

Or, more precisely, the total amount of money speculators are willing to bet long vs. the total amount of money speculators are willing to bet short.

AKA supply and demand 

The central banks of the world are the biggest holders of gold, and if they really wanted to drive the price of gold down all they would need to do would be to start dumping gold on the market and whisper to Wall Street that it was going to continue for a long time (which would cause them to take large short positions, which would put even more downward pressure on the price).

I tend to think that the price of gold is what it is, and I don't know if the Fed really cares that much about its price.  Why would they?  Outside of PP investors, jewelers, dentists and a bunch of doomers, who cares what the price of gold is?  It's a tiny market compared to the stock and bond markets around the world, and no one is on a gold standard anymore so gold movements don't affect currency exchange rates.

All I know is that the Fed would love for consumers to begin forming some expectations of future inflation, and a great way to do that would be to have the price of gold start rising, so to the extent that the Fed is interested, I would think that they would want the price of gold to rise, not fall.

How did that "central bank dumping" work out for them in the 1960's, or in the late 90's (The "Brown Bottom")? Maybe I'm wrong, but IIRC, those were excellent times to be buying.

[MediumTex]

AKA supply and demand 

The central banks of the world are the biggest holders of gold, and if they really wanted to drive the price of gold down all they would need to do would be to start dumping gold on the market and whisper to Wall Street that it was going to continue for a long time (which would cause them to take large short positions, which would put even more downward pressure on the price).

I tend to think that the price of gold is what it is, and I don't know if the Fed really cares that much about its price.  Why would they?  Outside of PP investors, jewelers, dentists and a bunch of doomers, who cares what the price of gold is?  It's a tiny market compared to the stock and bond markets around the world, and no one is on a gold standard anymore so gold movements don't affect currency exchange rates.

All I know is that the Fed would love for consumers to begin forming some expectations of future inflation, and a great way to do that would be to have the price of gold start rising, so to the extent that the Fed is interested, I would think that they would want the price of gold to rise, not fall.

How did that "central bank dumping" work out for them in the 1960's, or in the late 90's (The "Brown Bottom")? Maybe I'm wrong, but IIRC, those were excellent times to be buying.

My point was just that if central banks really cared about the price of gold, they could make it go down if they wanted to.

[LC475]

My point was just that if central banks really cared about the price of gold, they could make it go down if they wanted to.

They could try, certainly.  Would it work?  Not necessarily.

[portart]

IMO, It's good to remember that gold can go for many years doing very little. It's the hardest section of PP to watch regularly since it bounces in large percentages and gives back. Right now we are entering the bottoming stage for gold which can go on for a few more years. Only a total change in the economic conditions of the US will move gold into it's next stage. The worst things to watch are one time events like Greece which in and of itself won't produce any meaningful movement out of gold's bear market.

[mathjak107]

I am at a loss for words...this portfolio is very disappointing and it has trailed my 60/40 allocation substantially since 2009. No matter what anyone says, if gold sucks the PP sucks.

the portfolio didn't do much because it didn't loose much.  traditional portfolios needed those gains to get  back to where they were . the PP wasn't down .

in fact looking at the last 15 years the return is about the same as a 100% equity investment in the s& p 500

[rickb]

My point was just that if central banks really cared about the price of gold, they could make it go down if they wanted to.

They could try, certainly.  Would it work?  Not necessarily.

Is there any particular reason to think that's not what they're doing right now? 

If central banks were trying to suppress the gold price, how would you know?  When they release inventory data, most apparently count both gold they possess and gold they've loaned out in their "physical inventory".  Perhaps uniquely, the Reserve Bank of Australia separately reports how much gold they've leased see http://goldchat.blogspot.com/2014/01/ce ... rency.html . Most central banks simply refuse to divulge this kind of data.

Although not exactly an uninterested source (he owns perhaps billions of dollars in shares of gold miners), Eric Sprott has written about the hows and whys of manipulation - see for example, http://www.sprott.com/markets-at-a-glan ... -part-iii/ or http://news.goldseek.com/GoldSeek/1374001668.php

And, from someone Wikipedia calls a "conspiracy theorist" (pretty strong words for Wikipedia) see http://www.paulcraigroberts.org/2014/01 ... ipulation/

I think it's at least possible, if not likely, that central banks are suppressing the price of gold.  Why?  To maintain confidence in the value of currency they can create out of thin air using a printing press.

[MachineGhost]

I think it's at least possible, if not likely, that central banks are suppressing the price of gold.  Why?  To maintain confidence in the value of currency they can create out of thin air using a printing press.

Voodoo economics!  Central banks don't create currency out of thin air.

The gold market is relatively small so cornering it is possible for a short time, but it would never last for long.  The market is bigger than any of us.

[mathjak107]

I converted to the PP  on monday. so far  total portfilio lost .85%  .

[buddtholomew]

I converted to the PP  on monday. so far  total portfilio lost .85%  .

A monkey could have outperformed the PP this week/year. I am sick to my stomach at the performance of this portfolio. Here comes another down year. As HB said himself, when you hear about a strategy that has performed well, the moment you use it it will fail. Should have listened more attentively.

[Cortopassi]

Bud,

If I stayed with how I was investing prior to the PP, I would be in the red, significantly, comparatively.  And although not a huge amount, the little dividends VTI and TLT throw off are welcome.

The PP is not smoking hot this year, no, effectively down -1.02%.  But a standard 60/40 mix is also down -0.74%, so that monkey isn't doing much better!