I favor a part of commodities in the gold part. I'm starting with commodity links.
SP GSCI
chart
ishares GSG
comparison commodities etf
Commodities
Moderator: Global Moderator
-
rvb
Commodities
Last edited by rvb on Mon Oct 18, 2010 12:08 pm, edited 1 time in total.
Re: Commodities
Commodities respond to inflation in the short term with increased prices. Commodities respond to inflation in the longer term with a glut of the commodity in question. Thus, the pattern with many commodities is boom and bust.
Gold is different. It's much harder to increase gold production than it is for most other commodities; therefore, gold does not respond to price increases the way other commodities do. Gold is also viewed as a monetary unit. Other that silver to some extent, no other commodity is viewed as a monetary unit (e.g., central banks don't have any wheat holdings).
Commodities other than gold do not serve the purpose in the PP that gold does. I would stay far away from anything like a commodity index.
Look back at 2008--the price of every commodity except gold collapsed. Gold declined, but nothing like the rest of the commodity space.
Most commodities are simply not that scarce over longer periods of time.
Gold is different. It's much harder to increase gold production than it is for most other commodities; therefore, gold does not respond to price increases the way other commodities do. Gold is also viewed as a monetary unit. Other that silver to some extent, no other commodity is viewed as a monetary unit (e.g., central banks don't have any wheat holdings).
Commodities other than gold do not serve the purpose in the PP that gold does. I would stay far away from anything like a commodity index.
Look back at 2008--the price of every commodity except gold collapsed. Gold declined, but nothing like the rest of the commodity space.
Most commodities are simply not that scarce over longer periods of time.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
-
rvb
Re: Commodities
IMO gold is at the top of the hill and commodities halfway. The 25% gold is / was ok when the gold price was low / medium, but nowadays i think it's better to diversify the gold portfolio part.MediumTex wrote: Look back at 2008--the price of every commodity except gold collapsed. Gold declined, but nothing like the rest of the commodity space.
Re: Commodities
Please think this through carefully.rvb wrote:IMO gold is at the top of the hill and commodities halfway. The 25% gold is / was ok when the gold price was low / medium, but nowadays i think it's better to diversify the gold portfolio part.MediumTex wrote: Look back at 2008--the price of every commodity except gold collapsed. Gold declined, but nothing like the rest of the commodity space.
I don't want to say you are wrong, because neither of us knows what the future will bring, but I truly believe the ice beneath your argument is much thinner than it appears.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: Commodities
You may very well be making a good prediction, but it's one that seems best suited for the Variable Portfolio. A good rule of thumb is that if you are acting on a prediction in your Permanent Portfolio, you are no longer treating it like a "Permanent Portfolio". Speculation is a fine thing to do, but it is not suitable for the Permanent Portfolio itself.
The problem is that commodities in general do not behave in a way that makes them interchangeable with gold. For all the reasons that MT listed earlier (and many more, like gold's role as money, its durability, portability, violent reaction to inflation and uncertainty, etc.), there's just no acceptable substitute for gold.
So I'd consider making this play in your Variable Portfolio and seeing how it shakes out. Then you can let the PP do what it does best (that is, protect the money you can't afford to lose.)
The problem is that commodities in general do not behave in a way that makes them interchangeable with gold. For all the reasons that MT listed earlier (and many more, like gold's role as money, its durability, portability, violent reaction to inflation and uncertainty, etc.), there's just no acceptable substitute for gold.
So I'd consider making this play in your Variable Portfolio and seeing how it shakes out. Then you can let the PP do what it does best (that is, protect the money you can't afford to lose.)
Re: Commodities
Commodities may respond well to immediate inflation but they lack the monetary component that gold has. Gold is a commodity and is also money. Gold can therefore respond not only to actual inflation, but to other monetary and/or banking crises. As Tex pointed out, when the banks were teetering on collapse in 2008 commodity funds plummeted and gold went up slightly in value. Gold protects you on more fronts than commodities alone can.
-
Reido
Re: Commodities
Not to beat a dead horse, but Gold is not as sensitive to demand from consumption. In 2008, commodities plumeted - as quickly as stocks - as the housing industry, which was consuming many of those commodities, declined.
Gold is just the opposite - typically a safehaven against devaluation, and a safety net during a crisis.
Gold is just the opposite - typically a safehaven against devaluation, and a safety net during a crisis.