Gold Defensive Strategy

Discussion of the Gold portion of the Permanent Portfolio

Moderator: Global Moderator

dopplerdave
Junior Member
Junior Member
Posts: 5
Joined: Sun Oct 27, 2019 1:11 pm

Gold Defensive Strategy

Post by dopplerdave » Sun Feb 21, 2021 9:24 am

I am very pessimistic about the direction I see the economy taking and how it will affect three of the four elements of the permanent portfolio. Higher taxes, continuing Wuhan virus restrictions and more regulation will harm the stock market, huge deficit spending will impact long term bonds, and economic and military threats from China will hurt the US dollar (cash). Gold should hang in there.

On the other hand, the permanent portfolio may do well based on increased volatility harvesting, assuming the four categories move up and down independently. I figure there is a 50% chance that the permanent portfolio will do well over the next several years and 50% that it will not.

So, I sold half my PP and invested it in gold coins stored offshore. I am calling that my VP. The remaining PP is all in ETFs to make it easy and inexpensive to re-balance (IAU for the gold portion).

The VP is mostly in 1 oz Cayman Marlins because they are easily marketable, easily verifiable for purity, and the spread is much more reasonable than US Eagles (4.3% vs 9.3% as of a couple days ago).

Overall, this puts me 62.5% into gold - a highly defensive strategy. Is anyone else having the same thoughts?
User avatar
dualstow
Executive Member
Executive Member
Posts: 11630
Joined: Wed Oct 27, 2010 10:18 am
Contact:

Re: Gold Defensive Strategy

Post by dualstow » Sun Feb 21, 2021 10:25 am

Wow, I think only technovelist has a larger % of gold.
I’d never heard of Cayman Marlins before. I like the design of the outer ring.
Feels like the end of the everything rally.
In Britain they have made burglary a safe occupation. It's like OSHA for burglars.
- Thomas Sowell on gun control
User avatar
pp4me
Executive Member
Executive Member
Posts: 747
Joined: Wed Apr 29, 2020 4:12 pm

Re: Gold Defensive Strategy

Post by pp4me » Sun Feb 21, 2021 3:24 pm

dopplerdave wrote:
Sun Feb 21, 2021 9:24 am
I figure there is a 50% chance that the permanent portfolio will do well over the next several years and 50% that it will not.
Me too. I use the Golden Butterfly but I give it about the same odds.

Nice thing about it is there is no chance either one of us will be wrong.
User avatar
Hal
Executive Member
Executive Member
Posts: 864
Joined: Tue May 03, 2011 1:50 am

Re: Gold Defensive Strategy

Post by Hal » Sun Feb 21, 2021 5:52 pm

dopplerdave wrote:
Sun Feb 21, 2021 9:24 am

Overall, this puts me 62.5% into gold - a highly defensive strategy. Is anyone else having the same thoughts?
Looks like Anthony Deden agrees with you. He's over 50% in Gold and Gold Shares.

https://edelweissholdings.com/docs/EH-C ... tation.pdf
Aussie GoldSmithPP - 25% PMGOLD, 75% VDCO
User avatar
jalanlong
Executive Member
Executive Member
Posts: 355
Joined: Mon Jul 01, 2019 7:30 am

Re: Gold Defensive Strategy

Post by jalanlong » Sun Feb 21, 2021 6:39 pm

dopplerdave wrote:
Sun Feb 21, 2021 9:24 am
I am very pessimistic about the direction I see the economy taking and how it will affect three of the four elements of the permanent portfolio. Higher taxes, continuing Wuhan virus restrictions and more regulation will harm the stock market, huge deficit spending will impact long term bonds, and economic and military threats from China will hurt the US dollar (cash). Gold should hang in there.

On the other hand, the permanent portfolio may do well based on increased volatility harvesting, assuming the four categories move up and down independently. I figure there is a 50% chance that the permanent portfolio will do well over the next several years and 50% that it will not.

