Do cash and gold do well in mutually exclusive economic conditions?

[decipede]

Tight-money recession is like what Volcker did, to jack up interest rates to reduce inflation. So.... does that mean tight-money regime and inflation regime are (at least mostly) mutually exclusive? Is my understanding correct?

If I'm understanding this correctly, it seems like least one of Cash and Gold is always nonperforming in the classic PP. Is it then reasonable to hold only one of Cash and Gold at a time (say for example, based on momentum) in a VP?

[pmward]

Tight-money recession is like what Volcker did, to jack up interest rates to reduce inflation. So.... does that mean tight-money regime and inflation regime are (at least mostly) mutually exclusive? Is my understanding correct?

If I'm understanding this correctly, it seems like least one of Cash and Gold is always nonperforming in the classic PP. Is it then reasonable to hold only one of Cash and Gold at a time (say for example, based on momentum) in a VP?

Gold is not correlated to inflation. Inflation expectations do definitely have pull on gold though. There are more things that filter into the price of gold though, like negative real interest rates, geopolitical drama, the current trust level in the government, etc. Gold is a *much* more complex asset than bonds or stocks.

In the context of a VP, sure it makes sense to put money where the action is at the moment. In the context of the PP though, no it does not make sense to ever boot one or the other. THE magic ingredient in the PP is forced buying low and selling high with rebalancing. If you break that, you break the PP. Without rebalancing the PP does not work. Gold also does this thing where it spends most of its time asleep. But, every so often it goes on these crazy high volatility boom/bust cycles (of which I suspect we are currently in the early innings of a "boom" cycle). In the PP it is the very act of buying when it's in a bust or sleep cycle, and selling it when it's in a boom cycle that pays gold's "yield" in your portfolio.

[decipede]

In the context of the PP though, no it does not make sense to ever boot one or the other.

Yes, I completely agree with that. I'm not arguing against PP.

What I'm wondering about is if there could be an economic condition where Cash and Gold can both perform well at the same time.

My limited understanding is that Cash performs highly when interest rates are high (so people have an incentive to put money in savings account and happily grow their money). In that scenario why would Gold perform well? And in the opposite case when money is available aplenty, interest rates are probably going to be low so Cash is likely to underperform Gold, right?

[pmward]

In the context of the PP though, no it does not make sense to ever boot one or the other.

Yes, I completely agree with that. I'm not arguing against PP.

What I'm wondering about is if there could be an economic condition where Cash and Gold can both perform well at the same time.

My limited understanding is that Cash performs highly when interest rates are high (so people have an incentive to put money in savings account and happily grow their money). In that scenario why would Gold perform well? And in the opposite case when money is available aplenty, interest rates are probably going to be low so Cash is likely to underperform Gold, right?

In a situation of rising inflation and rising rates, gold and cash should both perform well, or at least as well as cash can perform, haha. You can look back to the 1970s to see this. Gold went up like a rocket, and treasury bills payments increased as well.

[decipede]

You can look back to the 1970s to see this. Gold went up like a rocket, and treasury bills payments increased as well.

Yeah, the 70s were interesting

Between 72-79 Cash went up 6.5% and Gold was up 34%. That's a significant difference and I can feel my confirmation bias kicking in.

But I don't know if that difference could have been captured with momentum in those years. I will have to test that.

[Hal]

Depends on where you live.

For example, if you lived in Zimbabwe/Venezuala etc and experienced high inflation, gold did not increase in value enough to cover your losses in the other three asset classes.

Studying this issue myself and currently reading this old post.

https://web.archive.org/web/20120119083 ... gspot.com/
and yet to study this site closely
http://fofoa.blogspot.com

Also have a listen to HB's radio show that some kind soul put up on YouTube.
https://www.youtube.com/channel/UCzu55W ... QIQ/videos

[pmward]

Depends on where you live.

For example, if you lived in Zimbabwe/Venezuala etc and experienced high inflation, gold did not increase in value enough to cover your losses in the other three asset classes.

Studying this issue myself and currently reading this old post.

https://web.archive.org/web/20120119083 ... gspot.com/
and yet to study this site closely
http://fofoa.blogspot.com

Also have a listen to HB's radio show that some kind soul put up on YouTube.
https://www.youtube.com/channel/UCzu55W ... QIQ/videos

I don't think the point of gold is necessarily to "cover your losses in the other three asset classes" completely. The PP has drawdowns, just like any other portfolio. If your expectation is for any singe asset to completely negate the risks of all the others, your expectations are probably not realistic, no matter where you live. What the PP will do though is allow someone to live to fight another day. You may not profit or break even all the time, but you will never be completely wiped out. Compare Zimbabwe/Venezuala 60/40 to PP, and you will see that the PP did its job. There is no fool proof perfect portfolio. The PP is about as close as it comes to a portfolio that will help you survive all the different forms of economic crisis out there.

[Hal]

Depends on where you live.

For example, if you lived in Zimbabwe/Venezuala etc and experienced high inflation, gold did not increase in value enough to cover your losses in the other three asset classes.

Studying this issue myself and currently reading this old post.

https://web.archive.org/web/20120119083 ... gspot.com/
and yet to study this site closely
http://fofoa.blogspot.com

Also have a listen to HB's radio show that some kind soul put up on YouTube.
https://www.youtube.com/channel/UCzu55W ... QIQ/videos

I don't think the point of gold is necessarily to "cover your losses in the other three asset classes" completely. The PP has drawdowns, just like any other portfolio. If your expectation is for any singe asset to completely negate the risks of all the others, your expectations are probably not realistic, no matter where you live. What the PP will do though is allow someone to live to fight another day. You may not profit or break even all the time, but you will never be completely wiped out. Compare Zimbabwe/Venezuala 60/40 to PP, and you will see that the PP did its job. There is no fool proof perfect portfolio. The PP is about as close as it comes to a portfolio that will help you survive all the different forms of economic crisis out there.

Thanks pmward,

You are indeed correct. The point I was trying (imperfectly ) to convey is that the PP is "much better" for a US holder than someone living in a smaller economy. In one of his radio talks HB discussed this with an Indian caller, and advised in the worst case, they would still have the 25% gold. However.... "dramatic pause"..... he advised that a loss of faith in the US currency would lead to a dramatic increase in the gold price for someone holding a US PP and consequently smaller losses.

My two cents worth: If you live in a very small/unstable economy, you would be better holding a US PP and some local currency.