rick ferri on gold

[stone]

I think at one point IAU poached a lot of custom from GLD and so IAU gold holdings increased while at the same time GLD holdings decreased??

[Gumby]

Stone. Yes, I would agree with that.

[Reub]

VTI: down 2.04%
GLD: up 2.84%

Next theory!

[moda0306]

Reub,

Nice.

My theory goes something like this:

When someone is proven completely wrong, they have a tendency to try to recharacterize either their prediction, or the nature of what actually happened, rather than just admit they don't fully grasp how something works.

Now only if I could find some evidence of this....

[murphy_p_t]

christina,

see http://gyroscopicinvesting.com/forum/ht ... ic.php?t=4

the only thing i would add to Craig's response is that gold can also do great in deflation (its money!)

[WildAboutHarry]

Rick Ferri would do well to admit that there are some things in this world that he simply doesn't understand, and gold and the PP are two of them.

Rick Ferri conceded a bit on gold ownership over on Bogleheads the other day (can't find the post now).  Something like 5% was OK with him, as I recall.

[dualstow]

Breaking Chains: Gold, Stock Prices Part Ways (WSJ)
http://online.wsj.com/article/SB1000142 ... 78146.html

...
Investors traditionally expect gold to maintain its value during times of financial turmoil, but for the past two months, the metal has risen and fallen in line with riskier assets such as stocks and commodities. Worries that a euro-zone member was likely to default on its debt and create another global credit crunch had investors selling almost everything to hold cash at the time.
...

[Larshus]

Gold's correlation to any specific product is in flux constantly. That's one of the issues that the financial industry struggles with when it comes to gold. You can compute its correlation to any one specific item only for a VERY short time frame.. then it drifts off. Sometimes that drift is fast, sometimes it is slow.

Consider: Equities, more specifically stocks, represent small slices of companies. These companies own physical assets. Some of these companies also produce physical goods. In an inflationary, or deflationary environment those goods and assets may more either up or down in real value. Gold in correlation will move up or down with those "real" assets.

The problem is there are hundreds of inputs into this correlation. Are we correlating on an index or a specific company? Are the goods produced dependent on raw material priced in a different currency? Many variables. The drifting correlation takes this all into account. Trying to figure out all the inputs is impossible... however the observed correlation is easy.

I know this doesn't help a lot, and tends to confuse people

[Larshus]

"Perhaps the market doesn't know how gold should be priced, and sometimes prices gold to inflation only reward expectancy whilst at other times prices gold to > inflation reward expectancy."

This. I don't think the market is actively not "figuring i out" I just think its a symptom of all the millions of inputs that go into it. I ahte to beat a dead horse with a stick, but take an equity like a stock. There are many inputs that go into its pricing, both micro and macro. On the micro level there is the PE ratio, the PEG ratio, Cash flow, ect. These can be analyzed and except for future forecasting, are well defined. Macro, it can be argued, on a per stock basis is harder to analyze but can be removed systematically with some finacial chicanery (Shorting the SPY against a long equity position for example).

This doesn't work for gold. You can't analyze the micro side since it doesn't exist. You can't hedge out the systematic risk because its correlation skips around like an elf on crack. There is nothing you can safely short against it for a long period or even a mid term of time.

Based on the above charts Gold does follow a commodity basket... except when it doesn't and out performs it. that suggests an inflation correlation... but then it diverges. Why?

Again it boils down to the inputs. there a millions of them. They are not well defined and you can't remove huge chunks of them by massaging of any type for long periods of time.