Old HB radio show about Gold

Discussion of the Gold portion of the Permanent Portfolio

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Hal
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Old HB radio show about Gold

Post by Hal » Mon Nov 12, 2018 8:05 pm

Found a way to kill some time while waiting in traffic...

On listening to some of the old HB radio shows, Harry made an interesting comment regarding Gold.
He stated that the USD was the worlds "favourite currency" and Gold was the 2nd favourite.

When confidence was less in the USD, money flowed into Gold.

This raises the interesting question about non USD based permanent portfolios. If your currency is the Euro, Yen, AUD or something else, would I be correct in assuming that this relationship does not hold, and that Gold would not provide "Inflation Protection"?
Granted, if your non USD currency became worthless like the Zimbabwe Dollar, you would still have some Gold, but it would not go up enough in value to cover the losses to Bonds / Cash / Shares.

Any and all thoughts on this are welcome !
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europeanwizard
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Re: Old HB radio show about Gold

Post by europeanwizard » Tue Nov 13, 2018 12:03 am

I've got an EU/Global PP, and indeed I feel that gold in the EU PP will behave differently. It's not clear what the alternatives would be, though.
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buddtholomew
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Re: Old HB radio show about Gold

Post by buddtholomew » Tue Nov 13, 2018 9:17 am

Can’t be worse than gold in the US PP which continues to decline. I wouldn’t even bother holding gold if given a second chance unless you want to hand your money over to those shorting the metal.
Hal
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Re: Old HB radio show about Gold

Post by Hal » Tue Nov 13, 2018 11:12 pm

europeanwizard wrote:
Tue Nov 13, 2018 12:03 am
I've got an EU/Global PP, and indeed I feel that gold in the EU PP will behave differently. It's not clear what the alternatives would be, though.
At a guess, it would be some hard asset in your particular "economic zone". Perhaps European Farmland ?

https://www.agriinvestor.com/tiaa-raisi ... used-fund/

Certainly the Mark Faber portfolio consists of 25% Gold, 25% Farmland, 25% Shares, 25% Bonds

https://mebfaber.com/2015/06/01/chapter ... portfolio/
(Believe Author used a REIT as a proxy for farmland)
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sophie
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Re: Old HB radio show about Gold

Post by sophie » Wed Nov 14, 2018 6:33 am

I don't know about that. Gold did its job very well in Iceland in 2008.

If gold's purpose in the portfolio is to be a default alternative reserve currency, then I suppose you might consider holding a mixture of gold and whatever the #1 reserve currency is. Right now that's the US dollar. But, I personally wouldn't change anything. A possibly bigger question is the choice of long bond - you could make a case that it should be US bonds, rather than a bond in your country.
Hal
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Re: Old HB radio show about Gold

Post by Hal » Wed Nov 14, 2018 10:48 am

sophie wrote:
Wed Nov 14, 2018 6:33 am
I don't know about that. Gold did its job very well in Iceland in 2008.

If gold's purpose in the portfolio is to be a default alternative reserve currency, then I suppose you might consider holding a mixture of gold and whatever the #1 reserve currency is. Right now that's the US dollar. But, I personally wouldn't change anything. A possibly bigger question is the choice of long bond - you could make a case that it should be US bonds, rather than a bond in your country.
Thanks for your input Sophie,

After listening to some more of HB's talks, I have come to the conclusion that Gold is used specifically because it will go up greatly in value, not just hold its value, in times when confidence is lost in the USD.

The flow of money from the Icelandic Krona to Gold would be too small to bid up its price multiple times. However the flow of money from the "much larger" pool of USD into the relatively small gold market would cause a significant increase in the gold price.

Would be interested if you could expand on why Non-US PP holders may wish to hold US bonds.

