Gold - How low can it go

[Clive]

?

[Pkg Man]

You might very well be correct, but holding 25% in gold is the only way I'd consider holding a large chunk of treasuries.  I was already accumulating gold when I discovered the PP, so holding it is something that already felt right to me.

[KevinW]

While I was first learning about the PP I plugged a lot of variations into the Simba spreadsheet, and I concluded that the mere presence of the four assets in meaningful proportions (at least 10% each, say) accounts for much of the power of the PP.  Bumping the allocations up past the initial dose has diminishing returns, i.e. the Pareto principle applies.  So any portfolio with a substantial allocation to the four core assets, plus any combination of "other stuff," will probably have PP-like properties.

Yes TSM owns some commodities; IMO every asset shares some aspects of the other assets.  Companies have cash and debts owed (accounts receivable), cash and gold are interchangeable in some contexts, gold is borrowed and returned later, revenue from bond sales are spent on capital improvements, cash and bonds are both treasuries, etc.  Referencing taoism, each asset has the seed of the others, each flows into the next, and it is impossible to completely disentangle them.

In light of this, and the fact that the future is unpredictable, I think the agnostic 4x25 allocation is defensible.

[Lone Wolf]

Historically for a major economy (US, UK) 10% gold would have carried you through crises relatively unscathed. You might even opt for a blend of poor mans gold (silver) with gold.

I wouldn't be surprised by that, especially when you consider that the Permanent Portfolio allows you to let Gold slide down as far as 15% before you must rebalance.  (Although I admit that I feel a lot more relaxed at 4x25!)  Having said that, while I think that a 10% gold portfolio is likely to do fine, I don't support trying to minimize the allocation in this way.

The term "historically" is important because so much is down to how you choose to view history.  In what way will the future resemble the past?

I think one of Nassim Taleb's best observations is that it's not enough to look back at some point in the past to learn from it.  You have to go back and consider how people in the past viewed their own past to truly understand an event.  We all have the good fortune experience of having seen the Financial Crisis and remembering how weird it felt to watch a big crash and active deflation happen before our eyes.

I remember being left with the sense that the world was a much stranger and surprising place than I'd allowed myself to believe.  Whatever surprise comes next (good or bad) will by definition be different from what we have seen in the past.  It will shake things up precisely because people will not be ready for it.

Trying to figure out how low you can take gold strikes me as being similar to figuring out how little liability insurance you can carry.  Let's say you look at your driving history for the last twenty years and taking precisely enough to cover your fender benders.  This approach seems mathematically sound.  It will probably save you money.  But how much more hidden risk are you taking on by doing so?  The trouble is that we just don't know.