Why own Gold?

From Global Investing

  • No other financial or physical asset has been as reliable a store of value over long periods of time as gold
  • Gold and Silver were money for centuries
  • Over long periods of time, gold and silver have had real returns near zero
    • But the effectiveness as a long-term inflation hedge and insurance against economic and political upheavals, make them worthy of inclusion
  • If gold has a real expected return of 0%, why hold it?
    • Insurance against catastrophic changes such as economic collapse or hyperinflation.
    • Gold and Silver tend to become money during periods of crisis.
    • Gold and Silver tend to be inflation hedges, but not perfectly reliable ones.
    • Gold and Silver has low correlations with other assets making them a powerful diversification tool to reduce portfolio risk
    • When traditional assets perform poorly, gold fares well
    • Silver tracks gold, but has had a higher correlation to other assets and is thus not as good a diversifier as gold
  • In 1960, gold accounted for 3.7% of investable global assets.
  • By 1980, (when metal prices peaked) Gold and Silver made up 14% of the world's investable assets
  • By 1990, as stock and bond prices soared, that had dropped to 3%
  • The silver market is very thin compared to gold
  • Commodities futures have low correlations with other assets.
    • Commodities and bonds tend to act opposite each other
    • Why? Commodity futures are claims to real assets, while bonds are claims to money payments
  • Gold was more volatile than commodity futures but had a better return.

From Devil Take the Hindmost

  • When governments find their formal currency arrangements disintegrating, the speculator becomes a convenient scapegoat
  • Nixon suspended the convertibility of the dollar to gold on August 15, 1971
  • Whenever speculation got out of hand and a financial crisis appeared, everyone seeks refuge in the precious metal Gold. Gold represents the antithesis of speculative values
  • The best hedge against the chronic inflation of the period could be found in commodities and precious metals

From 4 Pillars

  • PM funds have low expected return. But they are almost perfectly uncorrelated with the market and during global market meltdown, they are likely to do well. PM are also a hedge against inflation. But be careful with PM. Because you will be going against the market and you need to rebalance during. You will be selling when everyone on TV is saying to BUY and you will be buying when everything is good and people will tell you how dumb that is.
  • PM, REIT's, Emerging Market, Small Cap International bring more to the table than the returns would suggest IF YOU REBALANCE!!!! YOU HAVE TO REBALANCE THESE FUNDS














Even John Bogle owned some Gold



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