Gyroscopic Investing

Of the various mainstream allocations, PP investors probably hold the highest percentage of Gold at 25%.  I've noticed that many here seem to prefer ETFs over physical bullion for various reasons including convenience, ease of re-balancing, 401k/IRA restrictions, concerns over buying counterfeit coins, theft, storage, complacency etc.

So out of your total portfolio (not just PP) what percent allocation do you have for physical bullion?  If the answer is zero, what is the reason why?  Are you over or under the target allocation you would like to have?

To share my own personal story,

I started out with shares of GLD in my Roth IRA, which I later converted to GTU when the premium over NAV dropped to a reasonable level.  After some lengthy research, I finally welled up enough courage to buy my first gold coin, which was a 1984 Krugerrand I found at a local coin shop for about 4% over spot. 

Prior to buying that coin, I had never even seen a 1 oz coin let alone held the weight of the metal in my hand.  I never really "got" the whole fuss about it either.

When I left the shop with the coin in my pocket, the feeling was a sort of a cross between a youth making a getaway after just toilet-papering a house and a pirate fleeing with his booty.  Holding it in my hand in the privacy of my home, I immediately realized what gold really represented: the ability to discretely store a large amount of value in a very compact package, outside the confines of financial or political systems and with zero promises or contracts between myself and the wealth it represented.  It was a real "aha" moment for me.

The first coin was the hardest, as I had no clue what to buy or who was a trustworthy dealer.  My biggest hangups were fears of counterfeits and having no clue where to store them.  Now, I buy from online vendors with a mouse click for a few % over spot and don't bat an eye.

I voted > 20%

I'm currently at 0%, but not for lack of want.  All of my taxable funds are currently earmarked for a down payment on a house, which should be happening fairly soon.  Once all of that is done I will starting building our physical holdings.

I'm pretty much in exactly the same spot as you, hoost.  IRAs etc have to be ETFs, and the taxable is being saved for the "forever house", which (relative to retirement, anyway) is coming up far too quickly to put a lot of it in physical gold.

Xan wrote: I'm pretty much in exactly the same spot as you, hoost.  IRAs etc have to be ETFs, and the taxable is being saved for the "forever house", which (relative to retirement, anyway) is coming up far too quickly to put a lot of it in physical gold.

Wow, I'm in a good company. Same story - saving for a house purchase, which I hope will happen while the rates are this low.
On the other hand, I am contemplating replacing some of my paper gold positions in an IRA with physical in the near future - the idea is to free precious IRA space for less tax-friendly assets (LTTs for PP, dividend stocks and EM bonds for VP).

There's an argument that ultra-low rates are artificially inflating the price of real estate, and that once rates start to climb, prices will crash.  That's when somebody who's been saving can swoop in with a big down payment and get a deal...

Xan wrote: There's an argument that ultra-low rates are artificially inflating the price of real estate, and that once rates start to climb, prices will crash.  That's when somebody who's been saving can swoop in with a big down payment and get a deal...

Yeah, and I sort of agree with it. I keep arguing with my friend, a newbie real estate broker. He says prices will go up as the rates start climbing up until some psychological barrier around 7-8% - after which the prices will drop big way. It's hard to tell - real estate prices are influenced by many factors. However, I don't think any big jump in rates is on the horizon. 

systemskeptic wrote: Prior to buying that coin, I had never even seen a 1 oz coin let alone held the weight of the metal in my hand.  I never really "got" the whole fuss about it either.

When I left the shop with the coin in my pocket, the feeling was a sort of a cross between a youth making a getaway after just toilet-papering a house and a pirate fleeing with his booty.  Holding it in my hand in the privacy of my home, I immediately realized what gold really represented: the ability to discretely store a large amount of value in a very compact package, outside the confines of financial or political systems and with zero promises or contracts between myself and the wealth it represented.  It was a real "aha" moment for me.

systemskeptic, it's those "aha" moments that are the most satisfying.

The first coin was the hardest, as I had no clue what to buy or who was a trustworthy dealer.  My biggest hangups were fears of counterfeits and having no clue where to store them.  Now, I buy from online vendors with a mouse click for a few % over spot and don't bat an eye.

If you have not bought the first one yet, there's no law that says you have to buy a full ounce at once, or that you must buy American Eagles.  There are people here from all walks of life. You can do half-ounce, quarter ounce, even one-tenth ounce.  There are Maple Leafs, Pandas, Krugerrands, etc. (There are even pre-1933 near bullion coins like St Gaudens, Liberty, Indian-head, etc, but I don't recommend those for a first time purchase as you then get into the collectible market, where you need a bit more knowledge about what to buy and what prices are reasonable.)

Right now a one-tenth ounce bullion coin costs the same as a week's worth of groceries for a family of four, or about the same as a couple of biochemistry textbooks (new, non-ebook), whereas a one ounce coin costs the same as one or two month's rent on a two-bedroom apartment in an average American city.  For what you would pay for an Amazon Kindle, you could buy a one-tenth ounce and have change left to save up for another one. For what you'd pay for a pair of Air Jordan basketball shoes, you could have a one-tenth ounce Krugerrand that would last forever (plus change left over).

