Do We Really Get the Premium Back?

Discussion of the Gold portion of the Permanent Portfolio

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Tortoise
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Re: Do We Really Get the Premium Back?

Post by Tortoise » Tue May 03, 2011 1:29 am

Gumby wrote: I purchased 40% Krugerrands (which had a much smaller premium) and 60% Gold Eagles. The Eagles are stunning, so their awe-effect is amplified. My Krugerrands don't seem to have quite the luster that the Eagles have.
For an even more striking difference in appearance, buy a Canadian Maple Leaf, Austrian Philharmonic, or Gold Buffalo sometime.  Those coins are 99.99% gold, as compared to the 92% gold content in Krugerrands and Eagles.  The difference in appearance is not subtle at all; pure gold is strikingly yellow compared to the 92% gold coins.  Absolutely beautiful.  The main drawback is that the pure gold coins scratch easily.
Last edited by Tortoise on Tue May 03, 2011 1:31 am, edited 1 time in total.
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Re: Do We Really Get the Premium Back?

Post by AgAuMoney » Tue May 03, 2011 6:49 pm

Tortoise wrote:buy a Canadian Maple Leaf, Austrian Philharmonic, or Gold Buffalo sometime.  Those coins are 99.99% gold, as compared to the 92% gold content in Krugerrands and Eagles.  The difference in appearance is not subtle at all; pure gold is strikingly yellow compared to the 92% gold coins.  Absolutely beautiful.  The main drawback is that the pure gold coins scratch easily.
Agreed.  And BTW, those little scratches can really bring down the premium.  I don't think you should count on getting back the premium in any case.  Since 2006 I've found that when there are more sellers the premium to buy is lower and when more buyers then the premium is higher.  Spread changes also, but here I'm talking premium over spot, not buy-sell spread.  I've purchased 'new' appearing krugs for a $5 premium but usually I'd buy any condition krug under $10 over.  I've also picked up a few as much as $30 over and lately the premium has been much higher.  (I've found the same rules apply to CEF also.)

BTW, my benchmark price is ColoradoGold.  I expect to beat his price by shopping locally and almost always I do, and even better once his S&H is added in.  Plus buying locally means I usually can buy one at a time.  Most of mine I've purchased one at a time at a local coin shop, buying whatever had the lowest premium.  So far that has never been a buffalo except when that was the only thing available.  It has been krugerrand about 5x as often as gold eagle, and maple leaf almost 2x as often as krug.

Another note on difference in gold coins...  I usually see a color difference between a gold eagle and a typical krug.  The gold eagle is alloyed with more silver giving it a brighter appearance, while the krug has added more copper giving it a bronze or even reddish tinge.  I have noticed a more subtle difference between krugs as well.  Some of them are more yellow than others.  I think they don't concern themselves as much with the exact composition of the alloy -- 22k gold and 2k of whatever else happens to be in the melt that day.
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Re: Do We Really Get the Premium Back?

Post by MediumTex » Wed May 04, 2011 8:55 am

AgAuMoney,

In the absence of a welcome center, can you tell us a little about yourself and your views on the permanent portfolio strategy?

Welcome to the site.
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Re: Do We Really Get the Premium Back?

Post by dualstow » Wed May 04, 2011 9:37 am

AgAuMoney wrote: ...
Agreed.  And BTW, those little scratches can really bring down the premium.  I don't think you should count on getting back the premium in any case.  Since 2006 I've found that when there are more sellers the premium to buy is lower and when more buyers then the premium is higher.  Spread changes also, but here I'm talking premium over spot, not buy-sell spread.  I've purchased 'new' appearing krugs for a $5 premium but usually I'd buy any condition krug under $10 over.  I've also picked up a few as much as $30 over and lately the premium has been much higher.  (I've found the same rules apply to CEF also.)

BTW, my benchmark price is ColoradoGold.  I expect to beat his price by shopping locally and almost always I do, and even better once his S&H is added in.  Plus buying locally means I usually can buy one at a time.  Most of mine I've purchased one at a time at a local coin shop, buying whatever had the lowest premium.  So far that has never been a buffalo except when that was the only thing available.  It has been krugerrand about 5x as often as gold eagle, and maple leaf almost 2x as often as krug.

Another note on difference in gold coins...  I usually see a color difference between a gold eagle and a typical krug.  The gold eagle is alloyed with more silver giving it a brighter appearance, while the krug has added more copper giving it a bronze or even reddish tinge.  I have noticed a more subtle difference between krugs as well.  Some of them are more yellow than others.  I think they don't concern themselves as much with the exact composition of the alloy -- 22k gold and 2k of whatever else happens to be in the melt that day.
Good information, thanks. I have often thought about buying from local dealers -- they are walking distance -- so that I can buy one coin at a time in the future.
Regarding silver content: I think krugerrands have zero.
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Re: Do We Really Get the Premium Back?

