Gold will rise when Fed stops raising interest rates?

Discussion of the Gold portion of the Permanent Portfolio

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jason
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Gold will rise when Fed stops raising interest rates?

Post by jason » Wed Sep 14, 2022 10:57 am

So I was doing some research today on why gold hasn't been going up lately. The recurring theme I saw was that experts think that in an environment where there is high inflation and interest rates are steadily rising and are expected to rise further, gold does not do well. But after the Fed stops raising rates, if inflation continues, gold should do very well. It seems fairly likely that the Fed will keep raising rates and when we go into a deeper recession, their hands will be tied where they won't want to raise rates anymore because the economy is struggling. Yet high inflation could continue. It's a stagflation scenario where gold supposedly has done well, historically, correct? Do most people here agree with this?
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Re: Gold will rise when Fed stops raising interest rates?

Post by flyingpylon » Wed Sep 14, 2022 11:04 am

Doesn't the strength of the US dollar factor into all of this? I recently read that it's up 14% in 2022 and is at its highest level in 20 years compared to other currencies.
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Re: Gold will rise when Fed stops raising interest rates?

Post by jason » Wed Sep 14, 2022 11:16 am

flyingpylon wrote:
Wed Sep 14, 2022 11:04 am
Doesn't the strength of the US dollar factor into all of this? I recently read that it's up 14% in 2022 and is at its highest level in 20 years compared to other currencies.
Yes, strong dollar was mentioned as well, but experts were saying that gold has to compete with currency so as long as bond yields are attractive that will keep gold down, and that attractiveness tends to go away during stagflation. I guess the dollar weakening should also cause gold to rise.
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Re: Gold will rise when Fed stops raising interest rates?

Post by I Shrugged » Wed Sep 14, 2022 12:30 pm

I gave up trying to figure it out. The whole market tries to figure it out, and that gives us the price. That sounds more negative than I mean it to be. :)
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Re: Gold will rise when Fed stops raising interest rates?

Post by jason » Wed Sep 14, 2022 12:42 pm

I Shrugged wrote:
Wed Sep 14, 2022 12:30 pm
I gave up trying to figure it out. The whole market tries to figure it out, and that gives us the price. That sounds more negative than I mean it to be. :)
Unless the price is rigged as GATA claims.
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I Shrugged
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Re: Gold will rise when Fed stops raising interest rates?

Post by I Shrugged » Wed Sep 14, 2022 1:09 pm

jason wrote:
Wed Sep 14, 2022 12:42 pm
I Shrugged wrote:
Wed Sep 14, 2022 12:30 pm
I gave up trying to figure it out. The whole market tries to figure it out, and that gives us the price. That sounds more negative than I mean it to be. :)
Unless the price is rigged as GATA claims.
Yes. :)

But if not, HB had some insight which applied to this. Namely that you can't count on markets to repeat the reactions of past history, because people adapt. The gold market has changed so much over the past two decades that I don't think you can predict how it will behave.
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Re: Gold will rise when Fed stops raising interest rates?

Post by Desert » Wed Sep 14, 2022 1:12 pm

I Shrugged wrote:
Wed Sep 14, 2022 1:09 pm
But if not, HB had some insight which applied to this. Namely that you can't count on markets to repeat the reactions of past history, because people adapt. The gold market has changed so much over the past two decades that I don't think you can predict how it will behave.
Agreed 100 percent.
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jason
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Re: Gold will rise when Fed stops raising interest rates?

Post by jason » Wed Sep 14, 2022 1:26 pm

Desert wrote:
Wed Sep 14, 2022 1:12 pm
I Shrugged wrote:
Wed Sep 14, 2022 1:09 pm
But if not, HB had some insight which applied to this. Namely that you can't count on markets to repeat the reactions of past history, because people adapt. The gold market has changed so much over the past two decades that I don't think you can predict how it will behave.
Agreed 100 percent.
How has the gold market changed over the past 2 decades? Even though the behavior isn't totally consistent, aren't there fairly consistently recurring themes over the past several thousand years?
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Re: Gold will rise when Fed stops raising interest rates?