Regards,
Hal

PS: HB's talks located here if you have not heard them already
http://web.archive.org/web/201604030152 ... rchive.zip

Quick edit for anyone reading this later. Gold talk is dated Sept 19, 2004
Last edited by Hal on Wed Nov 14, 2018 12:28 pm, edited 1 time in total.
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Kbg
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Re: Old HB radio show about Gold

Post by Kbg » Wed Nov 14, 2018 10:55 am

This is relatively simple...so long as your day to day pay for stuff and taxes currency is denomination X then that currency is the only one that matters. You can make it more complex, but it isn't. Even if you are a foreigner who's entire account is US dollar denominated...eventually you are going to have to convert. Well I guess there are some small countries with less advanced banking systems that it wouldn't matter, but for most and certainly for anyone in a developed country, this is the case.
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sophie
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Re: Old HB radio show about Gold

Post by sophie » Wed Nov 14, 2018 11:33 am

It wouldn't be about Icelandic Krona affecting the gold price. The whole point is that it wouldn't, but that devaluation of the Krona means that the price of gold in Krona goes up, by a lot. This is in fact what happened. I bet that the trade value of the Krona relative to the US dollar showed a similar effect.

The reason I brought up long bonds is that their purpose in the PP is that of a safe haven in a deflation. If you are not in the US, your country's long bonds may not work in that role. Find out what country's long bonds the major institutions in your country buy when the stock market is stressed. Then buy those bonds.
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Re: Old HB radio show about Gold

Post by LazyInvestor » Thu Nov 15, 2018 12:54 am

This is a critical point. That's why in a number of my previous posts I encouraged non-US investors to stick with a Bogleheads portfolio if they are not willing to run US PP.

In recent times, USD was strengthening and gold was not of much help for anyone from Venezuela to Canada. Most of non-US investors would have done better in recent times if they held USD instead of gold. Anyways in many developing countries people do keep USD for the purpose that gold plays for US investors.
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Kbg
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Re: Old HB radio show about Gold

Post by Kbg » Thu Nov 15, 2018 8:19 am

Or US investors could hold another currency...at the end of the day it's a numerator/denominator relationship. The only real advantage gold has is that governments can't mess with it as much...oops, but then we have multiple historical examples where that is not true.

I think the board WAY overrates the value and usefulness of gold. However, I do have it in its paper form because in a portfolio context it has low correlation to the other assets of the PP and high volatility which other than cash is true of all PP assets.

Edit: Perfect from the gold scream room...https://www.bloomberg.com/news/articles ... peculators
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buddtholomew
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Re: Old HB radio show about Gold

Post by buddtholomew » Thu Nov 15, 2018 8:30 am

Kbg wrote:
Thu Nov 15, 2018 8:19 am
Or US investors could hold another currency...at the end of the day it's a numerator/denominator relationship. The only real advantage gold has is that governments can't mess with it as much...oops, but then we have multiple historical examples where that is not true.

I think the board WAY overrates the value and usefulness of gold. However, I do have it in its paper form because in a portfolio context it has low correlation to the other assets of the PP and high volatility which other than cash is true of all PP assets.
The reason why the board overrates the value and usefulness of Gold is primarily the reason the PP exists.
Gold distinguishes the PP from other portfolios since stocks, bonds and cash are commonplace.

Like other closet Gold haters, I despise the metal and having come to my senses are decreasing the amount held. The more I lower my allocation the more I realize how stupid 4x25 really is.

The PP is a good tool for those that have outsized gains in Gold (metals) and have come to the realization they were lucky and SHOULD diversifying into other assets a la HB himself. In that regard the portfolio is a winner as you now hold interest bearing investments and stocks for growth instead of a lump of yellow metal that floats at the whim of the wind.
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Re: Old HB radio show about Gold

Post by Kbg » Thu Nov 15, 2018 11:34 am

BT,

I think Tyler (and other folks in the blogosphere) have laid out what you can expect from a PP and I see nothing that suggests the PP is acting any differently than it has historically. You give up 1% CAGR for less volatility compared to most other ports. That's the dealio. As a youngster, that is a bad strategy and I would never recommend it. Someone in their mid 50s, different story.

Pull up a LT chart of the Dow or the S&P 500, visually mark the LT bull market highs and bear market lows. Then transfer those marks over to a LT chart of gold...and that is why gold is in the PP (in my view) from an asset allocation perspective. Now some very simple trend systems will help you achieve the best of each asset class...but your Max DD is going to dial up significantly from a standard PP.

Of note, I think you will regret getting out of gold now. I'm not saying gold is or is not good over the long haul. but I'd do it at the end of the next bear market and not at the probable top of a bull market. (If you are the market timing sort.)
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