Post by AgAuMoney » Wed May 04, 2011 7:06 pm

MediumTex wrote: AgAuMoney,

In the absence of a welcome center, can you tell us a little about yourself and your views on the permanent portfolio strategy?

Welcome to the site.
Thanks...  Here is good?  If not let me know and I'll post it elsewhere and edit this one away.

Married with children.  I've been a software engineer for over 20 years and have been in the stock market for about 20 years.  I remember the 1987 crash because my landlady at the time lost a bunch then went out and bought a new Cadillac where the depreciation is known and the reward is immediate.

I've been fortunate but after getting hurt by the tech crash I started doing a lot of self-education and research.  My investing philosophy has since been focused primarily on strong dividend-growing stocks but I still try to pick a good growth stock every now and then.  I've had a lot of small losses and a few good wins.  Currently I'm hoping TTM and SLW keep up their record of the past 3 years and make me rich!  ;)

My nick...  I have always considered silver and gold to be money, specifically I consider them as a foreign currency cash equivalent holding.  I've been long silver since 1989 and started watching silver and gold more closely in 1998 or so.  I was a few years late, but finally realized a bull market had started ca. 2001 and so for several years I have been trickling more in that direction.

As for the Permanent Portfolio...  I came across PRPFX some years ago, liked the record, did not like the expense ratio, and of course did not like the active management and it was too complex to do it myself so I ignored it.  I just discovered the current simplified version a few months ago and really like the idea.  Late February I did a 401k rollover into an IRA and immediately put it all (about 40% of my assets) into a slightly modified PP.

Everybody has a challenge implementing the HBPP, right?  My obstacle is the long-term treasuries.  I have no problem with stocks, gold or cash and years ago I was converted to rebalancing.  But I don't like bonds and consider my dividend stocks a better bond replacement.  As of last weekend I have only about 9% in LTT (yeah, the LTT in my IRA rollover are the only bonds in my entire portfolio).  If I moved some assets from stock and silver holdings into LTT then I'd essentially be 100% in the PP.  But I just cannot do that, at least right now.

Too much info, I know.  But I tend to be thorough.  :)  I think it's the software engineering...
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Re: Do We Really Get the Premium Back?

Post by MediumTex » Wed May 04, 2011 7:36 pm

AgAuMoney wrote: Everybody has a challenge implementing the HBPP, right?  My obstacle is the long-term treasuries.  I have no problem with stocks, gold or cash and years ago I was converted to rebalancing.  But I don't like bonds and consider my dividend stocks a better bond replacement.  As of last weekend I have only about 9% in LTT (yeah, the LTT in my IRA rollover are the only bonds in my entire portfolio).  If I moved some assets from stock and silver holdings into LTT then I'd essentially be 100% in the PP.  But I just cannot do that, at least right now.
Long term treasuries' performance in 2008 wasn't enough to win you over to their role in the PP?

What would it take to make you buy long term treasuries right now as part of the PP strategy?

I'm interested in hearing your thoughts on this matter.  Your objections are not uncommon, but everyone seems to have a slightly different rationale for underweighting one of the PP assets.

The PP asset I don't like right now is stocks, but I still hold the prescribed amount.
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Re: Do We Really Get the Premium Back?

Post by AdamA » Wed May 04, 2011 10:45 pm

AgAuMoney wrote: 
I have always considered silver and gold to be money, specifically I consider them as a foreign currency cash equivalent holding. 
This is not really how gold is viewed/utilized in the context of the PP.  Have you changed your thinking since starting your PP?
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Re: Do We Really Get the Premium Back?

Post by Storm » Wed May 04, 2011 11:07 pm

AgAu, welcome!  I can see where you're coming from.  The last 10 years have really been a bull market for precious metals.  Of course, they have also been a bull market for bonds, however, at this point I can see why you might think interest rates have nowhere to go but up.  I'm still of the same mindset, however, I found myself buying 4.625% LTTs just a week ago because it was the lowest asset in my portfolio.  In hindsight, it's already made me some money, as the yield has only pushed itself lower, but at the time I purchased, I felt like I was throwing good money after bad, if you know what I mean... ;) 

This, in my mind, is the beauty of the PP.  I get about $900 deposited every 2 weeks into my brokerage linked 401k and I just buy the lowest asset.  I remove all emotion from the picture, say "oh, LTT is only 22.08% while everything else is higher, time to buy more LTTs..."  And then I proceed to purchase some more bonds in the 25-30 year maturity and the best yield I can find.  My emotional lizard brain is saying "Silver is up 30% in the last few weeks, buy some silver instead!!"  But I ignore that emotional lizard brain and buy long term treasuries instead.