Post by buddtholomew » Wed Sep 14, 2022 2:18 pm

Gold is completely useless.
Unexpected inflation tops 8% and we are down 7% + inflation over the course of a year.
I really do pity those still invested in the PP.
What more do you need to see before you dump it?
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Re: Gold will rise when Fed stops raising interest rates?

Post by jason » Wed Sep 14, 2022 3:04 pm

buddtholomew wrote:
Wed Sep 14, 2022 2:18 pm
Gold is completely useless.
Unexpected inflation tops 8% and we are down 7% + inflation over the course of a year.
I really do pity those still invested in the PP.
What more do you need to see before you dump it?
Well, first of all, as someone else recently posted, the dollar has gained 14% YTD and 18.5% in the past year. See: https://www.marketwatch.com/investing/index/dxy
So if the dollar gains 14% and gold goes down less than that, that is a win. Gold is only down around 6% YTD and 6% in the past year Also, the PP has had very bad drawdowns in past years and it always came back before the calendar year was over. So it can take many months for the markets to work themselves out. Did you quit the PP? If so, what are you doing for investments?
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Re: Gold will rise when Fed stops raising interest rates?

Post by mathjak107 » Wed Sep 14, 2022 3:21 pm

the problem isnt gold not moving as much as the dollar is very strong .

gold had a great run in india as an example .

since 2019 in india gold did very well . up 62%

gold prices went from around Rs 32,000 per 10 g to nearly Rs 52,000 during the same period, a nearly 62% return. we saw in dollars about a 7% return , maybe not even that.

so it isnt the fact gold is stagnant , it isnt . it has done very well for itself but not in dollars .

inflation in india is running 7% , interest rates are about 5%
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Re: Gold will rise when Fed stops raising interest rates?

Post by Hal » Wed Sep 14, 2022 4:28 pm

Hi Mathjak,

A Gold/Share portfolio hasn't been too shabby when measured with the Safe WR either. Using BelangP's 35% Gold/65% shares we get...
Attachments
Portfolio 65 35 Int Shares Gold.png
Portfolio 65 35 Int Shares Gold.png (224.05 KiB) Viewed 514 times
Aussie GoldSmithPP - 25% PMGOLD, 75% VDCO
whatchamacallit
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Re: Gold will rise when Fed stops raising interest rates?

Post by whatchamacallit » Wed Sep 14, 2022 10:52 pm

I have become a big believer in the belangp portfolio.

It has allowed me to mostly autopilot my contributions with very little thought.


Automatic company retirement plan gets about 33% into large cap index fund.

Roth ira then is split 50/50 between gold and stock to add another 66 %.


To keep it in balance, all I have to look at is which asset is lower in Roth ira and then buy more.

That ends up being almost exact belangp in retirement accounts.

Anything outside of retirement accounts is going to cash chasing low risk yields.

So worst case I end up more like 40 stock 20 gold and 40 intermediate treasury.

It would be hard to believe how much this simplicity has helped with keeping me on track. Everyone needs to find a way to invest in sync with their personality.
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Re: Gold will rise when Fed stops raising interest rates?

Post by joypog » Wed Sep 14, 2022 11:03 pm

whatchamacallit wrote:
Wed Sep 14, 2022 10:52 pm
Everyone needs to find a way to invest in sync with their personality.
Yeah, that was my big takeaway from my months of trying to find an AA.

As is often the case, the exercise was one of staring at ourselves until something clear came up. We landed at a 50% stock portfolio...but given our circumstances I could see it going anywhere from 30% to 80% stocks....so within that range it was just a question of what we were comfortable. Obviously we're ok with leaving money on the table for stability along the ride.
I have no clue. Ask me next May.
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Re: Gold will rise when Fed stops raising interest rates?

