[goldman]

I'm not sure if there's any other threads about investing in gold, so I though I'd start a new one.

Investors often say that holding gold isn't a good investment. For one it obviously doesn't have a yield. And with holding gold there is a cost for storage through an ETF like GLD (or HUG) or yearly safety deposit box fees at the bank.

And there's the apparent poor annual returns. In USD Gold is down 30% from its highs in 2011 while during that same time equity indexes have returned around 150% and fixed income has returned around 30-50%. From 2010 to current the total return of the TSX 60 was 70% compared to break even by the gold ETF HUG

What about a longer term investment? Since 2002 to now, gold in USD has matched the total return on the SPY and DIA stock indexes of over 300% , and clearly surpassed the total return on treasury bond fund TLT and corporate bond fund LQD. Gold generated a stellar return of 500% from 2002 to it's highs in 2011.

What about the longer term performance of gold in CAD for Canadians? A 20 year return of nearly 300%. In comparison the total return of the SPY and XIU during that time was approximately 200%.

According to this chart calculated using Tradingview from September 1989 to current gold in CAD has matched the price performance of the TSX index.


So after looking at the 'bigger picture', what do you guys think about a long term investment in gold?

I'm going to keep digging to see if I can find or make a longer term chart of gold in CAD, say for the past 50 or 100 years.
It can be a bit more difficult information to find, but the performance of gold in CAD can be calculated using various methods like spreadsheets or charting software.

 

[james4beach]

I actually think gold is a more important investment for a Canadian than an American. We do not have a reserve currency, nor the global power (or military) to enforce anything. In past periods of economic deleveraging and global slowdowns, the CAD has generally been hurt. I think Canadian investors tend to make a mistake by looking at gold priced in USD.

The relevant measurement for us should be gold in CAD. And on that metric, gold has been a fine holding for Canadian investors. Here's a chart:

And by the way, starting at 2000-01-01 which is the oldest data stockcharts.com has for XIU, I calculate the total return of XIU since then as 157%. Gold returned 311%, much more (this ignores gold fees whereas XIU fees were taken into account so it's a bit unfair). There's no question this has been a worthwhile investment asset since 2000.

 

[james4beach]

Why I invest in gold:

1. It's a very well established asset and there's some reason to believe it will preserve real purchasing power in the very long term.

2. Diversification: it behaves differently than stocks, bonds, and real estate. It has a low correlation with other asset classes, doing its own thing at times. This is great for portfolio design.

3. Protection against disasters such as currency collapse, war, high inflation, financial system implosion

I don't buy gold as a pure bet on its high performance. I hope it performs well, but there are several reasons I hold it. For instance I am happy with the portfolio diversification it offers (#2) even if it doesn't outperform. The protection (#3) is for an unlikely, but still possible, scenario that has occurred in many different countries. At the end of the day you can look to my asset allocations to see my level of trust in gold or how valuable it is to me: my targets are 30% stocks, 50% bonds/GICs, 20% gold.

 

[hfp75]

I have always been a friend of Gold - with varying commitments over the years. Currently I am holding 15% in my managed accounts - Pension accounts where I have no input or accounts where gold/PM is not an option I hold none. Overall, I think I am at just under 10%.

I can be a bit more of a pessimist vs an optimist, so gold suits my nature just fine.

I think that with global debt where it is at and the cost of servicing it slowly being pushed up, there is risk there. I think central banks will in reality be held and rates wont get to high cause otherwise they would crush everyone due to the global debt load. Having said that, as our world only takes on more and more debt, rates will be forced lower and lower. There is a breaking point here somewhere and we are close to 0% rates now (vs our past)... so what next ? New global currencies ? New way to stratify debt ? Either way money will continue to devalue and Gold will have value.

Also, as was mentioned before it is a separate asset class. Remember, your not supposed to put all your eggs in one basket.

I used to use a fund that was Gold/Silver and Miners in one. I left that and went to MNT - actual Gold certified by the RCM. Now I know that some will say I have no USD exposure, BUT I feel that Gold is an international currency of its own in reality. The currency you hold it in might have little differentiating difference in the long run.

