7 reasons gold has lost its shine

[mathjak107]

but for years gold has many losing what they  had  with no let up in sight .  we are not talking gains , we are talking just losing value on it  in fact i can't think of  many more  recent time frames that it  didn't lose money for folks unless they were speculating in it and flipping it over short time frames

i think we have one 10 year period since the 1980's it didn't lose money starting in 1999  but then gave it right back after peaking  t.t

[MediumTex]

but for years gold has many losing what they  had  with no let up in sight .  we are not talking gains , we are talking just losing value on it  in fact i can't think of  many more  recent time frames that it  didn't lose money for folks unless they were speculating in it and flipping it over short time frames

i think we have one 10 year period since the 1980's it didn't lose money starting in 1999  but then gave it right back after peaking  t.t

Why do you keep discussing gold as a stand-alone asset?

If we are talking about the PP and its assets, we must understand how they work together, not whether it would be a good idea to go out and buy a load of any one of the assets.

Do you disagree that historically gold has provided the upside volatility that was needed when the other PP assets were lagging?  That's the only reason a PP investor should own gold--i.e., because of the relationship of its volatility to the volatility of the other assets in the portfolio.

If I wanted to make an argument against a PP asset right now as a stand-alone asset, it seems like LT Treasuries would be easier to throw stones at than gold, but there is no need to do that because LT Treasuries are still doing their job balancing the volatility in the portfolio even at very low rates, and that's why we own it as well.

Is your theory that even though the PP has provided consistent inflation-adjusted returns over most of its history, it's about to stop working because of the gold holdings?  Couldn't you have made the same argument in 1981?

When it comes to the PP, it will ALWAYS have that "This is stupid looking" quality to it, and that's part of what makes it work so well--i.e., it forces you to buy the asset that everyone is convinced is a horrible investment when it's cheap.  Getting over this dissonance in the allocation is part of learning to enjoy the ride.  You may say "Well, I don't want to get over it; I don't want to learn to like stupid-looking things", and that would make you like most of the smart experienced investors who take a look at the PP, shake their heads, and move on to something else.

The important thing to understand, though, is that the arguments you are making are the reason that the PP works.  If all four of the assets started making sense simultaneously, then we would lose the protection we need in all economic environments.

If you say "Well, I just don't see how gold can rise much from here; I don't see what the catalyst will be", then that just means that you are being honest about the unknown and uncertain nature of the future, but I can tell you that in 2008 NO ONE would have predicted the gains LT Treasuries saw in subsequent years and in 2009 NO ONE was talking about the stock market going on a five year tear during which it doubled in value, but EVERYONE was saying that 0% T-billl rates weren't going to last long, and we know how all of that conventional wisdom turned out, right?

[mathjak107]

i am not splitting assets out of the portfolio as much as i think the assets in the portfolio finally ran its course over the 40 years of having a bond bull market  with some speed bumps along the way .

the pp always had traction from bonds for most of it's life  since the 1980's . it had interest on cash and it had excellent gains on stocks . that offset golds performance which usually over most time frames  runs from lack luster to awful  except for 1999 until the peak , then it took most of those gains away leaving losses again .

well that is the past and now is the new normal we are in .

with  LT  treasury's only coming to life now when there is a crisis event and not in a  normal downward rate pattern  and gold just sustaining deeper and deeper losses  the tide has finally changed for the pp .

with zero rates and high stock valuations  never happening before this new normal requires in my opinion assets that play nice together and do not kill each other off  as the pp has been doing .

the last few years have seen the new normal require's portfolio's that work together with out  ripping apart what ever meager gains equity's can muster since historically equity's have been the primary growth engine .

i think with the potential for single digit equity gains and near zero real returns on cash and bonds you need to give equity's all the room you can to support things since nothing else appears to be able to .

sure you can sustain no growth or losses for years and years in the pp until some other asset class has an extended run possibly even gold  but you run the risk of being so far behind or at a loss that even then it isn't enough to pull you out .


more and more i have learned in my 30 years as an investor nothing fits the bill forever . usually it is only a question of how long before the strategy doesn't  work anymore .

keep the charts and just switch to the pp's performance the last few years and you will see that is what is now happening to it .

the mutiny between asset classes is letting it slide deeper and deeper behind so even when those big stock rally's happen it still can't get it back on track .

i would bet the next decade would likely have cash instruments and equity's beat the pp as it  still has a civil war going on and no real growth engine clearly propelling it .

you would have to count on an extended calamity  to pull it  out of the funk it's in . having to bet on just black swan events being extended to propell a portfolio is never a good idea if that is what it gets down to .


you can always buy gold years from now and even if you missed the early gains from some event  odds are you would have made more by not owning gold for years .

if an asset is still behind a t-bill 40 years later that is not an asset i  would count on very much personally at any point in time  .  of course this is my opinion .