Net result - 1 week later and my treasuries are up, meanwhile silver is down more than 10%.

The biggest thing the PP has taught me is that I'm usually wrong in my predictions.  This is fine, because the PP doesn't need me to predict the future, it only needs me to buy the lowest asset like an automaton and the rest will work itself out just fine.
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Re: Do We Really Get the Premium Back?

Post by AgAuMoney » Sat May 07, 2011 1:38 am

Adam1226 wrote:
AgAuMoney wrote: 
I have always considered silver and gold to be money, specifically I consider them as a foreign currency cash equivalent holding. 
This is not really how gold is viewed/utilized in the context of the PP.  Have you changed your thinking since starting your PP?
How is gold utilized in the context of the PP?  Inflation or anticipation of inflation?  Any good foreign currency (like the Swiss Franc 40 years ago) would do as well.  (Now days it is hard to find a foreign currency that doesn't just inflate to match the dollar, more or less, except for gold.)  Insurance against the catastrophic breakdown of your society?  Any good foreign currency...  As the "anti-asset" opposed to the stock market?  Any currency might do as well...

So I don't know for certain, but gold and my perspective both feel comfortable to me in the PP and didn't require me to stretch near as much as those darn LTTs! ;)
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Re: Do We Really Get the Premium Back?

Post by AgAuMoney » Sat May 07, 2011 1:41 am

btw, did anybody else notice the premium (or rather DISCOUNT) on CEF a day or so ago?  Really illustrates the "buying pressure increases the premium and selling pressure decreases the premium" concept I pointed out earler.

Unfortunately I didn't notice until after the market had closed, but I was able to pick up a bit today at a pretty good deal by selling some IAU and SLV.  I think the premium on CEF will recover...  If not hopefully it won't go quite so negative again when it is time for me to sell!
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Re: Do We Really Get the Premium Back?

Post by AgAuMoney » Sat May 07, 2011 2:00 am

MediumTex wrote:
AgAuMoney wrote: My obstacle is the long-term treasuries. ...  As of last weekend I have only about 9% in LTT (yeah, the LTT in my IRA rollover are the only bonds in my entire portfolio).  If I moved some assets from stock and silver holdings into LTT then I'd essentially be 100% in the PP.  But I just cannot do that, at least right now.
Long term treasuries' performance in 2008 wasn't enough to win you over to their role in the PP?

What would it take to make you buy long term treasuries right now as part of the PP strategy?

I'm interested in hearing your thoughts on this matter.  Your objections are not uncommon, but everyone seems to have a slightly different rationale for underweighting one of the PP assets.

The PP asset I don't like right now is stocks, but I still hold the prescribed amount.
I'm sitting just under 38% stocks right now.  Probably by June I'll be rebalancing some out unless they keep going down...  Precious metals were approaching 35%, until last week!

LTTs have had a 30 year bull run.  I just cannot get past that fact and convince myself the bull is going to continue.  As for 2008 and LTTs, it looked like an anomaly to me.  It came, it went.  Maybe it was the peak of the bull?  Granted, if I had had 25% of my portfolio in LTTs ca. July 2008, and rebalanced in 1st quarter 2009 then likely I might have not lost ground or at least would have recovered in less than the 12 months it took.

Right now I don't know what it would take to get me to put another 15% of my entire portfolio into LTTs.  I did put 25% of the one account into LTTs, almost 10% of my entire portfolio at the time.  But I just haven't been able to talk myself into buying more in other accounts.

So for now, that 9% of LTTs establishes the size of my PP.  The other 64% of my assets I have to consider as a variable portfolio, since three legs of a PP isn't a PP.  :-\
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Re: Do We Really Get the Premium Back?

Post by Storm » Sat May 07, 2011 7:22 am

AgAuMoney wrote: How is gold utilized in the context of the PP?  Inflation or anticipation of inflation?  Any good foreign currency (like the Swiss Franc 40 years ago) would do as well.  (Now days it is hard to find a foreign currency that doesn't just inflate to match the dollar, more or less, except for gold.)  Insurance against the catastrophic breakdown of your society?  Any good foreign currency...  As the "anti-asset" opposed to the stock market?  Any currency might do as well...
Foreign currency is not adequate inflation protection compared to gold.  Gold has a multiplier effect, almost like being leveraged against inflation.  In an inflationary scenario, where the dollar is devalued against a foreign currency, the currency would increase roughly the amount of value the dollar lost, where gold would increase many, many times that, and be able to carry the portfolio.
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