Diversification of Gold Portion, With Other Metals?

[Coffee]

Hi, Craig:

First-- let me say that I've really enjoyed reading both your blog and your discussion forum.  HB turned me onto the PP, but your clear logic and reasoning got me to invest in it.  [I've also enjoyed reading about your exploration into Wilderness Survival Training].

I hope the following isn't off topic, but: had HB looked into how the same PP portfolio would perform, if the gold portion of the portfolio were diversified amongst other metals?  Ex. Gold, Silver, Copper, Platinum, etc...  Just seems that, since we're recognizing the benefit of broad diversification in the stock portion, wouldn't the same type of diversification amongst the hard asset portion be prudent, too?  Or is there some quality to Gold (the traditional use of pegging money to a gold standard?) that made it stand out to HB?

[Pkg Man]

I'm not craigr, but I'll chime in my two cents worth anyway. 

HB did address this in his book "Why the Best Laid Plans..."  Basically it is because gold has comparatively little industrial use, unlike silver.  It is in fact a form of money, the second most popular form of money (next to the dollar) when the world wants to hold assets other than their domestic currency.  As a result, when US inflation heats up, gold will react powerfully.  Silver and other metals that have a high industrial demand won't always behave the same way as gold does during inflation, since the health of the economy will have a significant effect on its price.

The precursor to the PP, and the fund by the same name (PRPFX) does include silver.  But HB later found that holding only gold was a better, more reliable way to build the portfolio and that there was no need to diversify into other commodities.

Remember that the PP does not own a particular asset just for diversification alone.  Rather, it holds the particular assets it does due to the way they react in each of the four possible economic climates: prosperity (stocks), deflation (long bonds), recession (cash), and inflation (gold).

Personally I like silver, but reserve it for the VP.

[Coffee]

Thanks, PKG.  Good explanation.

[craigr]

Hi, Craig:

First-- let me say that I've really enjoyed reading both your blog and your discussion forum.  HB turned me onto the PP, but your clear logic and reasoning got me to invest in it.  [I've also enjoyed reading about your exploration into Wilderness Survival Training].

Yes the survival training was a lark. I like hiking and camping and wanted to expand my horizons. I am working on sharing some outdoor skills and gear reviews. I have a YouTube channel with some of these videos:

http://www.youtube.com/user/CrawlingRoad

I hope the following isn't off topic, but: had HB looked into how the same PP portfolio would perform, if the gold portion of the portfolio were diversified amongst other metals?  Ex. Gold, Silver, Copper, Platinum, etc...   Just seems that, since we're recognizing the benefit of broad diversification in the stock portion, wouldn't the same type of diversification amongst the hard asset portion be prudent, too?  Or is there some quality to Gold (the traditional use of pegging money to a gold standard?) that made it stand out to HB?

Yes he talked about this. Pkg Man covered many of these details. I don't remember what specific radio show they were covered though. Basically the difference between gold and commodities is that gold is a commodity but is also a monetary metal. So it behaves much differently than the copper market, etc. to problems in the dollar. While there is a benefit to diversifying your stocks, there is not so much in diversifying away from gold because gold is the strongest protection you can own against currency debasement.

Overall I think I feel pretty good about owning just gold and skipping commodities. Not just this, but gold is easy to understand and many of these commodity futures funds are not. I don't like investing in things I don't understand.