Me: Take it easy, Ben, I came here just to offer a glass of water... Ben: That sounds great... But it would had been better if you offered me a Water Index ETF Me: ...
As being an investor that is favourable towards gold and holds some of it in his portfolio, this is a hard pill to swallow! But I very much appreciate this video, as it has shown me gold as an asset from different perspectives. I really enjoy your content as it is always backed by academic literature. I will go on to read the paper from Erb & Harvey (2013) and I might reconsider my portfolio allocation in gold. Thank you Ben!
I mean especially with the lack of liquidity. On the stock market, I can sell a share for an instant gain if I wanted to, but with gold, gold brokers are few and far between. It's a great wealth flasher if you have visitors and you wanna show off. But they could easily steal it from you too without you knowing and there's no way to prove that that is your gold without a receipt proving the principle investment. Thus gold would be something to store in a safe. I thought of investing in gold but after seeing this, realizing I need gains now, not in 300 years, not really the right investment for me.
Good video but one correction, the U.S. did not come off the gold standard in 1975, it came off of it in 1934 (when FDR seized U.S. gold). Bretton Woods was not a gold standard. It was a way for US to convince international countries to accept US currency with the promise they could redeem it for dollars backed by gold. US citizens were banned from convertibility and the money supply was not based on gold during the Bretton woods period.
@@BenFelixCSI No problem! I just finished studying the history of gold over the last week or so. I also sent a correction to the Cato Institute. There are a lot of errors in the history of gold. Another myth if interested is people (Cato and many more historians) believe Isaac Newton's decision in 1717 led to a gold standard. But this isn't true. Over-time a lot of broken telephones appear in our history. I think it's important to ensure the history remains intact
With your knowledge of gold’s history, do you think that it has any sort of “intrinsic value”? Or is it an artifact that might not serve the same purpose in the future as it did in the past?
@@BenFelixCSI I took a mining class and there were 4000 tons of gold mined in 2017, 2000 went to jewelry and 300 went to technology the rest was vaulted. So I think it's fair to say gold has some intrinsic value , but I'd agree with your analysis that I'm also not buying oil or silver or any other commodity. I'd rather buy productive assets like a farm. Obviously if all the vaulted gold started flooding the market the price would collapse to dollars so I do think it's quite risky to hold. It is a relic of our ancient monkey brained selves. And it's not a surprise guys like Buffett and Milton Friedman hate gold.
Some elders of my country still prefer to keep some physical gold in their safe boxes. Many of them has been war refugees when they were young, and a few pieces of gold could be a matter of life and death.
Well some gold will help. But then your talking about at most 5 or 15 grams of gold. That is small safety asset, not really an investment. And still: you are dependend on what others will give for the gold. If others have bigger problems or bigger needs, the relative value of gold will be less then people think. I think Ben Felix is also making this case in his video.
thank you so much for consistently providing such high quality and well researched videos. it is an absolute pleasure listening to you breaking things down logically. keep shining and hope you have a good day!
@@Phl3xable And airlines 3 months ago. He's good, not always right. Unfortunately he's old and i thing age is the cause of him missing on some opportunities.
The love your detailed and rigorous analysis. You go in depth and cite scientific sources to back your claims. I wish there were more channels like this!
The expected return is still the same in local currency as the exchange rate already priced in other countries interest rates. And even if you were right, most bonds from "safe" countires still have a negative expected real return (the US 30 year bond for example). You have to look at emerging markets and some other exceptions to get anything above that. But then you're probably losing the low correlation to stocks and just buying additional risk. The summary of this, I belive, is that reseachers never estimated negative interest rates which causes problems for their models. In this scenario and for many years to come, I belive, gold has a better fit over bonds in a portfilio.
@@tiendoan1333 You should never need the money you invest, if that's the case you did something wrong. I have a little bit of gold and i will never really need those money. In addition i don't expect any return there, it's an insurance and in my opinion definitely better than any government bond. And by the way your argument could be used with any security. Good luck when X security crashes and you need the money. That doesn't mean anything.
I have my reservations about this one Ben. My main objection stems from the fact that simulations using historical data after 1970 show that the top performing (on a risk-adjusted base) multi-asset portfolios all included gold. I also believe we should not forget the fact that Buffet is not a fund/portfolio manager and his insights on various issues are often biased based on his own intuitions/beliefs.
