Reducing 25% Gold portion out of fear of its safe keeping?

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Jim Taylor
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Reducing 25% Gold portion out of fear of its safe keeping?

Post by Jim Taylor » Sat Aug 04, 2018 7:12 pm

Once one's PP gets really large, I'm not close to there yet, but it would seem that the gold portion could become a conundrum.

I fully agree with the importance of having Gold in the PP. I think it is the most important component as it is the only one that doesn't have counterparty risk. But for this benefit you are responsible for its safe keeping and are not afforded the benefits of SPIC investors insurance from brokerages or FDIC insurance in banks.

Of course having 25% in physical gold shields you the best in a absolute Armageddon as you would still retain some of your wealth while the other 3 pots could vanish. But there are also risks even in good times that if you keep it at home that you get robbed or forget where you put it later in life when you need it. If using a safe deposit box there is the risk it gets raided or mishandled by an employee. A private vault could defraud you just as well. The ETF route has issues since it is only paper, but would at least fall under SPIC like your stocks, but if the ETF custodian had their gold stolen then SPIC would not help anymore than it would if you were holding Enron. Now, in an Armageddon situation the exchanges could shut down for a period of time, so that is why having Gold outside the financial system is important, but are the risks in doing so worth?

In all of the situations above I see real risks to losing ones Gold holdings that could occur in non financial collapse times. So I wonder is it not smarter to keep a smaller percentage in gold and try to get the inflation protection in other ways?

So unless you want to keep 25% of your wealth in the form of Gold in your house, which to me seems extremely risky, then it might make sense to use other safer forms of inflation protection, albeit not as good of protection. The PP is all about safety. Gold has the best safety in inflation performance, but my concerns are about how it is held could also be a safety consideration to consider.

One thought I had about safely keeping the Gold is to just divide it up into all the different Gold ETF's available. It would be hard to imagine all of them getting robbed or failing to hold what they say they do. I also thought of adding Gold Miners, I know it doesn't track gold well, but at least they are equities that fall under SPIC. Yet I don't love either of those ideas either as now you don't have anything "outside" the system.

Maybe a combination approach would work best my first thoughts being adding exposure to Energy Stocks. Also from reading some posts about international stocks and currency risk on here it got me thinking that would provide some inflation protection as well. The risk is if the dollar gets stronger then Energy prices and international stock values would fall, but likely Gold would be falling as well so I don't see that as an added risk if the swap was made.

My rough idea for the 25% Gold portion
15% Gold (In whatever form(s) your prefer, hopefully multiple ones)
5% International Stocks
5% Energy stocks

Browne said once said on his radio program that although he fully believe in 25%x4, that if one wants to change the allocation percentages he is okay with that so long as they keep at least 15% in all of the 4 and no more than 35% in any one item. If we look at my example the gold would still fall under these guidelines at 15% and the stocks at 35%, but 10% of that stock portion would at least be tilted toward inflation protection to effectively narrow the divergence between allocations.

Sorry for the long post. I just wanted to be sure it is understood that I am not an anti Gold person. I actually believe in Gold more than any of the other 3 parts, but its 100% safe keeping is what I cannot seem to figure out. Maybe for me the best approach is to keep the 25% allocation, but just spread across as many ETF's as possible.

What do you guys think is safer, and the most likely outcome? Financial Collapse, or losing your gold holding? I think if we can answer that question that will help me decide if I should cut the pure gold percentage or not.
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Re: Reducing 25% Gold portion out of fear of its safe keeping?

Post by boglerdude » Sat Aug 04, 2018 10:27 pm

Hold some yourself + maybe Perth Mint?

Im underweight gold because of real estate and a little bit of commodities.
Jim Taylor
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Re: Reducing 25% Gold portion out of fear of its safe keeping?

Post by Jim Taylor » Sat Aug 04, 2018 11:16 pm

Good points thank you for the response. I think spreading out how you hold it is the best approach. I guess I just wish there was a simpler way to have it all in one brokerage or buying prpfx. But I guess to get the full protection the PP provides it takes a little extra effort.

