Is Gold still the currency hedge it should be?

Discussion of the Gold portion of the Permanent Portfolio

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DragonJoey3
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Is Gold still the currency hedge it should be?

Post by DragonJoey3 » Wed Sep 27, 2017 3:14 pm

I often wonder with as much Gold as I hold in the PP if it's still serving as the currency hedge it should? I do believe that the US Government continues to slowly tax the saver by weakening the dollar, and that despite inflation not picking up as the fed expects they will surely not raise rates too quickly (they are already calling for slowdowns in rate raises). But does Gold still serve the purpose of an inflation hedge that it did in Harry Browne's days?

If gold isn't the best inflation hedge what would be? For reasons I won't get into at the moment I don't believe it could be bitcoin, and I don't hold much faith in silver either.... Gold is the best hedge against currency risk (specifically inflation) I see on hand, but some days I can't help but feel "Why would anyone want to buy this shiny rock from me?"

I do love Gold, and I will continue to have faith in the PP til it lets me down, but I don't believe gold will ever be used as a medium of exchange in the future. There just is not enough supply for the demand, and paper currencies/digital transactions serve the purpose better while allowing governments to control the currency supply (something I suspect they will never give up.) But how long until people lose faith in gold and there is no currency hedge?

Maybe I'm just being paranoid....
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Tyler
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Re: Is Gold still the currency hedge it should be?

Post by Tyler » Wed Sep 27, 2017 6:03 pm

DragonJoey3 wrote: If gold isn't the best inflation hedge what would be?
Don't worry -- with the PP you're still covered. ;)

https://portfoliocharts.com/2017/05/12/ ... -investor/


Personally, I see gold more as a "chaos asset" (contrasting with a "prosperity asset" like stocks) rather than a straight inflation hedge. Extreme inflation is one chaotic time when it does well, but it's not confined to that role. See the 2000s when inflation was low while stocks made no money for a decade and gold saved the day.
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Re: Is Gold still the currency hedge it should be?

Post by boglerdude » Wed Sep 27, 2017 9:53 pm

Yeah, gold is becoming archaic and is facing competition from bitcoin. And with physical gold - actually try and sell it, to see what they offer :)

If you dont plan to move, own your home. And use a high yield savings acct for cash.

(Im 10% in PHYS)
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Hal
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Re: Is Gold still the currency hedge it should be?

Post by Hal » Wed Sep 27, 2017 10:03 pm

I actually consider Gold a store of wealth, rather than a medium of exchange.

Harry Browne stated in one of his interviews that gold was the next popular currency/money after the USD, but honestly, I don't think that applies now.

If I had the funds, I would hold farmland as a store of wealth as well. The asset allocation would then be like Marc Fabers model
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Re: Is Gold still the currency hedge it should be?

Post by jhogue » Wed Sep 27, 2017 10:24 pm

-The simple answer to your question is, yes, gold is still a currency hedge.

-The global gold market is spread across the major financial centers of the world in New York, Chicago, Tokyo, Shanghai, Mumbai, and London. The global gold market was valued at $50 trillion in 2013 . After the dollar, euro, yen, pound, and yuan, gold would rank as the 6th most active currency. The Swiss franc is 7th, and silver 39th. In comparison to FX, gold trades like an alternate currency. The markets for gold are highly liquid and operate in all major currencies, even though it is traditionally priced in dollars. Silver, which has been used as a currency in the USA and other countries in the past, currently trades more like an industrial commodity than a currency.

-Note as well that, regardless of what they say about it, central bankers also exhibit a stubborn fondness for reserves of gold. Attempts to sell off a portion of those reserves (the UK and Switzerland come to mind) have not been popular with the local citizenry. China's central bank, in addition to being the second biggest buyer of US Treasury bonds after Japan, also has reportedly amassed a considerable reserve of gold.

While I find some aspects of bitcoin theoretically attractive, I think gold remains unique as an asset. Holding 75% of your Permanent Portfolio in digital-based accounts ought to make diversification with gold even more attractive to an individual investor.
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A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Is Gold still the currency hedge it should be?

Post by Libertarian666 » Thu Sep 28, 2017 8:43 am

boglerdude wrote:Yeah, gold is becoming archaic and is facing competition from bitcoin. And with physical gold - actually try and sell it, to see what they offer :)
My buy/sell spread for coins and bars is about 1%. I get more than spot when I sell.
boglerdude wrote: If you dont plan to move, own your home. And use a high yield savings acct for cash.

(Im 10% in PHYS)
Which puts you way ahead of most bogleheads, so congratulations!
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Re: Is Gold still the currency hedge it should be?