Thanks Alex. The period from 1971 through 1980 exhibited extraordinarily high annualized returns for gold (~30% per year). This was also the time period where any formal relationship between USD and gold was eliminated. Removing this extraordinary period changes the data materially. I am highly skeptical that the past returns of gold will persist into the future. Similarly, any portfolio for the past decade that included a small allocation to bitcoin would look far superior. However I am not recommending bitcoin in portfolios either. I think that gold's lack of correlation with stock returns is interesting, but its lack of reasonable return expectations preclude its usefulness in portfolio construction.
A fellow friend and novice investor was trying to sell me on Cypto as "its the new gold". and my response was: "And who told you gold is a good asset to own?". Thanks Ben. This aged very well.
even to me that like having gold now at 2020 during covid crisis found his arguments pretty compelling. I think I'd sell my gold when the time comes after covid crisis and profit the difference. stocks are much better anyway.
I think most of it just comes down to how much you trust government bonds and how much of that opinion comes from the historical data versus your own theories. Dalio has quite the macroeconomic model in his head and I don't think historical data on government bonds will change his opinion very much on the risks they pose. I still would always ask about he fixation on gold versus even other precious metals and non-renewable materials, which just seems to have to be irrational regardless of what fringe macroeconomic theories you hold.
Ray Dalio buys gold for the diversification benefits. Hedge fund managers have to consider that investors don't like wild swings, and that preventing them is worth reducing expected returns. For him, It's a strategy aimed at not losing fickle clients due to human nature, not aimed at maximizing risk adjusted returns.
He only holds around 5% and he has a fantastic team, amazing work culture and great tech giving insights on how to rebalance. For an unsophisticated investor we should probably avoid it.
The lack of yield and cost of holding is precisely what has put me off physical gold in the past. Personally I prefer 5-10% allocation to gold and silver mining stocks in preference with the added advantage (or disadvantage) of leverage.
The Brazil point about hyperinflation is a loaded statement. I can only assume you mean the Real was down 250% against the USD. Then you say gold was STILL down "in Brazil terms" - what does that mean? The bottom line is that gold was down huge in USD terms (probably around 70%) during that cherrypicked period (1980-2000), which coincidentally was the biggest gold bear market in modern history. So yes, a Brazilian would have been better converting their Real to USD, rather than Real to gold, in that specific period. But the analysis changes completely if you pick a period where gold is in an uptrend in USD - like Venezuela's inflation in current times. Here it would be better for a Venezuelan to convert to gold in say 2014/2015/2016, rather than USD. But the most important thing that the paper or your analysis doesn't address is the scenario of major inflation in the reserve currency (USD). The best data of that so far was the 1970's, in which commodities exploded to the upside, especially gold.
Also that was a period which Paul volker (fed chairman) implemented insane 20%+ interest rates. My god if that happened tomorrow I’d dump all my PM’s for bonds. The fact is we’re never going back to that before a major reset. Interest rates will be nearly impossible to raise without imploding the debt based system. So gold is a logical place to store money in this environment. Ben is correct that the gold is an insurance policy. But I believe he’s incorrect in how necessary that insurance policy will become at some point in his life
Any Brazilians with real money and any brains? I guarantee they did NOT hold onto Reals! THAT would be MEGA stupid! And overwhelmingly not gold either. (trouble with trying to use gold as your savings account is the damn loss in premium...you PAY but you WONT get it back) ..Their money is moved around into whatever assets make rather than lose value ....those type folks always keep getting richer while anyone living hand to mouth? sucks hind tit....I was in Brazil years ago and the tour group leader warned us "listen I know you are only here for two weeks but take my advice and only covert currency what you need for a day or so two because inflation really is THAT bad right now" I toured several countries and a few times I simply resorted to dollars rather than currency ....funny thing how many people in other countries have NO problem accepting dollars! LOL...Can you imagine you are a vendor in the US and someone tries to pay with REALS or Pesos or Yaun or even British Pounds of German Marks etc? .....Be like...."Uhhh...NO" And EVEN if they whipped out some tiny bars of GOLD! The typical vendor would be far to skeptical....would say "sorry I don't take metal as money" Though REALLY thinking "yeah right! Probably gold plated tungsten or lead ...NO WAY I'm getting suckered on THAT old ploy"
When a currency is down that much against the dollar there is WAY more going on than just typical offsets in currency valuation... THAT kind of shit denotes a TOTALLY F*CKED up government passing their dumbassedness and/or total CORRUPTION effect (most likely?) ...inflicting such to their citizens! Time to drag out the guillotines! Let the heads ROLL and the blood FLOW! Makes EXAMPLE to the other would be motherf*ckers!