The premiums one the smaller coins are higher, but you only need one or two little ones to get started feeling it in your hand.

systemskeptic wrote: When I left the shop with the coin in my pocket, the feeling was a sort of a cross between a youth making a getaway after just toilet-papering a house and a pirate fleeing with his booty.  Holding it in my hand in the privacy of my home, I immediately realized what gold really represented: the ability to discretely store a large amount of value in a very compact package, outside the confines of financial or political systems and with zero promises or contracts between myself and the wealth it represented.  It was a real "aha" moment for me.

Love that story. Same experience working in Perth Mint's Sydney office buying and selling gold over the counter. Only when you hold gold can you understand where gold fever comes from and why people went out to the goldfields under great hardship.

hoost, Xan, and foglifter: +1

I am constrained to hold far less physical gold than I would prefer since the majority of my taxable savings consists of an emergency fund and a growing down payment for a home. Once we purchase a home in a few years, I'll start converting as much of the gold allocation as possible to physical form as new taxable savings roll in.

systemskeptic, I really enjoyed reading about your experience discovering the surprising joy of owning physical gold. It really is a safe, comforting, empowering feeling that's hard to describe to people who have never bought a gold coin and held it in their hand.

systemskeptic's post is great.

Travelling that road from all paper investments to having a well-reasoned bit of hard assets in the mix is exciting and sometimes scary.  Once you "get it", though, it's a neat feeling.

Most people don't have a clue what gold is all about and it's very hard to explain it to them.  You just have to own some for a while to fully appreciate it.

Thanks for the replies above.

So far, a pretty interesting bimodal distribution seems to be developing (with 19 votes in, two peaks are forming with 42% voting 0% and 31% voting 20% or higher).  Of the 25% allocation to gold, 2/3 of people thus far are either purely paper or almost purely physical. 

I wonder if these peaks represent the attitudes of two distinct types of investors/situations, or maybe a graphical representation of the "aha" effect of physical ownership?

TennPaGa wrote: All non-IRA and non-401k money is in a 6 month emergency fund.  I'm putting as much as I can in the 401k, but as a result, I am unable to accumulate any other savings.  So I would need to decrease my 401k contributions to buy physical gold.  I have a hard time seeing the wisdom in giving up the tax advantage.

Two things come to mind, as I too am dealing with the restrictions of saving into 401k / tax advantaged space.

1.  Use the Roth space for part of your "emergency fund" as the principle can be withdrawn without penalty.

2.  Continue saving into your 401k but take out a 401k loan to get at least half your gold position into physical bullion as soon as possible.  If you expect to stay at the job for a while, this is not much different than maxing out your 401k first, and later saving into cash for a physical purchase.

The benefit is that you get the protection of physical bullion right now as opposed to sometime in the future.

My total portfolio is PP  I hold approx 1/3 of my Gold in bullion 1oz bars. and the rest GTU.

I've written extensively about my gold buying experiences in other threads, but anyway as of a few weeks ago I'm at nearly 50% of my gold in physical coins. All krugerrands. It's getting easier.
Out of my total portfolio? Haven't calculated it. But, gold is 24% of my pp, and my pp is now 32% of pp+vp. so, there's an answer in there somewhere. 

I saw a post on here about rebalancing bands of the PP components and how many times the bands triggered over time and was wondering about gold.

If you held 70%/30% gold bullion/gold ETF @ the 25% portfolio component amount and it grew to 35% to trigger the rebalance, you would sell off only your ETF holds leaving you with a new portfolio of 98%/2% gold bullion/gold ETF.

17.5 units of bullion  (70% bullion)   ---->              24.5 (40% appreciation)
7.5 units of ETF (30% ETF)              ---->              10.5  (40% apprecation to hit rebalance band)
25 units (% points of portfolio)                               35    (rebalance band)

sell 10 units of ETF to bring 10.5 units down to 0.5 units.

If you don't hit another rebalancing band for a while, you could slowly build up your gold ETF amount again if you're still in the accumulation phase. This I would think provides for your bullion to not have to be sold and to have the long-term taxable gains not realized while still purchasing ETFs each time.

This falls apart if you have two rebalances too quickly, but then again, that means gold is really appreciating so that's kinda a bad problem to have I suppose.

Just trying to wonder if there is an ideal percentage if gold is held in a taxable account. This also gets more confusing if you add in something such as GTU which allows for a different tax treatment. What was shown up above would be for a standard ETF such as IAU or GLD that is classified and taxed as a collectible.

Interesting results so far. I thought I was in the minority not holding any physical gold. Apparently not.

1NV35T0R wrote: Just trying to wonder if there is an ideal percentage if gold is held in a taxable account.

The answer I have to this is to pose another question, "What is the reasoning for holding Gold as part of the permanent portfolio?"

I would say it is critical to not elevate secondary considerations (taxes) above primary considerations (the fundamentals of why one is holding Gold as part of the permanent portfolio).