Post by whatchamacallit » Wed Sep 14, 2022 11:10 pm

Back on topic a bit more I found chart showing dxy vs gold price.

https://www.macrotrends.net/1335/dollar ... -ten-years

I guess good answer would be gold should go up when dxy goes back down as long as stocks are not what is going up. Sounds like a gyroscope.
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Re: Gold will rise when Fed stops raising interest rates?

Post by I Shrugged » Thu Sep 15, 2022 8:27 am

jason wrote:
Wed Sep 14, 2022 1:26 pm
Desert wrote:
Wed Sep 14, 2022 1:12 pm
I Shrugged wrote:
Wed Sep 14, 2022 1:09 pm
But if not, HB had some insight which applied to this. Namely that you can't count on markets to repeat the reactions of past history, because people adapt. The gold market has changed so much over the past two decades that I don't think you can predict how it will behave.
Agreed 100 percent.
How has the gold market changed over the past 2 decades? Even though the behavior isn't totally consistent, aren't there fairly consistently recurring themes over the past several thousand years?
The availability of gold ETFs has made it available to the masses as a short term trade.
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joypog
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Re: Gold will rise when Fed stops raising interest rates?

Post by joypog » Thu Sep 15, 2022 9:33 am

There are always stories about how "this time it's different".

At some point it will be different....for stocks, bonds, LTT's, gold, etc.

The question is how much do you want to bet on it (any instance of "it")?
I have no clue. Ask me next May.
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jason
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Re: Gold will rise when Fed stops raising interest rates?

Post by jason » Thu Sep 15, 2022 9:33 am

I Shrugged wrote:
Thu Sep 15, 2022 8:27 am
jason wrote:
Wed Sep 14, 2022 1:26 pm
Desert wrote:
Wed Sep 14, 2022 1:12 pm
I Shrugged wrote:
Wed Sep 14, 2022 1:09 pm
But if not, HB had some insight which applied to this. Namely that you can't count on markets to repeat the reactions of past history, because people adapt. The gold market has changed so much over the past two decades that I don't think you can predict how it will behave.
Agreed 100 percent.
How has the gold market changed over the past 2 decades? Even though the behavior isn't totally consistent, aren't there fairly consistently recurring themes over the past several thousand years?
The availability of gold ETFs has made it available to the masses as a short term trade.
Shouldn't that present the possibility of making the gold market more efficient? Is there a reason to think that gold ETFs available to the masses would make gold in the PP work less well?
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buddtholomew
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Re: Gold will rise when Fed stops raising interest rates?

Post by buddtholomew » Thu Sep 15, 2022 9:58 am

fucking idiots
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Re: Gold will rise when Fed stops raising interest rates?

Post by whatchamacallit » Thu Sep 15, 2022 10:04 am

buddtholomew wrote:
Thu Sep 15, 2022 9:58 am
fucking idiots
Gave me a laugh at least.

What is your recommended portfolio allocation?
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buddtholomew
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Re: Gold will rise when Fed stops raising interest rates?

Post by buddtholomew » Thu Sep 15, 2022 10:11 am

whatchamacallit wrote:
Thu Sep 15, 2022 10:04 am
buddtholomew wrote:
Thu Sep 15, 2022 9:58 am
fucking idiots
Gave me a laugh at least.

What is your recommended portfolio allocation?
No Gold or LTT’s.
I can’t think of a worse portfolio to hold than this one for the last decade plus. All a bunch of garbage. It has proven its worthlessness time after time.
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jason
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Re: Gold will rise when Fed stops raising interest rates?

Post by jason » Thu Sep 15, 2022 10:23 am

buddtholomew wrote:
Thu Sep 15, 2022 10:11 am
whatchamacallit wrote:
Thu Sep 15, 2022 10:04 am
buddtholomew wrote:
Thu Sep 15, 2022 9:58 am
fucking idiots
Gave me a laugh at least.

