I have no idea why you asked this question. None at all.
Gold has not, repeat, not consistently performed well during times of market turbulence. I gave the example of late 2008 upthread. That’s a very damning example of the opposite of your belief.
It is in fact very hard to pinpoint any correlation between something happening in market X causing something happening in market Y. Why? Because if there were, everybody would be rich! “Hey, there’s market turbulence in X, let’s buy/sell Y.”
Note that this isn’t the same as relations such as stocks and bond prices being inversely related. (Which isn’t always true, esp. recently.) Neither is predictive which is what you want to make money. After all, if you see a fall in stock prices and decided to invest in bonds, the very next moment the stock market goes up and you could end up losing.
People need to get over their naive belief that buying/selling certain things at certain times are the sure way to get rich. The big players in the markets have much, much better data and algorithms than you do and they still end up losing big time surprisingly often.
Platinum is denser than gold, and rarer, and more expensive, and most of the value is due to its actual industrial use, so I’m not sure what you’re on about here.
Gold is a great conductor, and has lots of modern industrial uses, but its use as money way predates that, and its value is mostly unrelated to them. It’s not like people are going to be worried that they won’t be able to build computer chips or space suits in the middle of a societal collapse if they don’t secure their gold.
The biggest practical reason for gold as money over platinum is that it’s easy to subdivide it because it’s so soft.
Also, maybe cool it on the bold and italics and underlines? Used sparingly, they add emphasis. In excess, they don’t help your case.
Well, also, its deep and broad recognition as a medium of value, as the first part suggests. Far more people, across times and cultures and strata, know what gold is and looks and feels like, than platinum (or most other metals).
I’m not sure what you think my “belief” is, since I haven’t yet posted anything other than questions in this thread, but your 2008 counterexample is a terrible one:
And of course no one here is claiming that gold is a perfect hedge, just that historically it’s been a good hedge against market crashes.
Re gold and platinum: it’s interesting that platinum is widely thought to be worth more than gold - ACA plans on the Public Exchange are ranked Platinum, Gold, Silver, Bronze - but gold has been trading higher than platinum for at least the past few years. Right now Gold: $1,322, Platinum: $1,088.
It’s pretty, it’s compact and most importantly it’s rare. So it’s perceived as having value, and everyone engages in a sort of groupthink that it’s valuable, and therefore it is valuable as a currency. But there’s nothing particularly useful about it, other than its use as a currency, use in a few electronics applications, and use in aesthetic applications like jewelry or gold leaf.
But ultimately it’s a sort of group agreement that it’s actually valuable, which is reinforced by its relative rarity and small physical size. So a tiny amount of gold can be very valuable, while an equivalent amount of steel (much more *intrinsically *useful) might be measured in tons.
The underlying question, IIRC, was whether gold is likely to be valuable in the coming dystopia. My answer is Yes; what’s yours? Platinum also used as money? I’m much less confident of that.
In the books and journal articles I’ve written I very seldom use typographical emphasis; nor did I use it during my early posts at SDMB. It’s a habit I’ve gotten into here since many Dopers seem to completely miss the main points. For example, instead of addressing substance they complain about typographical emphasis!
This is basically the answer. The value of gold tends to (not always) increases during uncertainty because of its role as an alternate currency, potentially in all three uses of a currency: 1. unit of account, 2. means of exchange, but mainly, save a complete collapse of fiat money: 3. store of value.
It can be called circular logic that people look upon gold as a store of value, but no more if as much as them looking at paper money as a store of value. And compared to other commodities gold is very compact for its value (though inferior to large denomination paper money in that respect) and non-perishable. Something will be a viewed as a store of value, gold has those advantages plus long tradition on its side.
Gold is not particularly stable in value on short to medium timescales and can be a quite bad investment for decades assuming there isn’t some major upheaval, which most of the time there isn’t.