So, I sold half my PP and invested it in gold coins stored offshore. I am calling that my VP. The remaining PP is all in ETFs to make it easy and inexpensive to re-balance (IAU for the gold portion).

The VP is mostly in 1 oz Cayman Marlins because they are easily marketable, easily verifiable for purity, and the spread is much more reasonable than US Eagles (4.3% vs 9.3% as of a couple days ago).

Overall, this puts me 62.5% into gold - a highly defensive strategy. Is anyone else having the same thoughts?
I will admit I am drawn to the “doom porn” crowd and think daily of jettisoning the PP and going to cash/gold for an impending financial market collapse.

My common sense tells me that a population that wants endless “free” stuff and politicians determined to give it to them will not end well. But then MMT people like Cullen Roche convince me that modern economics is much more complicated than I comprehend (ie govt debt is private sector wealth) and that I should not be worried. Plus there have been people predicting such things for the US for 50 years. If you were out on stocks that entire time then you missed out on a lot of gains. Perhaps I am biased towards being pessimistic. They say never let your politics guide your investment decisions.
User avatar
Kriegsspiel
Executive Member
Executive Member
Posts: 3478
Joined: Sun Sep 16, 2012 5:28 pm

Re: Gold Defensive Strategy

Post by Kriegsspiel » Sun Feb 21, 2021 6:45 pm

As far as I can tell, Cullen is saying that you can do MMT, as in, it's technically possible to implement. But you'll eventually get inflation/Bad Things from it.
One horse can carry 125 kg on its back, but it can drag 2500 kg on a cart. If it pulls a barge along a river, it can drag 30,000 kg, 30 tonnes, and it can drag 50 tonnes if the weight is on a barge in quiet water, i.e., on a canal.
whatchamacallit
Executive Member
Executive Member
Posts: 279
Joined: Mon Oct 01, 2012 7:32 pm

Re: Gold Defensive Strategy

Post by whatchamacallit » Sun Feb 21, 2021 6:52 pm

It looks like Michael Burry sees trouble as well. He doesn't think gold will work but I am not catching what he says will.

https://markets.businessinsider.com/cur ... 1030102452
User avatar
Mark Leavy
Executive Member
Executive Member
Posts: 1435
Joined: Thu Mar 01, 2012 10:20 pm
Location: US Citizen, Permanent Traveler

Re: Gold Defensive Strategy

Post by Mark Leavy » Sun Feb 21, 2021 6:55 pm

jalanlong wrote:
Sun Feb 21, 2021 6:39 pm

I will admit I am drawn to the “doom porn” crowd and think daily of jettisoning the PP and going to cash/gold for an impending financial market collapse.

My common sense tells me that a population that wants endless “free” stuff and politicians determined to give it to them will not end well. But then MMT people like Cullen Roche convince me that modern economics is much more complicated than I comprehend (ie govt debt is private sector wealth) and that I should not be worried. Plus there have been people predicting such things for the US for 50 years. If you were out on stocks that entire time then you missed out on a lot of gains. Perhaps I am biased towards being pessimistic. They say never let your politics guide your investment decisions.
I’m playing both sides of the bet. I have 70% of my assets in gold and cash. 40/30 and the other 30% split in triple leveraged bonds and Nasdaq. TMF and TQQQ. No matter what happens I have a lot of gold and cash. While still reaping any advances in stocks or bonds.
murphy_p_t
Executive Member
Executive Member
Posts: 1019
Joined: Fri Jul 02, 2010 3:44 pm

Re: Gold Defensive Strategy

Post by murphy_p_t » Sun Feb 21, 2021 7:25 pm

The edelweiss presentation was interesting. They list gold and precious metals is one of their currency holdings.

