Does Gold's Markup Bother You?

Discussion of the Gold portion of the Permanent Portfolio

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dualstow
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Does Gold's Markup Bother You?

Post by dualstow » Thu Feb 02, 2017 12:09 pm

When you're thinking of buying physical gold, is the markup a large factor for you? Is it an outright deterrent?

I usually tell myself, well, that's the price of buying in. If gold triples in value, it won't matter.

But, once in a while I think about how the expense ratio of Vanguard's S&P 500 fund and Total Stock Market Fund is 0.05%
Let say gold's markup is about 4%. Feel free to dispute that or to tell me about some great offers you got. Does not include shipping, insurance, safe box fees. Just dealer markup.

If you put US$250,000 into 1 oz gold coins, you'd be paying $10,000 up front in markup.
The ER for 1 year of holding 250K in the S&P fund? $125. ( 0.0005 x 250,000)

With a physical gold purchase, you're all done with you buy, vs paying that ER to Vanguard every year. How long do you have to gold the gold before the nominal cost of both is the same? Only 80 years.

And of course treasuries are free.
Wow.
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Re: Does Gold's Markup Bother You?

Post by technovelist » Thu Feb 02, 2017 12:58 pm

Markup is not the issue. Spread, including all costs, is the issue.

The spread on a 10 oz. bar at Kitco is about 1% at present. Shipping, including registered insurance, is going to cost about $50 (each way), which is about 1/2% extra, so let's call it 2% round-trip altogether. You can get it a bit cheaper by buying 20 of them, but let's say it is still 2% round trip.

If you keep it for 10 years, that makes 0.2% yearly, which amounts to about $500/year vs. the $125 for the s&p fund. Is that $375/year too much to pay for insurance against financial catastrophe? Hmm...
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Re: Does Gold's Markup Bother You?

Post by dualstow » Thu Feb 02, 2017 1:49 pm

To your question at the end, I agree. It's a small price to pay. In fact, when I wrote "it's the price of buying in", I wasn't even going as far as financial catastrophe. Just having something that is neither in stocks nor in my home currency. (And, aside from that, I don't really expect to cash in my coins in my lifetime, so I'll let my wife or other heirs deal with this little treasure. Since they didn't have to pay for it, I don't think they'll mind the tax & inconvenience).
The spread on a 10 oz. bar at Kitco is about 1% at present... You can get it a bit cheaper by buying 20 of them
Who am I, Ross Perot? O0 Fair enough. I did write Right now.

Well, ok, it's spread that matters. You get something back above spot when you sell. If you paid a premium for Eagles, you get paid a premium for your (intact) Eagles.

However, you say
if you keep it for 10 years, that makes 0.2% yearly
, dividing the 2% by 10.
Hmm. I do that when I buy something like an expensive sit-stand desk, because it's fun to see the price per year or per day, to ignore depreciation and watch the cost "come down."
With gold, isn't dividing the cost a little bit of an illusion? You're paying up front, as with a mutual fund with a load, and unlike the case with the desk, you're not using it over the decade.
Let's say you put $500,000 into gold, so we can say $10,000 is paid up front even if we use your 2% figure (spread) instead of my 4% (markup). The time value of that $10,000 could be a lot.

Well, maybe there is some reason you should divide the cost. You've been holding gold longer than I have and I'd like to hear it, because I am still in the accumulation phase, and that includes physical. Coins, because bars are too rich for my blood and they're they were very difficult to counterfeit.

So I'm not anti-gold, but I don't think I could put 1/4 of my total into gold because of the up-front costs. Thus, I have to have a vp and some non-physical, some ETFs.. If I recall correctly, you actually have well over 25% in gold. Is that right? Did you buy it all when you were a lot younger?

Blue text edited in later.
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Re: Does Gold's Markup Bother You?

Post by technovelist » Thu Feb 02, 2017 3:16 pm

dualstow wrote:To your question at the end, I agree. It's a small price to pay. In fact, when I wrote "it's the price of buying in", I wasn't even going as far as financial catastrophe. Just having something that is neither in stocks nor in my home currency. (And, aside from that, I don't really expect to cash in my coins in my lifetime, so I'll let my wife or other heirs deal with this little treasure. Since they didn't have to pay for it, I don't think they'll mind the tax & inconvenience).
The spread on a 10 oz. bar at Kitco is about 1% at present... You can get it a bit cheaper by buying 20 of them
Who am I, Ross Perot? O0 Fair enough. I did write Right now.
20 10 oz. bars comes out to about $250,000, which was the number you used. I doubt that's even Ross Perot's stamp budget.
dualstow wrote: Well, ok, it's spread that matters. You get something back above spot when you sell. If you paid a premium for Eagles, you get paid a premium for your (intact) Eagles.

However, you say
if you keep it for 10 years, that makes 0.2% yearly
, dividing the 2% by 10.
Hmm. I do that when I buy something like an expensive sit-stand desk, because it's fun to see the price per year or per day, to ignore depreciation and watch the cost "come down."
With gold, isn't dividing the cost a little bit of an illusion? You're paying up front, as with a mutual fund with a load, and unlike the case with the desk, you're not using it over the decade.
Let's say you put $500,000 into gold, so we can say $10,000 is paid up front even if we use your 2% figure (spread) instead of my 4% (markup). The time value of that $10,000 could be a lot.
But you don't pay all of it up front. Just 1/2 the spread and 1/2 the shipping cost (if you don't buy it locally).
dualstow wrote:
Well, maybe there is some reason you should divide the cost. You've been holding gold longer than I have and I'd like to hear it, because I am still in the accumulation phase, and that includes physical. Coins, because bars are too rich for my blood and they're they were very difficult to counterfeit.

