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 Libertarian666 » 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 Libertarian666 » 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 Libertarian666 » 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 Libertarian666 » 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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Re: Does Gold's Markup Bother You?

Post by StdDeviant » Wed Mar 15, 2017 2:09 pm

dualstow wrote:
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.
Thanks, dualstow. Certainly not original ideas on my part. If you haven't read Rowland & Lawson's book "The Permanent Portfolio," I highly recommend it. The most ubiquitous 1 oz. gold coins available are the #1 recommended way of owning gold. I don't own much this way YET. IRAs don't
make owning gold in any form other than an ETF very easy. But knowing I can try to fend off the zombies with a few American Eagles (and some 1/10 oz. Eagles as well) in my pocket gives me a tiny sliver more hope than carrying a thumb drive with my Quicken backup or a printout of my most recent Fidelity statement.
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Re: Does Gold's Markup Bother You?

Post by dualstow » Wed Mar 15, 2017 2:28 pm

StdDeviant wrote:Thanks, dualstow. Certainly not original ideas on my part. If you haven't read Rowland & Lawson's book "The Permanent Portfolio," I highly recommend it. The most ubiquitous 1 oz. gold coins available are the #1 recommended way of owning gold. I don't own much this way YET. IRAs don't
make owning gold in any form other than an ETF very easy.
It is indeed a fine book, and the kindle version is usually one of the open tabs in my browser. If I remember right, I started with Craig's posts at bogleheads, then bought Harry's 'Fail-Safe Investing' and 'Best Laid Plans...' I already had most of my coins by the time Craig & MJ's book was out, but it's a great resource. EDIT: and Harry Browne's Money Talk radio show archives, which I first found through this forum. Very helpful indeed. I think one can still find a torrent for them.

I have a love-hate relationship with ETFs, but mostly hate. O0
But knowing I can try to fend off the zombies with a few American Eagles (and some 1/10 oz. Eagles as well) in my pocket gives me a tiny sliver more hope than carrying a thumb drive with my Quicken backup or a printout of my most recent Fidelity statement.
Trivial prediction: 9 out of 10 forum members will reread the word "sliver" above thinking it said silver.
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Re: Does Gold's Markup Bother You?

Post by Libertarian666 » Wed Mar 15, 2017 6:24 pm

How about trading on a (roughly) 1% buy-sell spread on popular coins?

You could apply for a dealer's account at Dillon-Gage in Dallas. That's what they usually have as a spread for the American Eagle, obviously depending on the market.

I don't know exactly what their requirements are, but it couldn't hurt to ask if you are planning to trade at least 20 or 30 ounces at a time on occasion.
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Re: Does Gold's Markup Bother You?

Post by dualstow » Wed Jul 12, 2017 12:46 pm

Libertarian666 wrote:Markup is not the issue. Spread, including all costs, is the issue.
Is there any point to buying fractional gold coins, or is that just too costly, like buying silver?
(I have only bought 1oz coins).
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Re: Does Gold's Markup Bother You?

Post by Mark Leavy » Wed Jul 12, 2017 5:36 pm

dualstow wrote:
Libertarian666 wrote:Markup is not the issue. Spread, including all costs, is the issue.
Is there any point to buying fractional gold coins, or is that just too costly, like buying silver?
(I have only bought 1oz coins).
No sense in buying a large amount of fractional coins. As noted, the spread will kill you. But 1/2 oz coins are about the size of a quarter and go through an airport scanner just fine in a bundle of change. They make a fine plan B or C. A small number is plenty.

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Re: Does Gold's Markup Bother You?

Post by dualstow » Wed Jul 12, 2017 6:15 pm

Thanks, Mark.
I once read about wealthy people and high value numismatic coins going through a scanner.
It was either an article or a post by Medium Tex.
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Re: Does Gold's Markup Bother You?

Post by ochotona » Wed Jul 12, 2017 8:05 pm

dualstow wrote:Thanks, Mark.
I once read about wealthy people and high value numismatic coins going through a scanner.
It was either an article or a post by Medium Tex.
Must be lots of that going on in Venezuela.
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Re: Does Gold's Markup Bother You?

Post by vnatale » Sat Feb 22, 2020 6:28 pm

dualstow wrote:
Thu Feb 02, 2017 1:49 pm

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.



Blue text edited in later.
Confirming that you are stating that it is coins (and not bars) that are "very difficult to counterfeit"?


Vinny
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Re: Does Gold's Markup Bother You?

Post by dualstow » Sat Feb 22, 2020 6:49 pm

That’s odd that you kept the line about blue text but no other actual blue text. ???
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Re: Does Gold's Markup Bother You?

Post by vnatale » Sat Feb 22, 2020 7:40 pm

dualstow wrote:
Sat Feb 22, 2020 6:49 pm
That’s odd that you kept the line about blue text but no other actual blue text. ???
Sorry. When I was writing and seeing what I was quoting it was not easy to tell if anything in it did or did not have blue text.

But back to my question...would still like a confirmation I was correctly interpreting you.

Vinny
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Re: Does Gold's Markup Bother You?

Post by dualstow » Sat Feb 22, 2020 7:53 pm

Affirmative
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Re: Does Gold's Markup Bother You?

Post by dualstow » Mon Feb 24, 2020 6:43 am

But notice, Vinny, that I crossed out “are very difficult” and wrote were very difficult.
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Re: Does Gold's Markup Bother You?

Post by vnatale » Mon Feb 24, 2020 9:20 am

dualstow wrote:
Mon Feb 24, 2020 6:43 am
But notice, Vinny, that I crossed out “are very difficult” and wrote were very difficult.
Did not notice that. And, for some reason, it just took me awhile to comprehend that. But now I do.

Vinny
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