There may be an ideal percentage in terms of not having to sell physical bullion, but I would contend that is maybe missing the forest for the trees.

1NV35T0R wrote: (wondering) if there is an ideal percentage if gold is held in a taxable account.

I think that the rebalancing bands are all important, 15% to 35%. This trumps the importance of the location of gold investments in taxable or tax-deferred.

Xan wrote: There's an argument that ultra-low rates are artificially inflating the price of real estate, and that once rates start to climb, prices will crash.  That's when somebody who's been saving can swoop in with a big down payment and get a deal...

+1.  Don't believe the realtor hype.  Interest rates and home prices have an inverse correlation, since most people can only afford a given monthly payment based on their income:

I'm in the same boat as all of you... trying to save up a significant chunk of a house purchase in taxable so that I can jump when the market is in a better place.  Unfortunately, the wife wants to jump a lot sooner than I do.  Realistically I think house prices will continue to fall for the next few years, since everything the Fed is doing is designed to prolong asset bubble deflation (soft landing).  So, all of my gold is in IAU, SGOL, and GLD.

Storm wrote: I'm in the same boat as all of you... trying to save up a significant chunk of a house purchase in taxable so that I can jump when the market is in a better place.  Unfortunately, the wife wants to jump a lot sooner than I do.  Realistically I think house prices will continue to fall for the next few years, since everything the Fed is doing is designed to prolong asset bubble deflation (soft landing).  So, all of my gold is in IAU, SGOL, and GLD.

Given that you are so close (yet so far) to gold in your paper gold position, have you had the curiosity to at least go to a LCS and browse some of the coins in person?

systemskeptic wrote:

Storm wrote: I'm in the same boat as all of you... trying to save up a significant chunk of a house purchase in taxable so that I can jump when the market is in a better place.  Unfortunately, the wife wants to jump a lot sooner than I do.  Realistically I think house prices will continue to fall for the next few years, since everything the Fed is doing is designed to prolong asset bubble deflation (soft landing).  So, all of my gold is in IAU, SGOL, and GLD.

Given that you are so close (yet so far) to gold in your paper gold position, have you had the curiosity to at least go to a LCS and browse some of the coins in person?

Yes, when I was in Shanghai I visited a 3 story tall jewelry store that sold everything, including everything from 1 gram up to 1 kg bars.  It was really amazing... I converted the price to ounces and found out that 100 gram bars were exactly the same as gold spot price - tempting.  I seriously wonder how they were able to sell physical for the same as spot price - perhaps they are fake, or weigh slightly less than advertised?  Anyway, I can see the appeal of physical gold.  I mean, I've owned GLD since physical was $900 an ounce.  Just having significant appreciation in value without the specter of capital gains tax hanging over your head is damn appealing.  I know you're supposed to claim it as a profit, but would the IRS really be able to find out what you bought those coins for 20 years ago?

Storm wrote: Yes, when I was in Shanghai I visited a 3 story tall jewelry store that sold everything, including everything from 1 gram up to 1 kg bars.  It was really amazing... I converted the price to ounces and found out that 100 gram bars were exactly the same as gold spot price - tempting.  I seriously wonder how they were able to sell physical for the same as spot price - perhaps they are fake, or weigh slightly less than advertised?  Anyway, I can see the appeal of physical gold.  I mean, I've owned GLD since physical was $900 an ounce.  Just having significant appreciation in value without the specter of capital gains tax hanging over your head is damn appealing.  I know you're supposed to claim it as a profit, but would the IRS really be able to find out what you bought those coins for 20 years ago?

Definitely a cool story.  I have seen a 1kg bar going for spot at a online vendor before, maybe the price had just risen or they were trying to reduce their inventory of certain items?  Still, a GLD owner for at least 4 years and not a single oz of physical? Have you considered any scenarios in which the paper and physical price might diverge?  

It should be noted that several countries already do not tax gold bullion (British Sovereigns in the UK for example).  I suspect this may be the case in the US sometime in the future as well.  Another good reason to hold 24 karat over 22 karat.

Storm wrote: Yes, when I was in Shanghai I visited a 3 story tall jewelry store that sold everything, including everything from 1 gram up to 1 kg bars.  It was really amazing... I converted the price to ounces and found out that 100 gram bars were exactly the same as gold spot price - tempting.  I seriously wonder how they were able to sell physical for the same as spot price - perhaps they are fake, or weigh slightly less than advertised? 

I don't know much about bars, but is it because there's very little production cost, ie no maple leaf or Uncle Paul to stamp on it?

I'm in the 0%-5% but only because I once got a gold coin as a gift... 0.1 oz.

Reason for underweight in physical gold is similar to many folks here: house down payment - except in my case I recently took the dive.

I tend to disagree with the smart folks who see house prices continuing to go down. My reasoning is simple... in my local market, if prices go down any further, rich people will have no place to live, because young families, recent college grads and other people who should be struggling, will be snapping up all the high-end homes. I find this illogical