I'm curious, if you're going that heavy into precious metal, why you're not including silver and/or platinum... In the hopes of outsized return.
User avatar
jalanlong
Executive Member
Executive Member
Posts: 355
Joined: Mon Jul 01, 2019 7:30 am

Re: Gold Defensive Strategy

Post by jalanlong » Sun Feb 21, 2021 7:36 pm

I have heard several podcasts recently where the guests recommended gold and silver due to all of the reasons previously stated but then went on to say don't make it more than 10% of your portfolio. I don't really understand why.

Since 1989 (a random date i chose) gold has returned around 4.5%, handily beating stated inflation. Yes you would have missed out on stock gains. What likely events could occur to wreck a portfolio of cash and gold/silver?
User avatar
mathjak107
Executive Member
Executive Member
Posts: 3384
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Gold Defensive Strategy

Post by mathjak107 » Mon Feb 22, 2021 2:36 am

Since 1987 when I started investing, the portfolio I have used , the fidelity insight growth model , right up until recently when I shifted to the pp , took a hypothetical 100k and grew it to 4.04 million .

It uses plain ole fidelity funds and swaps one or two a year out for a better choice as the funds out live their use fullness ...

The more aggressive sector model started in 1988 and 100k is worth 6.08 million

So equities grew a load of money compared to gold since the 1980s
User avatar
doodle
Executive Member
Executive Member
Posts: 4377
Joined: Fri Feb 11, 2011 2:17 pm

Re: Gold Defensive Strategy

Post by doodle » Mon Feb 22, 2021 8:14 am

mathjak107 wrote:
Mon Feb 22, 2021 2:36 am
Since 1987 when I started investing, the portfolio I have used , the fidelity insight growth model , right up until recently when I shifted to the pp , took a hypothetical 100k and grew it to 4.04 million .

It uses plain ole fidelity funds and swaps one or two a year out for a better choice as the funds out live their use fullness ...

The more aggressive sector model started in 1988 and 100k is worth 6.08 million

So equities grew a load of money compared to gold since the 1980s
I'm just curious how stock prices are expected to grow on an annualized basis somewhere north of 12% when real economic growth is projected to be somewhere between 1 and 2 percent. How does this work?
Kbg
Executive Member
Executive Member
Posts: 1847
Joined: Fri May 23, 2014 4:18 pm

Re: Gold Defensive Strategy

Post by Kbg » Mon Feb 22, 2021 9:43 am

If you are interested in objectivity vs. doom porn just track the following three data series at FRED: CPI, M2, M2V

When CPI actually starts heading to inflationary levels and M2V is pointed up and if M2 remains pointed up then start wringing your hands. M2V is so pathetically low right now it's ridiculous. Inflation may happen, but it ain't happening now systemically. Also, hyperinflation is NOT solely a monetary issue. It also requires a supply shock to occur. Hyperinflation = Increased money supply + actual scarcity.

Doom porn does what it is supposed to do, drive clicks. It's not helpful for making or preserving money.
Last edited by Kbg on Mon Feb 22, 2021 9:45 am, edited 4 times in total.
murphy_p_t
Executive Member
Executive Member
Posts: 1019
Joined: Fri Jul 02, 2010 3:44 pm

Re: Gold Defensive Strategy

Post by murphy_p_t » Mon Feb 22, 2021 9:43 am

The printing press is running in overdrive. Driving up stock prices has worked pretty good so far since the low in 2020. How long it continues, who knows.
User avatar
jalanlong
Executive Member
Executive Member
Posts: 355
Joined: Mon Jul 01, 2019 7:30 am

Re: Gold Defensive Strategy

Post by jalanlong » Mon Feb 22, 2021 11:50 am

Kbg wrote:
Mon Feb 22, 2021 9:43 am
If you are interested in objectivity vs. doom porn just track the following three data series at FRED: CPI, M2, M2V

When CPI actually starts heading to inflationary levels and M2V is pointed up and if M2 remains pointed up then start wringing your hands. M2V is so pathetically low right now it's ridiculous. Inflation may happen, but it ain't happening now systemically. Also, hyperinflation is NOT solely a monetary issue. It also requires a supply shock to occur. Hyperinflation = Increased money supply + actual scarcity.