So I'm not anti-gold, but I don't think I could put 1/4 of my total into gold because of the up-front costs. Thus, I have to have a vp and some non-physical, some ETFs.. If I recall correctly, you actually have well over 25% in gold. Is that right? Did you buy it all when you were a lot younger?

Blue text edited in later.
I have been holding gold since the 1970's, but most of what I have I bought from 1996 to 2001. So my average holding time is probably close to 20 years at this point. My current asset allocation is a little over half gold, almost 1/3 swiss francs, and about 5% each in silver and US "dollars". However, my overall net "dollar" position is negative because I have (non-recourse) mortgage for considerably more than my positive "dollar" holding, so if the "dollar" lost all its value I would be somewhat better off, as far as my portfolio is concerned at least.
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Re: Does Gold's Markup Bother You?

Post by dualstow » Thu Feb 02, 2017 3:26 pm

Interesting, thank you. I thought it might be about 1/2 in gold, but wasn't sure. That's gutsy! 100% in stocks would be, too.
If I may ask, is the Swiss money in paper form?
The total of what you listed is near 90% (or 100%, I know). Don't you own any stocks at all?
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Re: Does Gold's Markup Bother You?

Post by technovelist » Thu Feb 02, 2017 3:31 pm

dualstow wrote:Interesting, thank you. I thought it might be about 1/2 in gold, but wasn't sure. That's gutsy! 100% in stocks would be, too.
If I may ask, is the Swiss money in paper form?
The total of what you listed is near 90% (or 100%, I know). Don't you own any stocks at all?
No, the Swiss francs are deferred annuities paying between 1.5% and 2% guaranteed, and they are paying bonuses as well.

I own neither stocks nor bonds.
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Re: Does Gold's Markup Bother You?

Post by blue_ruin17 » Sat Feb 04, 2017 10:05 pm

The premium for physical + the spread you pay to the dealer + the costs of storage is collectively the expense you accept for the systemic security that physical gold provides your portfolio.

That being said, there are strategies you can use to mitigates those expenses.

For example, I believe that holding 20% (i.e. 5% of total portfolio value) of your gold allocation in the form of an ETF in a tax-advantaged account allows you to regularly rebalance your portfolio without exposing yourself to the gambit of expenses that accompanies the sale of gold (taxes, spread, ect.). If you are selling your physical gold, it should only be because you are making significant withdrawals from your portfolio.

Otherwise, take the hit on the spread only once, manage your storage expenses as if they are the MER on an ETF, and just let the physical gold sit there, untouched by trading expenses, preferably for decades.

And hey, a hole in the ground in a fallow field has an annual MER of 0%. Just saying.
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Re: Does Gold's Markup Bother You?

Post by technovelist » Sun Feb 05, 2017 7:24 pm

blue_ruin17 wrote:The premium for physical + the spread you pay to the dealer + the costs of storage is collectively the expense you accept for the systemic security that physical gold provides your portfolio.

That being said, there are strategies you can use to mitigates those expenses.

For example, I believe that holding 20% (i.e. 5% of total portfolio value) of your gold allocation in the form of an ETF in a tax-advantaged account allows you to regularly rebalance your portfolio without exposing yourself to the gambit of expenses that accompanies the sale of gold (taxes, spread, ect.). If you are selling your physical gold, it should only be because you are making significant withdrawals from your portfolio.

Otherwise, take the hit on the spread only once, manage your storage expenses as if they are the MER on an ETF, and just let the physical gold sit there, untouched by trading expenses, preferably for decades.

And hey, a hole in the ground in a fallow field has an annual MER of 0%. Just saying.
Or a lake bottom, which is all too common around these parts. :)
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Re: Does Gold's Markup Bother You?

Post by Kriegsspiel » Mon Feb 06, 2017 8:22 am

Gold is to a lake bottom as The One Ring is to _____?

A) Sleeping bags
B) Mordor
C) The UFC
D) Race cars
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Re: Does Gold's Markup Bother You?

Post by dualstow » Mon Feb 06, 2017 8:24 am

:) We need to start dredging all these lakes! Deep sea divers are working too hard for their gold.
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Re: Does Gold's Markup Bother You?

Post by StdDeviant » Wed Mar 15, 2017 12:44 pm

My answer: No, gold's markup does not bother me at all. It's very, very small. And insignificant.

Here's my take on it (posted in another thread, so I'll just post the link):
viewtopic.php?f=5&t=8914&start=60
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Re: Does Gold's Markup Bother You?

Post by dualstow » Wed Mar 15, 2017 12:45 pm

StdDeviant wrote:My answer: No, gold's markup does not bother me at all. It's very, very small. And insignificant.

Here's my take on it (posted in another thread, so I'll just post the link):
viewtopic.php?f=5&t=8914&start=60
I was just reading that post. You make a compelling case for coins.
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