Historic 1 to 20 year Treasury yield data

[Clive]

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[moda0306]

I thought STT rates got in the upper teens in 1981... like 16%-18%

[MachineGhost]

Both STT's and LTT's bought in 1940 were an inflation lagging asset right up to the late 1980's before they finally caught up in real terms.

Why don't you create synthetic TIPS back to 1880 now that you've got all the yields?  It was described how to do so in the white paper reference in Simba's spreadsheet.

MG

[moda0306]

Anybody have an opinion on what gold might do today if interest rates were 2% but CPI inflation was 10%-15%?

[moda0306]

Clive,

Silver is nice, but it isn't gold.  I realize you're doing the best you can with what you have, but it still leaves us to question what gold would have done differently.  During times that stress the difference between monetary and industrial metals (think 2008, where Silver lost almost 30% and gold gained 4%), gold tends to leave the pack behind.

If the main driver of gold is negative real interest rates, I can't imagine gold wouldn't have done phenominally well during that time...

However, ending a massive war might have a large dulling effect on precious metals, so I'll keep that in the back of my mind.

[MachineGhost]

If the main driver of gold is negative real interest rates, I can't imagine gold wouldn't have done phenominally well during that time...

I see it differently.  The gap between T-Bills and Inflation was astronomical in that 40's-50's, i.e. huge real interest rates.  Capital was being destroyed due to WWII, so real rates had to increase high enough to attract capital flows for recovery purposes even if that wasn't going to happen until the war was over.

To settle this debate, we need gold prices in an free floating Asian currency, but I cannot find such historical data anywhere online.  It is probably stuck in some library archive stored the old fashioned way.

I should point out that gold didnt save anyone from the Japanese invasion of China, because it was useless domestically and there was no way to wire funds in from offshore.  Only jewelry had any value and not due to the precious metals content.  But that's definitely an extreme SHTF scenario on par with Red Dawn for the USA.

MG

[moda0306]

Clive,

I think it's fair to say it would have done even more than that...

Just imagining over a long course of history that gold will match other commodities, but will gain much moreso during periods of negative real interest rates, and lag other commodities during positive real interest rates.

Isn't it fair to say, that at least during that time period, gold may have exploded well-beyond 18% and 9%?  The conditions seem to me to be of the type that would have gold significantly overtaking other metals, leaving the end of the war out of it.

[MachineGhost]

Eddy Elfenbein posted a blog article about gold and real rates back in 2010

http://www.crossingwallstreet.com/archi ... -gold.html

I remember trying that model as a market timing system for gold and it was terrible.  It only has use as "value".

Clive, are your yields an average of the year or end of year?  They don't seem to match up with FRED end of year data and the FRED average seems to be a year early unless the date is wrong.

MG

[moda0306]

I remember trying that model as a market timing system for gold and it was terrible.  It only has use as "value".

What does that mean?

In short spurts, Gold will probably do its own thing, but I think it's fair to say, for both fundamental reasons and looking at the last 40 years of legal gold ownership, that gold has a general tendency to be driven by negative real interest rates.

[MachineGhost]

I remember trying that model as a market timing system for gold and it was terrible.  It only has use as "value".

What does that mean?

In short spurts, Gold will probably do its own thing, but I think it's fair to say, for both fundamental reasons and looking at the last 40 years of legal gold ownership, that gold has a general tendency to be driven by negative real interest rates.

Means it only has use for the fundamental trend but not technical timing.  Timing is everything if you want to avoid losing big $$$$.  Nothing is worse than buying high and selling low.

MG

[moda0306]

Ok I see... yes at any given time, even if real rates are "really negative," you could buy into gold and tomorrow they could go "less negative," and if gold follows suit you'll lose out.

That said, From what I've seen of gold, as a decent chunk (not 25% if it makes one uncomfortable) of a portfolio does exactly what you want it to do to offset your other paper investments.

[D1984]

it would appear that gold might have near doubled over 1946/1947 when inflation ran at 18% and 9%

I believe the Swiss and Turks still had free floating gold when most others were tied to fixed gold prices

The Swiss did not have a free floating currency (it was tied to the USD at around 4.3 CHF per dollar from 1945 to the end of Bretton Woods in 1971) but did allow their citizens to own gold bought at whatever the market price was. Since it was tied to USD in 1946-47 any gold price (and price changes) in USD should be easily convertible to Swiss Francs. With that said, the official gold price in USD in Zurich in 1946 plummeted and only mildly recovered in 1947. The data (in graph form) showing this happening is in the BIS's 1948 annual report ( www.bis.org/publ/arpdf/archive/ar1948_en.pdf ) in the section on gold.

I have no idea what gold prices were in Turkey (on the Istanbul market where free market sales of gold were allowed) in 1945-47; the only info I could find on this is a note of an old US OSS record from 1945 showing the price of gold in Switzerland, Turkey, and Italy. The actual records are on paper at the US National Archives in DC AFAIK but a listing of them can be found at http://www.archives.gov/research/holoca ... 26-3c.html

The price of gold in French Francs from late 1944 to 1952 is given at http://books.google.com/books?id=oLrUwY ... 46&f=false (Google Ebook version of "The Flight Of International Capital - A Contemporary History" ). Who knows how bad inflation was in Francs during this period (I'd guess quite high since the Franc lost much of its value against CHF, sterling, dollars etc during these years) but at least it's not priced in USD and is a true free market price.

When I've compared gold to a basket of 55 commodities, the general trend is similar, but does have a potential real interest rate beating/lagging apparent drift that you and Eddy suggest.

The only commodities basket data I have from 1945-1947 is UBS-DJ Commodity Index (CRB-Reuters and GSCI don't go back that far IIRC) and it was up 9.14% in 1945; 17.33% in 1946, and 37.26% in 1947 before falling around 16.3% in 1948. FWIW platinum basically tripled during this period. I find the performance of platinum and commodities hard to reconcile with gold falling but the price of gold on the Zuriuch, Lisbon, and Italian markets did indeed fall precipitously in 1946....maybe because it rose so much during the WWII years as gold became harder to obtain when almost all of Eruope was engulfed in war?

[MachineGhost]

The only commodities basket data I have from 1945-1947 is UBS-DJ Commodity Index (CRB-Reuters and GSCI don't go back that far IIRC) and it was up 9.14% in 1945; 17.33% in 1946, and 37.26% in 1947 before falling around 16.3% in 1948. FWIW platinum basically tripled during this period. I find the performance of platinum and commodities hard to reconcile with gold falling but the price of gold on the Zuriuch, Lisbon, and Italian markets did indeed fall precipitously in 1946....maybe because it rose so much during the WWII years as gold became harder to obtain when almost all of Eruope was engulfed in war?

If WWII occured between 1942 and 1945, then an economic recovery would have commenced in 1946 and it would be expected for gold to fall.  There is some overlap between gold and commodities at the very beginning and very end of business cycles.

I suspect cost-push (supply shock) inflation would explain the outperformance of platinum (what was its industrial use at the time?) and commodities during WWII due to nationalization, rationing and price controls.  Any other explanation would have to fit within the Keynesian framework because that wasn't discredited until the 70's.

MG