[MediumTex]

i am not splitting assets out of the portfolio as much as i think the assets in the portfolio finally ran its course over the 40 years of having a bond bull market  with some speed bumps along the way.

You don't think the bull market in bonds is still with us?

the pp always had traction from bonds for most of it's life  since the 1980's . it had interest on cash and it had excellent gains on stocks . that offset golds performance which usually over most time frames  runs from lack luster to awful  except for 1999 until the peak , then it took most of those gains away leaving losses again .

Excellent gains on stocks?  The 40 year period of PP data covered two secular bear markets for stocks, and we only recently breached stock market levels that were first reached over 15 years ago.  That's not what I would call "excellent gains on stocks."

Why are you saying that most of the gains in gold since have been taken back?  In 2000, gold was selling for $275 an ounce, and today it is selling for $850 an ounce.  Even with gold at its current depressed price, that's an average annual return of 7.7% over the 2000-2015 period.  How did stocks do over that period?

The gold bull market in the 1970s was even stronger than the 2000-2011 gold bull market.  Where are you getting that over most timeframes gold runs from lackluster to awful?  Gold was awful in the 80s and 90s just like stocks were awful in the 70s and 00s.

well that is the past and now is the new normal we are in.

Honestly, it just looks like the same old normal to me.

with  LT  treasury's only coming to life now when there is a crisis event and not in a  normal downward rate pattern  and gold just sustaining deeper and deeper losses  the tide has finally changed for the pp .

There are huge gains to be harvested from LT Treasuries trading in the current range.  There isn't any rule that says you can't profit a lot from buying low and selling high when an asset is trading in a range.

As far as gold sustaining deeper and deeper losses, that's part of what happens when you own three non-correlated volatile assets.  Right now, one of them is down.  That's utterly unremarkable to me.

When you look at the relative stability of the whole portfolio over the most recent 1, 3 and 5 year periods, I really don't know why you would say that the "tide has finally changed" for the PP.  That's a weird response to being down 2-3% here and there.  Those are normal fluctuations in the value of the portfolio.

with zero rates and high stock valuations  never happening before this new normal requires in my opinion assets that play nice together and do not kill each other off  as the pp has been doing .

No, you want the assets to fight with each other.  That's where you get the protection against having your eggs in the wrong basket.

the last few years have seen the new normal require's portfolio's that work together with out  ripping apart what ever meager gains equity's can muster since historically equity's have been the primary growth engine .

Meager gains!  The stock market doubled in value over the 2009-2014 period, which translates into 15% per year gains in that asset.  Nothing meager about that.

i think with the potential for single digit equity gains and near zero real returns on cash and bonds you need to give equity's all the room you can to support things since nothing else appears to be able to .

Why do you think that after five years of 15% annual gains in equities it is now only reasonable to expect single digit gains going forward?  Isn't that the "wall of worry" that every secular bull market climbs (assuming we are in such a market for equities now)?

Similarly, why do you think that bonds offer zero real gains going forward after showing repeatedly since 2008 that they can generate HUGE gains even at very very low rates?

sure you can sustain no growth or losses for years and years in the pp until some other asset class has an extended run possibly even gold  but you run the risk of being so far behind or at a loss that even then it isn't enough to pull you out .

You could have said that about the PP at any point over the last 40 years, since there is always a case to be made that the relationships within the portfolio are on the verge of breaking down.  I don't see anything unusual about today except that it happens to be the day that we are living through right now.

keep the charts and just switch to the pp's performance the last few years and you will see that is what is now happening to it .

the mutiny between asset classes is letting it slide deeper and deeper behind so even when those big stock rally's happen it still can't get it back on track .

What are you talking about?  When you adjust for the low inflation we have been experiencing in recent years, the PP's real 4% or so returns have just been chugging along probably just a little below the long term average real returns.

i would bet the next decade would likely have cash instruments and equity's beat the pp as it  still has a civil war going on and no real growth engine clearly propelling it .

Maybe, maybe not.  I would rather not bet.  I would rather just cover all bases.  The PP will always have a civil war going on inside it.  That is its nature.

you would have to count on an extended calamity  to pull it  out of the funk it's in . having to bet on just black swan events being extended to propell a portfolio is never a good idea if that is what it gets down to .