Post by DragonJoey3 » Thu Sep 28, 2017 10:32 am

boglerdude wrote:. . . is facing competition from bitcoin.
The reason I can't buy into bit-coin is the very fact that government can't legislate it and prevent it from leaving the country with capital controls. I could easily see a future where the U.S. Government under the auspices of "preventing illegal money trafficking" seized control of the major servers creating block-chains, or blocked them at a national firewall level. Shoot, NSA probably has the capability of fully seizing control of those servers and changing the block-chains to give the US Government control of the entire currency system.

It may be a currency that is "hard" for government's to control, but in the past that usually just leads to government's banning them altogether.
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Re: Is Gold still the currency hedge it should be?

Post by Libertarian666 » Fri Sep 29, 2017 4:27 am

MangoMan wrote:
Libertarian666 wrote: My buy/sell spread for coins and bars is about 1%. I get more than spot when I sell.
Could you please elaborate on how this is possible?
Because coins have a premium, as do bars.

Most people can't get low enough spreads that they can benefit from this, but I can.

I sold some eagles at 2% over spot earlier this year, and could have bought them at 3% over.
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Re: Is Gold still the currency hedge it should be?

Post by ochotona » Fri Sep 29, 2017 5:11 am

My dealer buys at spot plus. Never below spot.
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Re: Is Gold still the currency hedge it should be?

Post by Cortopassi » Fri Sep 29, 2017 7:19 am

Pug,

Local dealer also pays above spot, depending on the market demand, e.g. Eagles get a higher premium than Krugerrands.

But I've yet never sold!
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Re: Is Gold still the currency hedge it should be?

Post by Cortopassi » Fri Sep 29, 2017 8:47 am

Typical premium on an Eagle (been a while since I bought) was $35-50/coin, so at $1300, that's 2.7 to 3.8%. You'll get some of that back in selling, a bit more if you sell multiple coins. I don't know what it is over spot, but if you assume at least 1-2%, you can keep round trip cost potentially to around 1-2%
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Re: Is Gold still the currency hedge it should be?

Post by Libertarian666 » Fri Sep 29, 2017 10:41 am

MangoMan wrote:
Cortopassi wrote:Pug,

Local dealer also pays above spot, depending on the market demand, e.g. Eagles get a higher premium than Krugerrands.

But I've yet never sold!
But don't you pay this same premium when you buy these coins? I don't see how, between the bid/ask spread and the markup yo can keep a round trip transaction to 1%.
The bid/asked spread IS the markup.

Let me give you an example.

Let's say that gold is at $1000/oz. and the dealer is buying Eagles at $1020 and selling them at $1030.
In that case, the "buy premium" is 2% and the "sell premium" is 3%.
It would cost you $10 (~1%) per coin to buy a coin and sell it back immediately.

Does that help?
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Re: Is Gold still the currency hedge it should be?

Post by Libertarian666 » Fri Sep 29, 2017 10:42 am

TennPaGa wrote:
MangoMan wrote:
Cortopassi wrote:Pug,

Local dealer also pays above spot, depending on the market demand, e.g. Eagles get a higher premium than Krugerrands.

But I've yet never sold!
But don't you pay this same premium when you buy these coins? I don't see how, between the bid/ask spread and the markup yo can keep a round trip transaction to 1%.
If I have understood things correctly, I think Libertarian666 was saying that he pays a net 1% on the round trip. That is, he pays 3% over spot when he buys, and receives 2% over spot when he sells.
Correct, although of course that spread will vary depending on market conditions and exactly which coin or bar we're talking about.
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Re: Is Gold still the currency hedge it should be?

Post by Libertarian666 » Fri Sep 29, 2017 10:52 am

MangoMan wrote:
Libertarian666 wrote:
MangoMan wrote: But don't you pay this same premium when you buy these coins? I don't see how, between the bid/ask spread and the markup yo can keep a round trip transaction to 1%.
The bid/asked spread IS the markup.

Let me give you an example.

Let's say that gold is at $1000/oz. and the dealer is buying Eagles at $1020 and selling them at $1030.
In that case, the "buy premium" is 2% and the "sell premium" is 3%.
It would cost you $10 (~1%) per coin to buy a coin and sell it back immediately.

Does that help?
Thanks, now I get what you are saying. However, my contention is that in actual practice, those numbers are much further apart.
Not if you have a wholesale account at a major refiner, like FizTrade (https://fiztrade.com/):
"FizTrade™ is powered by Dillon Gage’s leading edge technology that streamlines all aspects of physical metals trading for our clients. The platform caters to wholesale dealers, institutional investors and private wealth clients."