I am a fan of real bullion too vs paper gold and I have 10% of my 10% in physical gold.... so lets say 1% of our net worth. There is a bit of silver mixed into that portion... probably a 60/40 split (gold/silver) in physical bullion. No other silver in my world. I also like silver - BUT it is different than gold...

 

[Onagoth]

For me...a 10% allocation to gold helps me sleep at night.

So that's why I have it. To me, it's an insurance policy against central bank miscalculation/stupidity.

I also have physical PMs in various locations....so my actual allocation is quite a bit higher than 10%

 

[OhGreatGuru]

There are other threads on gold. Go to "Advanced Search" and search on "Gold" in titles only, and you will find most of them.

As a non-believer, my impression is that most gold aficionados are attracted by considerations other than normal investment returns. Since, by your own research, gold is rather high now, it means you would be "buying high".

 

[fatcat]

a handful of gold in your safe deposit box is a fine idea otherwise as an asset class its dead money ... since 2011 gold has cost you money to own it, that’s 7 straight years of paying out money year after year when the same money in a simple gic ladder would kill gold

guru has it right, people own gold for reasons completely unrelated to its worth as an asset class

 

[james4beach]

guru has it right, people own gold for reasons completely unrelated to its worth as an asset class

Gold has demonstrated its value in portfolio design and diversification. At least some people own it for justifiable reasons; I can't speak for everyone.

since 2011 gold has cost you money to own it, that’s 7 straight years of paying out money year after year when the same money in a simple gic ladder would kill gold

Big deal. Stocks were dead money for about 11 years, when it also performed way less than a GIC ladder. For the big picture, in a diversified portfolio, the poor performance of gold for X years is irrelevant, just as the poor performance of stocks for Y years is irrelevant.

All asset classes go through strong and weak periods. Your comment, fatcat, that "a simple GIC ladder would kill" actually gets to the key insight in portfolio design:

There are times when GICs / bonds do best.
There are times when stocks do best.
There are times when gold does best.

That's why you need to hold all of them. It does not matter if one of those classes performs poorly for some period of time. If you get hung up on that, you're missing the point of diversification in a portfolio. For example when we hit a stretch where stocks perform worse than bonds for 15 years, it will feel bad, but it also shouldn't deter you from including a stock allocation in your portfolio.

In my early years of investing, I actually made the opposite mistake as fatcat. Starting around 2000, my experience was that my gold and bonds/GICs performed far better than stocks. In my eyes, stocks were the worthless investment. So I know how it feels from fatcat's perspective... it's very hard for people to reason in terms of multiple decades when you repeatedly (for years) see a certain pattern. Back then, stocks looked like dead money. Today gold looks like dead money.

Over time I've realized that you really need to hold all the primary asset classes (stocks, bonds, gold) for best long term results. And yes that will mean that any one of them might do badly for a long time.

 

[james4beach]

Looking at trailing total returns to Feb 3 (morningstar), here's MNT gold bullion versus XBB bonds. The 1 year return is identical for both. Over both 3 years and 5 years, gold returned more than bonds.

Question for the board: is it worth holding XBB ?

And if yes, then how could the performance of gold (MNT) be disappointing, when it actually beat XBB?

 

[fatcat]

Gold has demonstrated its value in portfolio design and diversification. At least some people own it for justifiable reasons; I can't speak for everyone.


u
Big deal. Stocks were dead money for about 11 years, when it also performed way less than a GIC ladder. For the big picture, in a diversified portfolio, the poor performance of gold for X years is irrelevant, just as the poor performance of stocks for Y years is irrelevant.

All asset classes go through strong and weak periods. Your comment, fatcat, that "a simple GIC ladder would kill" actually gets to the key insight in portfolio design:

There are times when GICs / bonds do best.
There are times when stocks do best.
There are times when gold does best.

That's why you need to hold all of them. It does not matter if one of those classes performs poorly for some period of time. If you get hung up on that, you're missing the point of diversification in a portfolio. For example when we hit a stretch where stocks perform worse than bonds for 15 years, it will feel bad, but it also shouldn't deter you from including a stock allocation in your portfolio.