In the very long term the issue is framed by the example showing that the income of US Army privates and captains now are both within a few 10’s of % of the incomes of Roman legionaries and centurions in Augustus’ reign if both expressed in gold (privates make more gold than legionaries, captains make less than centurions). On the plus side that’s a powerful record of retaining value at the least. Actually it’s more because GDP PPP per capita in Rome at that time was only order of 1% of what it is in the US now. So we’d expect the payment for the same basic job to be order of 100 times higher. However even if we assume gold is 100 times more valuable in real terms now that’s only ~0.02% pa. real return over 2000 yrs. OTOH returns such as we’d expect to get now in investments like stocks (say 4% real, and many people have unrealistically higher expectations than that) are pretty much mathematically impossible to have obtained from the distant past, $1 at 4% pa over 2000 yrs would be $1X10^34 and total world net worth now is only around $2x10^14. Even 1% pa is 439 million times over 2000 yrs. Over the last 2000 yrs any non-negative real return isn’t to be sneezed at, but for gold it was very close to zero.
Gold went from $940 in July 2008 to $760 in November 2008. Even if you want to restrict it to starting in October it dropped 5% from October to November. Your cite sucks.
And the S&P 500 went from 1,257 in July 2008 to 883 in November 2008 for a 30% drop, so including gold in your portfolio would have been beneficial, even in your cherry-picked example (exactly why is the month of December excluded from what ftg called “late 2008”?):
The point you seem to be missing is that over the long term gold does a lot better than dollars. The idea is to have something which has long term value which is also more stable than other things which have long term value.
Losing 20% is not pleasant, but it’s better than losing 30%.
All that said, I’m not recommending that anyone buy gold, ever. (OK, you can buy some for your spouse on occasion. :)) But your specific counterargument is not a valid one, despite the histrionics.
I basically agree. Gold has had very close to zero real return, in pa % terms, over many centuries. It seems to have more like a real return of around the same as the real rate of increase in average purchasing power of individuals, comparing ‘advanced countries’ of AD 1 and 2016, ie Rome and the US (see post #50). But that rate is also very close to zero over the whole two millennia (almost all the increase in real purchasing power has occurred in the last 200 yrs). But anyway over a very long period gold has maintained something like ‘real value’. Over the same long period fiat money would lose virtually all its value, without any upheavals, just on the basis of current central bank orthodoxy that a 2%-ish inflation rate is the healthy minimum (87% of its value over just a century).
But at the other extreme, any given single short term example of a market crash (that doesn’t involve a hyperinflation) fiat money has much less volatility than gold.
The convention in modern financial theory is to compare investments in two or three dimensions: annualized expected return (best expressed in after inflation terms), annualized standard deviation of return; and optionally, correlation of return with some other benchmark investment.
Gold has an after inflation expected return of around 0%, with a fairly high standard deviation of real return (same ballpark as the stock market), but close to 0% correlation of return with the stock market.
Fiat money has an after inflation expected return of around -1.3%*, a std dev of real return the same as that of inflation so much lower than that of gold or the stock market, and also a zero-ish correlation of real return to the stock market.
Also govt bonds or govt insured CD’s are an alternative to cash which increases real after tax yield closer with still low std dev of return and historically zero-ish correlation to stock returns.
Investors who don’t believe they can foresee higher than expected inflation or other crisis any better than market can (and why should they be able to?) would probably choose bonds as their main ‘safe’ investment, not gold. Gold might have a place IMO as an ‘armageddon hedge’: a small %, just a little something give you time to figure things out if the world really comes crashing down. But it’s too risky to have a lot of gold without knowing there’s going to be a great upheaval, which you can’t know, and which usually doesn’t happen. In that case buying gold at the wrong time can be a terrible investment over a pretty long period (which is what a zero expected return and high std dev of return means in words).
*assuming 1% bank account interest, around the highest available in US$, 30% tax on it and 2% inflation.
To clarify, US govt backed bonds or CD’s might give expected real return close to zero (traditionally would be more than zero but not now) but still much lower std dev of return than gold and similarly low correlation of return to the stock market. That’s the generally preferred ‘safe’ asset, unless there’s a crisis in govt finances coming which you can see but the market can’t.