The other thing that crossed my mind is if I go low in Gold my next worry is being 50% in government dollar bonds / currency. I believe 25% gold would insulate you from a treasury default, but 15% I'm not sure. So if I reduced Gold I would have to reduce bonds and cash, but where would I put that? I can't just jack stocks up to 50%. Maybe international hedged bonds, and US corporate bonds.

So I think your point about diversifying the gold holdings is probably the simplest way to make this all work afterall.
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Re: Reducing 25% Gold portion out of fear of its safe keeping?

Post by boglerdude » Sun Aug 05, 2018 12:40 am

Texas just opened a depository https://www.texasbulliondepository.gov/

Do you have a mortgage? Thats big inflation protection

50% equity isnt crazy. See Golden Butterfly viewtopic.php?t=7700

If youre concerned about Armageddon, have a few weeks of emergency supplies.
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ochotona
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Re: Reducing 25% Gold portion out of fear of its safe keeping?

Post by ochotona » Sun Aug 05, 2018 6:56 am

Jim Taylor wrote:
Sat Aug 04, 2018 7:12 pm
Once one's PP gets really large, I'm not close to there yet, but it would seem that the gold portion could become a conundrum. I fully agree with the importance of having Gold in the PP. I think it is the most important component as it is the only one that doesn't have counterparty risk. But for this benefit you are responsible for its safe keeping and are not afforded the benefits of SPIC investors insurance from brokerages or FDIC insurance in banks.
I have 10% physical gold, half of that in an insured bank box. The other half is in a physical gold Roth IRA, kept in non-bank storage by the custodian (GoldStar Trust Co., kept at Delaware Depository). If we get much lower in gold price, I will start topping-off again using GLDM ETF, which I get with no trading fees in my TD Ameritrade Health Savings Account. I have 0.8% in Newmont Mining, very volatile ride, but at least I get a dividend.

I have 1% in FXN, an Oil & Gas ETF, which I also get with no trading fees at TD Ameritrade HSA.

I have I-Bonds. I have short-term TIPS ETF (STIP), and long-term (SCHP). All of these total 10%.

I have a house, it has been a great inflation hedge, but only because I bought it for $135,000 a long time ago. Buying in today's market? Maybe it wouldn't work out the same way if we have another real estate soft spot ahead of us.

That's what I've got on for inflation protection.

Why 10% gold, and not higher? My logic is that if Jim Rickards, one of the most enthusiastic gold bugs on earth, has 10% as his recommended allocation for most people, then I'm OK with that. If the Armageddon Dollar scenario comes, I will simply NOT SELL as the gold price climbs until the HBPP rebalance band is hit at 40% of the portfolio, then I'll sell it back to 25%.
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Re: Reducing 25% Gold portion out of fear of its safe keeping?

Post by Tortoise » Sun Aug 05, 2018 6:51 pm

Jim Taylor wrote:
Sat Aug 04, 2018 7:12 pm
If using a safe deposit box there is the risk it gets raided or mishandled by an employee.
Possibly raided, yes, but mishandled by an employee, no. The safe deposit boxes I’ve used at banks always require two keys to open — the bank’s key and my key — and the only other way to get into the box is to drill it open.
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Re: Reducing 25% Gold portion out of fear of its safe keeping?

Post by Jack Jones » Mon Aug 06, 2018 6:15 am

For inflation protection, how about LAND (Gladstone Land Corporation) mentioned in another thread? People gotta eat.

Also, it seems like you're going through gyrations in order to make the final portfolio something you came up with:
I believe 25% gold would insulate you from a treasury default, but 15% I'm not sure. So if I reduced Gold I would have to reduce bonds and cash, but where would I put that? I can't just jack stocks up to 50%.
One of the nice things about following Harry's formula is that there's sort of a stamp of approval on it. Anything you come up with you might change your mind on in the future. So if you're going off the beaten path...you better be sure of yourself.
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Cortopassi
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Re: Reducing 25% Gold portion out of fear of its safe keeping?

Post by Cortopassi » Mon Aug 06, 2018 8:58 am

I think the benefits of holding it yourself far outweigh the scary, though minuscule, concerns of theft/raids.
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