In my early years of investing, I actually made the opposite mistake as fatcat. Starting around 2000, my experience was that my gold and bonds/GICs performed far better than stocks. In my eyes, stocks were the worthless investment. So I know how it feels from fatcat's perspective... it's very hard for people to reason in terms of multiple decades when you repeatedly (for years) see a certain pattern. Back then, stocks looked like dead money. Today gold looks like dead money.

Over time I've realized that you really need to hold all the primary asset classes (stocks, bonds, gold) for best long term results. And yes that will mean that any one of them might do badly for a long time.

but gold is opaque, gold is occult, gold doesn’t respond to anything like fundamentals, gold responds to fear, gold is very hard to measure where stocks and bonds are more fundamental and easier to yardstick

gold may do well it may not, but there is no real way ro know when gold is useful or not and in the meantime gold costs you money to own, this can’t be overstated

gold may beat stocks and or bonds but it is much harder to predict when that ... might ... happen

there is a reason that 95% of portfolios of big money managers are in 95% stocks / bonds

only a small portion of large portfolio managers own large allocations of gold permanently and there is a reason for that

they may up their portion as needed when they want a hedge but very few of them leave large allocations permanently on the table and there is a reason

money allocated to gold can more profitably and more predictably placed elsewhere ... it is a barbarous relic

ps. it really comes down to allocations, 5% seems perfectly ok to me, but i have yet to see a good argument for more than 5% and i am joined by about 95% of all money managers who would rather put money into more predictable assets

 

[james4beach]

Works for me fatcat. I'd rather not compete with others on this trade. The $65 billion in GLD/IAU/CEF already bothers me. Please go ahead and take your cues from those professionals. You're right, gold is a barbarous relic. Why should it have any value at all? It's almost like the price is driven by psychology, herd behaviour, and central bank intervention.

gold may beat stocks and or bonds but it is much harder to predict when that ... might ... happen

You're not supposed to time it. You can't predict when any of these asset classes will outperform the others.

 

[GreatLaker]

This is an interesting article from InvestorsFriend comparing various asset class returns from 1926 to 2016, over the entire period then split into 20 year periods.
InvestorsFriend: Stocks, Bonds, Bills and Inflation and Gold

Stocks massively outperformed over the entire time, and had the best returns over several 20 year sub-periods. Gold did really well in a couple of time periods, due to specific economic circumstances. To me this says diversification with a concentration on stocks has the best chance of outperforming for the long term future, but be prepared for the long-term fluctuations.


There is another interesting article comparing stocks, long bonds and T-bills:
InvestorsFriend: Are Stocks Really Riskier Than Bonds?

 

[james4beach]

The long term amazing performance of stocks is mostly a US phenomenon. Once you look around to other countries the story for equities weakens. Plus, once you add in other countries you start to find local currency problems or even failures -- illustrating the motivations for gold & hard assets.

This is a big problem with the US-centric view to investing that nearly all of us take. When you take a US-centric view, it's hard to see the value of gold in a portfolio. Because Wall Street is the heart of the global financial industry, we hear their philosophy, which is (currently) to load up on equities and not bother with other assets. This comes from historical American returns.

Even if the US continues on that amazing trajectory, we're in a different country. I take a more global view of investing and it shows me different prospects for stocks / bonds / gold than the Wall Street view. And while 5% may be a sensible gold allocation in the US, I think in countries like ours higher levels make sense.

Both myself, and Argonaut -- a very experienced investor who's demonstrated a great portfolio over the years here -- hold a 20% weight in gold.

 

[fatcat]

This is an interesting article from InvestorsFriend comparing various asset class returns from 1926 to 2016, over the entire period then split into 20 year periods.
InvestorsFriend: Stocks, Bonds, Bills and Inflation and Gold

Stocks massively outperformed over the entire time, and had the best returns over several 20 year sub-periods. Gold did really well in a couple of time periods, due to specific economic circumstances. To me this says diversification with a concentration on stocks has the best chance of outperforming for the long term future, but be prepared for the long-term fluctuations.