It's not in a funk and thus no extended calamity is needed.  If the current trends continue of solid equity gains, intermittent large gains in LT Tresuries, gold bottoming near current levels and T-bills continuing to pay 0%, that would translate into above average PP returns going forward.  If a calamity comes along that will be fine too, but it's not needed.

I appreciate your steady stream of critical PP-related comments because they do create good discussions, but I wanted to address them point-by-point because I think that your pessimism and skepticism about the PP reflects what is, to me, a superficial understanding of how the portfolio works and its resilience in the face of certain market conditions.

I'm not saying you're wrong; I'm just saying that your understanding of the PP doesn't seem to have a lot of nuance to it, and so many of the interesting things about the PP reside in those nuances.

[mathjak107]

i think the bull market in bonds ended last feb.  they are almost a point higher today .
they got a little kick from the current flight to safety but you saw them fall back quite a bit since the fear subsided .


only large cap stocks lagged the last 15 years . midcaps did fine . in fact look at funds like welleley income , fidelity balanced , fidelity low priced stock fund .

they all averaged 7% or more the last 15 years , in fact my fidelity low priced stock fund averaged almost 13% mid caps were so strong .


these are not the same ole times since zero rates and high valuations on stocks and bonds never happened together before .

just watching the action today on the pp shows you what is happening .

the day of having such strong pulls in opposite directions came and went .

for possibly the next decade it is likely going to be a portfolio that helps each other that is needed  and like steering a big ship has to be nudged to keep it on course  as the big picture changes .

no one ever said investing and making money was always going to be non volatile and as easy as sitting with a bunch of assets forever .

my feeling is the times have changed and the investing strategy has to change with it .

but time will tell , we are in to the 3rd year where opposing asset classes have hurt more than helped and lately just getting deeper in a hole . soon even the strong up days in equity's will not be able to pull it out of the hole it could be so deeply stuck .. .

the pp needs a horse to hitch to with strong enough returns to pull it out but no such horse exists today .

so the only question is how long are you willing to wait . human nature is such that it does not have to much in patience  when it is only you that may be down or stuck in the muck .

[Libertarian666]

Why are you saying that most of the gains in gold since have been taken back?  In 2000, gold was selling for $275 an ounce, and today it is selling for $850 an ounce.  Even with gold at its current depressed price, that's an average annual return of 7.7% over the 2000-2015 period.  How did stocks do over that period?

Where is gold selling for $850/oz? I'll buy all of yours for $900/oz! 

[mathjak107]

hey , don't let facts get in the way of a good story .

[MediumTex]

Why are you saying that most of the gains in gold since have been taken back?  In 2000, gold was selling for $275 an ounce, and today it is selling for $850 an ounce.  Even with gold at its current depressed price, that's an average annual return of 7.7% over the 2000-2015 period.  How did stocks do over that period?

Where is gold selling for $850/oz? I'll buy all of yours for $900/oz! 

Oh wow, I saw $850 on the chart and just mindlessly typed it in.  $850 was the gain relfected in the current price over the 2000 starting value, which means that the annual return in the 2000-2015 period for gold was substantially higher than 7.7%.  Sorry about that.

[MediumTex]

hey , don't let facts get in the way of a good story .

...but doesn't that particular fact actually strengthen the case I am making for gold having some respectable returns in the recent bull market? 

[mathjak107]

to bad it gave almost all of it back once markets came to their senses again    .......  it was a loaner  ha ha ha

i think better fitting for possibly up to the next decade for a conservative investor who wants low volatility would be wellesely income with some assorted short to intermediate term bond funds or for a bit more growth a balanced fund like fidelity balanced fund and some short to intermediate term bond funds .

the bond funds are not likely  going to over power what ever gains the markets can muster .

perhaps in a decade the time will allow the pp to be back in to its more normal environment  once again  so it can act the way it was designed to . 

i think it needs cash at the 4-5% range and bonds up in the 6-7% range with inflation running  quite a bit higher than now before the individual parts can do there thing

[Libertarian666]

Why are you saying that most of the gains in gold since have been taken back?  In 2000, gold was selling for $275 an ounce, and today it is selling for $850 an ounce.  Even with gold at its current depressed price, that's an average annual return of 7.7% over the 2000-2015 period.  How did stocks do over that period?

Where is gold selling for $850/oz? I'll buy all of yours for $900/oz! 

Oh wow, I saw $850 on the chart and just mindlessly typed it in.  $850 was the gain relfected in the current price over the 2000 starting value, which means that the annual return in the 2000-2015 period for gold was substantially higher than 7.7%.  Sorry about that.

Sure, no problem. I was just pulling your leg.