For example, right now with spot at $1284 or so, I could buy random year Krugerrands at 1306.10 and sell them at 1293.10, for a total spread of $13.00, or just about exactly 1%.
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Re: Is Gold still the currency hedge it should be?

Post by Libertarian666 » Fri Sep 29, 2017 12:24 pm

MangoMan wrote:
Libertarian666 wrote:
MangoMan wrote: Thanks, now I get what you are saying. However, my contention is that in actual practice, those numbers are much further apart.
Not if you have a wholesale account at a major refiner, like FizTrade (https://fiztrade.com/):
"FizTrade™ is powered by Dillon Gage’s leading edge technology that streamlines all aspects of physical metals trading for our clients. The platform caters to wholesale dealers, institutional investors and private wealth clients."

For example, right now with spot at $1284 or so, I could buy random year Krugerrands at 1306.10 and sell them at 1293.10, for a total spread of $13.00, or just about exactly 1%.
Okay, this is the answer I was looking for originally.

So lets delve further: Can anyone open an account? Do they store or deliver the gold? If delivered, is there an additional charge? If stored, is there a storage fee? Are there any wrap fees or commissions? 'Private wealth clients' usually are the goal of every commissioned salesman.
Anyone can open an account, but you will need to do a lot of business with them to get this pricing. I don't know the exact amount, but it is probably on the order of 100 ounces (not each transaction, but in total over a reasonably short period of time). They have retail accounts too but I don't know the pricing on those.

As far as I know they don't store gold, but deliver it. However, they are involved with the Texas Bullion Depository project, so storage may be an option at some point.

I've only transacted with them over the counter, but they will ship. They may waive shipping for large orders.

There are no wrap fees or commissions.
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Re: Is Gold still the currency hedge it should be?

Post by Libertarian666 » Fri Sep 29, 2017 12:33 pm

MangoMan wrote:
MangoMan wrote: So lets delve further: Can anyone open an account? Do they store or deliver the gold? If delivered, is there an additional charge? If stored, is there a storage fee? Are there any wrap fees or commissions? 'Private wealth clients' usually are the goal of every commissioned salesman.
After reviewing the fiztrade site, it is not really for retail clients.

So again, I ask how everyone here who wants to can have a round trip cost of 1%, which you implied is possible.
If I implied that everyone can have that, then that was an incorrect implication.

But I don't think I implied that. I said it was possible, and it is, but not for everyone.
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Re: Is Gold still the currency hedge it should be?

Post by vnatale » Sat Apr 25, 2020 8:02 pm

Libertarian666 wrote:
Fri Sep 29, 2017 12:33 pm
MangoMan wrote:
MangoMan wrote: So lets delve further: Can anyone open an account? Do they store or deliver the gold? If delivered, is there an additional charge? If stored, is there a storage fee? Are there any wrap fees or commissions? 'Private wealth clients' usually are the goal of every commissioned salesman.
After reviewing the fiztrade site, it is not really for retail clients.

So again, I ask how everyone here who wants to can have a round trip cost of 1%, which you implied is possible.
If I implied that everyone can have that, then that was an incorrect implication.

But I don't think I implied that. I said it was possible, and it is, but not for everyone.
What is your update on Fiztrade.com? Still not for EVERYONE? If not, who would be able to use it?

Vinny
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Re: Is Gold still the currency hedge it should be?

Post by Libertarian666 » Sat Apr 25, 2020 8:54 pm

vnatale wrote:
Sat Apr 25, 2020 8:02 pm
Libertarian666 wrote:
Fri Sep 29, 2017 12:33 pm
MangoMan wrote:
MangoMan wrote: So lets delve further: Can anyone open an account? Do they store or deliver the gold? If delivered, is there an additional charge? If stored, is there a storage fee? Are there any wrap fees or commissions? 'Private wealth clients' usually are the goal of every commissioned salesman.
After reviewing the fiztrade site, it is not really for retail clients.

So again, I ask how everyone here who wants to can have a round trip cost of 1%, which you implied is possible.
If I implied that everyone can have that, then that was an incorrect implication.

But I don't think I implied that. I said it was possible, and it is, but not for everyone.
What is your update on Fiztrade.com? Still not for EVERYONE? If not, who would be able to use it?

Vinny
It's for wholesale clients, so unless you are going to do a fair amount of business, as I mentioned above, they probably wouldn't open an account for you.

However, I have found that the US Gold Bureau (www.usgoldbureau.com) has prices pretty close to the Fiztrade prices, and you don't need to do any particular amount of business with them.

Right now no one has good prices, but when (if) things get back to normal, I would probably use them.
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