What is your recommended portfolio allocation?
No Gold or LTT’s.
I can’t think of a worse portfolio to hold than this one for the last decade plus. All a bunch of garbage. It has proven its worthlessness time after time.
If no gold or LTTs, what do you hold? Only stocks? What else?
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Re: Gold will rise when Fed stops raising interest rates?

Post by vnatale » Thu Sep 15, 2022 10:32 am

jason wrote:
Thu Sep 15, 2022 10:23 am

buddtholomew wrote:
Thu Sep 15, 2022 10:11 am

whatchamacallit wrote:
Thu Sep 15, 2022 10:04 am

buddtholomew wrote:
Thu Sep 15, 2022 9:58 am

fucking idiots


Gave me a laugh at least.

What is your recommended portfolio allocation?


No Gold or LTT’s.
I can’t think of a worse portfolio to hold than this one for the last decade plus. All a bunch of garbage. It has proven its worthlessness time after time.


If no gold or LTTs, what do you hold? Only stocks? What else?


Yes, same question.

Also, do you share my "security seeking personality" where there is seemingly never enough?
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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buddtholomew
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Re: Gold will rise when Fed stops raising interest rates?

Post by buddtholomew » Thu Sep 15, 2022 10:33 am

jason wrote:
Thu Sep 15, 2022 10:23 am
buddtholomew wrote:
Thu Sep 15, 2022 10:11 am
whatchamacallit wrote:
Thu Sep 15, 2022 10:04 am
buddtholomew wrote:
Thu Sep 15, 2022 9:58 am
fucking idiots
Gave me a laugh at least.

What is your recommended portfolio allocation?
No Gold or LTT’s.
I can’t think of a worse portfolio to hold than this one for the last decade plus. All a bunch of garbage. It has proven its worthlessness time after time.
If no gold or LTTs, what do you hold? Only stocks? What else?
Stocks and Cash.
Gold doesn’t respond to unexpected inflation - what a surprise so why bother holding it at all?
All passive portfolios use fixed income so the PP is not unique in that regard.

The main differentiator for the PP was the allocation to gold and obviously its relationship to inflation is weak so why bother holding it at all? The whole story around different economic climates and selecting assets for each is flawed. Now we have the data to show how pathetic it truly is.

SPY YTD: -18%
TLT YTD: -26%
GLD YTD: -8%

Honestly, pathetic!!
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Re: Gold will rise when Fed stops raising interest rates?

Post by glennds » Thu Sep 15, 2022 10:40 am

jason wrote:
Wed Sep 14, 2022 10:57 am
But after the Fed stops raising rates, if inflation continues, gold should do very well. It seems fairly likely that the Fed will keep raising rates and when we go into a deeper recession, their hands will be tied where they won't want to raise rates anymore because the economy is struggling. Yet high inflation could continue.
If you're using the situation of the 1970's/early 80's as a point of comparison, it looks to me like gold's big run-up happened when inflation was high but BEFORE Volcker started mercilessly raising rates. This would suggest that we should have already seen a big (huge?) run up in gold already.

Once the rate increases kicked in, gold fell, specifically in '81, '83, '84. I don't know if it is reasonable to correlate gold to rates or whether the drop in the early 80's was a reversion to mean.

When I've looked into it, I cannot find much of a relationship between gold and rates.
At the outset of becoming a PP investor, I thought the critical correlation would be gold and inflation, but that hasn't held, in this instance at least. I think there may be something to comments elsewhere in this thread that changes in the gold market and the way it functions may have fundamentally changed the predictability of its behavior.

Here is an article with some charts on gold vs interest rates: https://www.sunshineprofits.com/gold-si ... est-rates/

Here is a 100 year gold price chart for anyone who wants to look at the performance in the 70's and 80's that I reference above: https://www.macrotrends.net/1333/histor ... year-chart
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