There is another interesting article comparing stocks, long bonds and T-bills:
InvestorsFriend: Are Stocks Really Riskier Than Bonds?

this is precisely it ... 5% is fine but if you stay with stocks and bonds which are more predictable and much much easier to measure, you will do fine and you will understand your assets much better ... look at buffet, he just ignores gold completely and his success is well known

to carve off 20% and have it sit as dead money (again, you have to pay to own gold) until all of a sudden gold is doing well is not a strategy i could endorse

this won’t convince james or any other lover of gold because gold is more than money to some people .... gold is a symbol that exerts a powerful influence on the psyche

gold is a relic of a financial system that lacked computers, blockchains and cryptography ... it will never be used as money again, it can’t be used as money again because it is insufficient for the demands of the modern world

james, look at your misgivings with GLD, CEF and the rest, you should have misgivings, is the gold there or not and if all hell breaks loose will you have access or not ?

for armageddon there is a better case to made for bitcoin (lost passwords notwithstanding) than there is for gold

 

[fireseeker]

gold is a relic of a financial system that lacked computers, blockchains and cryptography ... it will never be used as money again, it can’t be used as money again because it is insufficient for the demands of the modern world

Or, perhaps, buy at maximum pessimism?

 

[fatcat]

Or, perhaps, buy at maximum pessimism?

precisely the point, there is no way to even understand what “pessimism” is with regard to gold ... gold is a black hole of fear and confusion

 

[james4beach]

precisely the point, there is no way to even understand what “pessimism” is with regard to gold ... gold is a black hole of fear and confusion

How quickly we forget 2001 and 2008 (with respect to stocks).

All these asset classes become black holes of fear and confusion when they're in bear markets. The key to diversification is to ensure that your whole portfolio isn't susceptible to that.

 

[fatcat]

How quickly we forget 2001 and 2008 (with respect to stocks).

All these asset classes become black holes of fear and confusion when they're in bear markets. The key to diversification is to ensure that your whole portfolio isn't susceptible to that.

well, we can agree on diversification james, where and how is another story

 

[Onagoth]

gold is a relic of a financial system that lacked computers, blockchains and cryptography ... it will never be used as money again, it can’t be used as money again because it is insufficient for the demands of the modern world

Don't tell that to the central banks of Russia, India and China

 

[Karlhungus]

Gold has demonstrated its value in portfolio design and diversification. At least some people own it for justifiable reasons; I can't speak for everyone.



Big deal. Stocks were dead money for about 11 years, when it also performed way less than a GIC ladder. For the big picture, in a diversified portfolio, the poor performance of gold for X years is irrelevant, just as the poor performance of stocks for Y years is irrelevant.

All asset classes go through strong and weak periods. Your comment, fatcat, that "a simple GIC ladder would kill" actually gets to the key insight in portfolio design:

There are times when GICs / bonds do best.
There are times when stocks do best.
There are times when gold does best.

That's why you need to hold all of them. It does not matter if one of those classes performs poorly for some period of time. If you get hung up on that, you're missing the point of diversification in a portfolio. For example when we hit a stretch where stocks perform worse than bonds for 15 years, it will feel bad, but it also shouldn't deter you from including a stock allocation in your portfolio.

In my early years of investing, I actually made the opposite mistake as fatcat. Starting around 2000, my experience was that my gold and bonds/GICs performed far better than stocks. In my eyes, stocks were the worthless investment. So I know how it feels from fatcat's perspective... it's very hard for people to reason in terms of multiple decades when you repeatedly (for years) see a certain pattern. Back then, stocks looked like dead money. Today gold looks like dead money.

Over time I've realized that you really need to hold all the primary asset classes (stocks, bonds, gold) for best long term results. And yes that will mean that any one of them might do badly for a long time.

When looking at long term results - it does matter. It depends what you mean when you say "for best long term results". If you are talking about total return, then I would have to disagree. Holding gold will just drag down your returns. If you spread out your money into Stocks, Bonds, Gold etc you will sacrifice return.