Doom porn does what it is supposed to do, drive clicks. It's not helpful for making or preserving money.
Inflation is a hard thing to quantify. The CPI can tell me there has been very low inflation over the last 10 years. But I can tell you that the houses in my North Texas neighborhood were selling for $137k 10 years ago and are now selling for $366k. The cost of buying a house here (even in an old neighborhood) is not really offset by big screen tvs and laptops getting cheaper over that time. Might not be hyperinflation but it is certainly not low. I know real estate prices arent always a good example because they can be regionally driven. But I doubt you can find me any areas in the US where the prices have dropped 26% a year like these have risen.
User avatar
doodle
Executive Member
Executive Member
Posts: 4377
Joined: Fri Feb 11, 2011 2:17 pm

Re: Gold Defensive Strategy

Post by doodle » Mon Feb 22, 2021 11:55 am

murphy_p_t wrote:
Mon Feb 22, 2021 9:43 am
The printing press is running in overdrive. Driving up stock prices has worked pretty good so far since the low in 2020. How long it continues, who knows.
I guess it depends on the price investors are willing to pay for projected future earnings. Right now it seems like about twice the historical average..
User avatar
doodle
Executive Member
Executive Member
Posts: 4377
Joined: Fri Feb 11, 2011 2:17 pm

Re: Gold Defensive Strategy

Post by doodle » Mon Feb 22, 2021 11:59 am

jalanlong wrote:
Mon Feb 22, 2021 11:50 am
Kbg wrote:
Mon Feb 22, 2021 9:43 am
If you are interested in objectivity vs. doom porn just track the following three data series at FRED: CPI, M2, M2V

When CPI actually starts heading to inflationary levels and M2V is pointed up and if M2 remains pointed up then start wringing your hands. M2V is so pathetically low right now it's ridiculous. Inflation may happen, but it ain't happening now systemically. Also, hyperinflation is NOT solely a monetary issue. It also requires a supply shock to occur. Hyperinflation = Increased money supply + actual scarcity.

Doom porn does what it is supposed to do, drive clicks. It's not helpful for making or preserving money.
Inflation is a hard thing to quantify. The CPI can tell me there has been very low inflation over the last 10 years. But I can tell you that the houses in my North Texas neighborhood were selling for $137k 10 years ago and are now selling for $366k. The cost of buying a house here (even in an old neighborhood) is not really offset by big screen tvs and laptops getting cheaper over that time. Might not be hyperinflation but it is certainly not low. I know real estate prices arent always a good example because they can be regionally driven. But I doubt you can find me any areas in the US where the prices have dropped 26% a year like these have risen.
It's amazing how we go from huge supply glut to massive shortage in less than a decade. I don't get it.
User avatar
Cortopassi
Executive Member
Executive Member
Posts: 2777
Joined: Mon Feb 24, 2014 2:28 pm
Location: Illinois

Re: Gold Defensive Strategy

Post by Cortopassi » Mon Feb 22, 2021 1:13 pm

Aren't houses just like student loans?

Easy money == more students able to "afford" college, more debt, higher tuition.
Easy money == more people able to "afford" a house, more debt, higher housing prices

Does it need to be reality based? Not usually, or at least not for a long time. Someone will be left holding the bag at some point for a decade or two.
User avatar
bitcoininthevp
Executive Member
Executive Member
Posts: 248
Joined: Fri Sep 25, 2015 8:30 pm

Re: Gold Defensive Strategy

Post by bitcoininthevp » Mon Feb 22, 2021 1:34 pm

dopplerdave wrote:
Sun Feb 21, 2021 9:24 am
Overall, this puts me 62.5% into gold - a highly defensive strategy.
Highly defensive towards (speculating) inflation and a currency crisis only.

Deflation or prosperity consummately crush this portfolio accordingly, right?