No, the key thing is gold isn’t an investment, by definition an investment is some thing other than money, that it is hoped will provide a return. Stocks for example. Rental property. Very common misconception.
Gold is a kind of speculation, in the same way converting yen into euro or rubles. It’s currency trading, put another way. It is prudent to hold a non trivial amount for most investors, in coin form for any number of reasons.
When you start talking interest rates, it is only reasonable and fair to compare apples with apples, you cannot escape the fact that gold was criminalized and confiscated from the banks and the government reneged on gold bonds and forbade paying interest on gold deposits, and gold clause lease contracts payable in specific amounts of gold were made illegal.
No, the common misconception is the one you imply, that an ‘investment’ has to pay out some kind of cash flow. Which a bank account actually does anyway. So by any definition cash is an investment. But so is gold you buy and hold.
Speculation refers to buying and selling something on the idea you can figure when its value is going to increase or decrease. You can speculate on gold, or stocks, doesn’t mean they aren’t both investments.
A portfolio can be invested in a certain % stocks, another % real estate, another % bonds, another % cash, another % gold and so on. But my post made no suggestion that gold should be a big part of that. OTOH yes a government could outlaw the holding of gold, but only some govt’s are totalitarian enough to effectively enforce such laws, then what’s the prospect for eg. stock investments in such a case? Certain outcomes or events can benefit investment in gold, there’s no reasonable counter argument to that.
However as my post (correctly, if I do say so ) laid out, the actual key is that gold has basically 0% real expected return but high standard deviation of return, though low correlation of return to stocks. Cash and bonds have negative to barely positive at best (right now) expected real returns but much lower std dev of return than gold, and also zero-ish return correlation with the stock market.
I question the claim that cash and bonds have little correlation with the stock market. (Though first, we’d need to define whether “cash return” is dollar as measured with CPI, or dollar -vs- Euro.)
If inflation rises, I’d expect stock market to perform very poorly, especially in “real dollar” terms. If stock prices fall, I’d expect bond prices (esp. junk bonds) to also fall.
I don’t understand ‘dollar v Euro’. I’m assuming US$ assets from a US$ perspective, for simplicity. The long term average correlation of nominal long term US bond returns and US stock returns is close to zero, a generally understood historical fact AFAIK. Again that means correlation of annualized return by convention calculated over a period of a year or less. So IOW if the past 100 yrs, 100 annual return data points for each, or 1200 monthly ones etc, and what’s the correlation of those annual or monthly returns. But that answer doesn’t depend in broad terms of the exact frequency of data your use, or real v nominal return: it’s pretty low.
If anything the impression of many recency biased investors is that bond returns and stocks returns are significantly negatively correlated since that’s true in notable cases in recent years: eg long term US govt bond prices rose dramatically when the stock market fell dramatically in 2008-9. But over the longer haul there have been times then they correlated positively, eg. when unexpected inflation was the cause of both poor stock and bond performance. But on average it’s close to zero.
I believe I specifically mentioned govt bonds, but anyway that’s what’s typically assumed in discussion of investments when ‘bonds’ are mentioned, govt or at least investment grade bonds. When people mean to refer to junk bonds they usually specifically say so. Yes, junk bond returns have been significantly positively correlated to stock returns.
To take a specific example the annualized correlation of monthly returns of the Vanguard Intermediate Term Treasury fund and their S&P index fund from Nov 1 1991 to the end of 2015 (some numbers I had lying around) was -11%. For the Vanguard High Yield Bond fund v. the S&P fund it was 62%. For treasury fund v junk fund it was 6%.
Cash and stock market nominal returns are uncorrelated pretty much by definition in the limit. A $100 bill is worth $100 next year, nominal, no matter what the stock market does. If you take real return and consider the cash might earn interest but inflation is uncertain then the correlation of real return of cash to that of the stock market is no longer zero but still small as a practical matter.
) laid out, the actual key is that gold has basically 0% real expected return but high standard deviation of return, though low correlation of return to stocks. Cash and bonds have negative to barely positive at best (right now) expected real returns but much lower std dev of return than gold, and also zero-ish return correlation with the stock market.