Gold and negative real interest rates revisited

[Pointedstick]

Now that we're pretty squarely in the world of negative real short-to-medium-term interest rates, it's starting to challenge the notion that I have in the past pushed that gold reacts positively to this condition. Gold's been falling or treading water for three years. Maybe gold really does only like inflation. Assuming that current low rates represent the market's consensus that inflation will be low for the foreseeable future, this would appear to be bearish for gold... unless the market is wrong (perish the thought ).

Thoughts?

[ochotona]

Limit buy orders placed between $850 - $1000 per ounce.

[buddtholomew]

...Assuming that current low rates represent the market's consensus that inflation will be low for the foreseeable future, this would appear to be bearish for gold... unless the market is wrong (perish the thought ).

Shouldn't we look at the difference in TIPS and Treasury yields for an indication of inflation expectations? I believe the variance is still positive.

[bedraggled]

Might gold jump up if the dollar reign is challenged?

[MachineGhost]

Thoughts?

Negative real rates isn't enough for people to lose confidence in the world's reserve currency.  Hell, look at Europe and they're not even a reserve or an issuer.

[barrett]

Might gold jump up if the dollar reign is challenged?

Relative to the dollar, yes. I think this is at least one of the reasons behind the gold rally in the 2000s... that people were losing faith for one reason or another in the USD. Things can always change but there don't seem to be any strong candidates to knock down the dollar just now.

[bedraggled]

barrett,

Strong candidates to challenge USD in 2 to 5 years?  A reason to have 25% gold in the HBPP?

[barrett]

Strong candidates to challenge USD in 2 to 5 years?  A reason to have 25% gold in the HBPP?

I don't see any but perception counts for a lot. I think folks lost some faith in the USD throughout the 2000s in part because of all the Fed money creation, but that they eventually concluded that Europe was a mess and China wasn't going to be able to push the Renminbi to a position of dominance. That's where things stand now.

The ochotona PP (OTPP) would have about 15% gold and I think a big wad of cash. At 15% or so one still gets a lot of the benefits of gold.

But to PS's point, does it matter how far into negative territory rates are? Wasn't the USG essentially saying we are in deflation mode with their latest I-Bond rates? What I have read and heard on gold says that it will do well when inflation is high and it can do well when interest rates are negative. This last part is what PS is trying to figure out.

I don't have any answers but I think this is a really worthwhile point to debate. If gold doesn't react to negative rates, then is a 25% position justified?

[Pointedstick]

Yeah. the BLS says that over the past 12 months, the rate of inflation for all tracked categories has been -0.2%. Excluding food and energy, it was +1.8%. However you slice it, those are pretty low numbers. Maybe I'm wrong and gold's lackluster performance is because we actually are experiencing deflation right now.

[Libertarian666]

Now that we're pretty squarely in the world of negative real short-to-medium-term interest rates, it's starting to challenge the notion that I have in the past pushed that gold reacts positively to this condition. Gold's been falling or treading water for three years. Maybe gold really does only like inflation. Assuming that current low rates represent the market's consensus that inflation will be low for the foreseeable future, this would appear to be bearish for gold... unless the market is wrong (perish the thought ).

Thoughts?

The only way to make outsized returns is to be right when the market is wrong.
I'm confident that the market is wrong about the dollar vs. gold, and so far my beliefs have been pretty profitable.

[bedraggled]

tech,

Over what time frame have you done well with the dollar and gold?

Thanks.

[Libertarian666]

tech,

Over what time frame have you done well with the dollar and gold?

Thanks.

Since 1998.

[bedraggled]

This thread has been dormant ten months.

So, thoughts, please, on negative rates and gold priced in US Dollars.

[Libertarian666]

This thread has been dormant ten months.

So, thoughts, please, on negative rates and gold priced in US Dollars.

Obviously negative rates reduce or eliminate the "penalty" of not getting interest on gold.

But more important, they are the last desperate gasp of the paper money "system". When that implodes, gold will be left standing alone, as it always is after such a disaster.

[bedraggled]

Tech,

Time to climb on the gold wagon, in your opinion?

Anyone else with pertinent thoughts?

Put another way, is adding gold coins to a variable portfolio low risk?  A no-brainer?

Thanks.

[sophie]

Bedraggled, it is ALWAYS time to climb on the gold bandwagon.  See also numerous prior market-timing discussions.

Here's an interesting take on what's happening with gold prices:

http://www.wsj.com/articles/a-strange-s ... 1458811802

Cliff notes summary:  It's not the stock market or Treasury bonds driving gold, it is increasing fears of a new 1970's style stagflation era, with falling TIPS yields.  Which by the way is an excellent explanation for why TIPS do not a substitute for gold make.

In all the backtesting posts and proposed PP tweaks, people have tended to discount the 1970s partly because of government manipulation of gold at the beginnning of that decade, but I think mostly because it was so different from everything that's happened since.  What we forget is that there was nothing about it that couldn't happen again.  If it does, a whole lot of people basing their portfolios on the markets of 1981 - present will get a nasty surprise.

[Libertarian666]

Tech,

Time to climb on the gold wagon, in your opinion?

Anyone else with pertinent thoughts?

Put another way, is adding gold coins to a variable portfolio low risk?  A no-brainer?

Thanks.

I'm a heretic here, so take my opinion for what it's worth.

I'm greatly overweighted in gold, and have been for most of my investing career. I did run a fairly standard PP for about 10 years in the 80's and 90's but switched to almost all gold in the run-up to Y2K due to fears about the banking system and economic system in general.

When Y2K turned out not to be a problem, I thought about switching back to a standard PP but couldn't bring myself to do it because I didn't (and don't) trust the US government as far as I can throw it, which puts the kibosh on T-bonds and T-bills. Stocks are also too volatile for me, and I don't trust their accounting either.

So now I have mostly gold with a big helping of Swiss francs and a little silver, along with enough cash to live on for a couple of years. Yes, this is a much more volatile portfolio than the PP, but I find that I still sleep pretty well with it because I feel safe against any conceivable economic catastrophe, and don't feel the need to tinker with it that is the cause of most people's poor performance.

Now to get back to your actual question.

Right now I'm semi-retired, but I have people calling me with contract opportunities. If I land one of these temporary jobs, I'll have way more income than I need to live on. If that happens, I plan to bulk up my cash somewhat and buy CEF with the rest. I'd buy GTU but we know what happened to that. 

Does that answer your question? If not, please ask whatever clarifying questions you have.

[buddtholomew]

Every asset, including gold will experience periods of inflows and outflows.
The key to risk adjusted investment success is to diversify and avoid having your personal opinions or motivations cloud the decision making process.

For example:
Recent reports that IAU ran out of shares must have been a clear indicator of demand, right? Just ask any trader on the street.
In my mind, the additional shares were created so that investors could borrow to short the precious metal and drive the price lower.

[bedraggled]

Tech,

Thanks.  Must run now.

I will get back tonight.

[Libertarian666]

Tech,

Thanks.  Must run now.

I will get back tonight.

Sure, no problem.

[economicsjunkie]

This thread has been dormant ten months.

So, thoughts, please, on negative rates and gold priced in US Dollars.

http://gyroscopicinvesting.com/forum/go ... deflation/