Or bitcoin eating golds lunch. :-X
dopplerdave
Junior Member
Junior Member
Posts: 5
Joined: Sun Oct 27, 2019 1:11 pm

Re: Gold Defensive Strategy

Post by dopplerdave » Mon Feb 22, 2021 6:06 pm

The purpose of my physical gold VP is not to make any money; it is to avoid losing a lot if stocks, bonds and the USD tanks. I do think we are in for a serious reckoning in the next year or so.

Silver, Bitcoin and Gamestop are something for 20 year olds to speculate on. I am retired and cannot afford a major loss. So I am putting half my savings into gold (the VP) and leaving the rest in the PP.
Kbg
Executive Member
Executive Member
Posts: 1847
Joined: Fri May 23, 2014 4:18 pm

Re: Gold Defensive Strategy

Post by Kbg » Mon Feb 22, 2021 7:29 pm

jalanlong wrote:
Mon Feb 22, 2021 11:50 am
Kbg wrote:
Mon Feb 22, 2021 9:43 am
If you are interested in objectivity vs. doom porn just track the following three data series at FRED: CPI, M2, M2V

When CPI actually starts heading to inflationary levels and M2V is pointed up and if M2 remains pointed up then start wringing your hands. M2V is so pathetically low right now it's ridiculous. Inflation may happen, but it ain't happening now systemically. Also, hyperinflation is NOT solely a monetary issue. It also requires a supply shock to occur. Hyperinflation = Increased money supply + actual scarcity.

Doom porn does what it is supposed to do, drive clicks. It's not helpful for making or preserving money.
Inflation is a hard thing to quantify. The CPI can tell me there has been very low inflation over the last 10 years. But I can tell you that the houses in my North Texas neighborhood were selling for $137k 10 years ago and are now selling for $366k. The cost of buying a house here (even in an old neighborhood) is not really offset by big screen tvs and laptops getting cheaper over that time. Might not be hyperinflation but it is certainly not low. I know real estate prices arent always a good example because they can be regionally driven. But I doubt you can find me any areas in the US where the prices have dropped 26% a year like these have risen.
I assume you know the CPI includes rent which generally tracks the broad real estate market. If you want the North Texas CPI to include purchased housing prices you will need to start your own price index. If you want an index tailored for just you, start tracking every individual item you purchase and compare the like and kind with the like and kind purchases at the end of the year then you will have the jalanlong price index (JPI) and will know these things with great precision for your sample size of one.

And I disagree with your premise. Inflation isn't hard to track with an index.

Oh My Gosh...look at all the indexes they have, who knew? https://www.bls.gov/opub/hom/cpi/presentation.htm
User avatar
mathjak107
Executive Member
Executive Member
Posts: 3384
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Gold Defensive Strategy

Post by mathjak107 » Tue Feb 23, 2021 4:13 am

doodle wrote:
Mon Feb 22, 2021 8:14 am
mathjak107 wrote:
Mon Feb 22, 2021 2:36 am
Since 1987 when I started investing, the portfolio I have used , the fidelity insight growth model , right up until recently when I shifted to the pp , took a hypothetical 100k and grew it to 4.04 million .

It uses plain ole fidelity funds and swaps one or two a year out for a better choice as the funds out live their use fullness ...

The more aggressive sector model started in 1988 and 100k is worth 6.08 million

So equities grew a load of money compared to gold since the 1980s
I'm just curious how stock prices are expected to grow on an annualized basis somewhere north of 12% when real economic growth is projected to be somewhere between 1 and 2 percent. How does this work?
I don’t predict ..but over the last 33 years as an investor had you asked me the same question I would have never thought those returns possible ..we had wars , crashes , the 2008 Great Recession and most important the lost decade for stocks in that time frame . Yet the numbers are what they are and easily verifiable
User avatar
Hal
Executive Member
Executive Member
Posts: 864
Joined: Tue May 03, 2011 1:50 am

Re: Gold Defensive Strategy

Post by Hal » Tue Feb 23, 2021 4:58 am

dopplerdave wrote:
Mon Feb 22, 2021 6:06 pm
The purpose of my physical gold VP is not to make any money; it is to avoid losing a lot if stocks, bonds and the USD tanks. I do think we are in for a serious reckoning in the next year or so.

Silver, Bitcoin and Gamestop are something for 20 year olds to speculate on. I am retired and cannot afford a major loss. So I am putting half my savings into gold (the VP) and leaving the rest in the PP.
I actually agree with Dave on this. Out of the four PP asset classes, Gold is the only one to be guaranteed to be worth something in a worst case scenario. That is unless civilisation declines more than when Croesus of Lydia was around.

Knew someone who survived WW2 in Nazi Germany, and Gold saved their life. All the shares/bonds/cash were worthless. However, if you really think things could get that bad, suggest you start doing some prepping.

Still in touch with an elderly gent who lived through the Great Depression. He has NO faith in paper financial instruments.
On a more positive note, perhaps consider some alternate places to live. Maybe here in Australia ;D

Was just in Ballarat today which was a large gold mining town 8)

https://duckduckgo.com/?q=ballarat+gold ... &ia=images
Aussie GoldSmithPP - 25% PMGOLD, 75% VDCO
SomeDude
Executive Member
Executive Member
Posts: 678
Joined: Sun Nov 22, 2020 1:45 am

Re: Gold Defensive Strategy

Post by SomeDude » Tue Feb 23, 2021 4:07 pm

doodle wrote:
Mon Feb 22, 2021 11:55 am
murphy_p_t wrote:
Mon Feb 22, 2021 9:43 am
The printing press is running in overdrive. Driving up stock prices has worked pretty good so far since the low in 2020. How long it continues, who knows.
I guess it depends on the price investors are willing to pay for projected future earnings. Right now it seems like about twice the historical average..
Doodle.........why are you making sense? Now i have to re-examine my bearish bias on stocks.

I have a 6 factor model for the S&P that looks at sales, earnings, book value, dividend, shiller PE, and GDP and it says historical fair value puts the S&P at just under $1900.

Then you have the 50 year average of the S&P at a little over 1.1 x 1oz of gold. That would be a little over $1900.

I don't see how stocks can outperform gold in this decade. Should be fun.
ppnewbie
Executive Member
Executive Member
Posts: 259
Joined: Fri May 03, 2019 6:04 pm

Re: Gold Defensive Strategy

Post by ppnewbie » Tue Feb 23, 2021 10:06 pm

jalanlong wrote:
Mon Feb 22, 2021 11:50 am
Kbg wrote:
Mon Feb 22, 2021 9:43 am
If you are interested in objectivity vs. doom porn just track the following three data series at FRED: CPI, M2, M2V

When CPI actually starts heading to inflationary levels and M2V is pointed up and if M2 remains pointed up then start wringing your hands. M2V is so pathetically low right now it's ridiculous. Inflation may happen, but it ain't happening now systemically. Also, hyperinflation is NOT solely a monetary issue. It also requires a supply shock to occur. Hyperinflation = Increased money supply + actual scarcity.

Doom porn does what it is supposed to do, drive clicks. It's not helpful for making or preserving money.
Inflation is a hard thing to quantify. The CPI can tell me there has been very low inflation over the last 10 years. But I can tell you that the houses in my North Texas neighborhood were selling for $137k 10 years ago and are now selling for $366k. The cost of buying a house here (even in an old neighborhood) is not really offset by big screen tvs and laptops getting cheaper over that time. Might not be hyperinflation but it is certainly not low. I know real estate prices arent always a good example because they can be regionally driven. But I doubt you can find me any areas in the US where the prices have dropped 26% a year like these have risen.
I'm originally from a town in the South East and your housing numbers are nearly identical to what I see in my hometown.
Post Reply