Just to note that Brazil's currency at the time of hyperinflation was not the real and in fact it was created along with the fiscal policy of the time to address exactly this issue
I definitely agree with everything you have said Ben. This video has been extremely useful for my decision of holding gold in my portfolio, which I will not be. I do however trade gold as I am a proprietary trader. My view on this is that gold is an asset that performs better in my technical analysis as apposed to trading currencies. Thanks for the extremely useful information. Cheers!
The last part of my comment was written with tongue in cheek. I would, of course, not base any decision, let alone an investment decision, on a single RUclips video. However, after reading, watching and listening widely, I do often reach the same conclusions as Ben. Particularly in relation to low cost index funds.
@Marc You are all over this comment thread, and of comments I've seen you post, he's replied to every one of the threads. Besides, neither he nor I am obligated to respond to your comments. There's no point in responding to your cherry picked timespan, you're well aware that argument is being made in bad faith. You don't need to get so salty over me making a joke.
Missed that last one. Added a response. Jeez Marc we should collate this comment section into a book. I don't shy away from rebuttals. I only miss notifications :)
The strongest case I heard for gold was from Anthony Deden. He prefers holding gold over cash, treasury bills, and short term bonds. His logic is that he doesn't want his assets to be someone's liability. Hence, a huge percentage of his fund's uninvested amount is parked in gold.
But for selling gold he is subject to what others will give for gold right? So in that case he is still dependend on the decision of other people. So not a strong case after all.
@@heathcliff3873 It's the same for cash. When you sell cash for food, it depends on the decision of the grocery store. If you haven't noticed, every year they ask for more and more cash.
Facts might be correct in this video, but I think the conclusion is wrong. That 10% bond allocation you state would be better than a 10% gold allocation, wont be the case forever with interest rates dropping, and in many countries being negative. My goverments 10 year bonds have -0.65% interest rate. So going forward the expected real return on that bond is obviously not very good. For US based investors that can still get 1-2% on their government bonds, that might still be a better diversifier. But for many of us in europe, I think going forward a 10% gold allocation will outperform a 10% bond allocation.
@@BenFelixCSI Good point. I could own iShares Core Global Aggregate Bond UCITS ETF hedged to euro. With an average weighted yield to maturity of 1.16%. I agree its a valid choice although one with a _negative_ real return considering inflation is above that. So bonds might conceivably be better for me in a portfolio than gold until that ETF hits 0% yield. But then its definately game over for bonds. In other words, I think the information in this video have an experation date on it, since its based on a backtest of bonds during a "goldilocks" period of 1988 to 2019. Viewers should be careful not to extrapolate that bond performance period too far into the future.
@@timmok7862 What's the total return of that ETF if yield goes to 0%? Is there an impediment, like high taxation, that would dissuade you from selling a bond holding for a capital gain?
@@BenFelixCSI Many global bonds are still negative in real terms, especially on the short term duration which gold should be compared to since short term bonds are similar to cash, such as gold buyers see gold being, money.
I'll bet his thoughts are it's impossible to know what individual stock will be a winner or loser. Be safe and buy Low fee broad market diversified ETF instead. As a vegan I wish you luck with your investment though. 🤗🌿
This video was a major eye-opener for me. Due to the elevated amount of uncertainty at the moment, and authoritative voices such as Ray Dalio and Peter Schiff emphasizing gold so hard as a hedge against devaluation of USD, I ended up putting a sizeable portion of my assets into the GLD ETF. Sentiment-wise it’s been working out great so far, but your data-driven arguments about why I shouldn’t rely on that asset were quite convincing. Perhaps it would be a good follow-up video to explain why you think such prominent investing figures (Dalio in particular) are so strongly insistent on the need for gold - specifically as a means of protection against what they see as an impending 'USD crisis’. Do you think they are mistaken? Are they maybe following long-held beliefs and missing the data?
What do you think about the very specific situation currently in Europe/Japan, where riskfree bonds have negetaive interest rates and are a guaranteed loss if kept till maturity.? Dont you think it could be interesting to keep as an Euro Based investor 5-10% Gold in order to create a Portfolio with better risk adjusted returns/less vol than a full equity portfolio ? regards
But how does 5-10% gold create a better risk adjusted return? The upshot of The Gold Dilemma is that gold's a crap shoot. Nobody knows why it goes up or down. Gold may well benefit from negative interest rate fear, but who is to say it will have a better risk adjusted return than, say, dividend paying stocks with historically low volatility?
I have been listening to your channel from a while, and I find all the videos have made my portfolio management decision easy (include this one and one on REITs). So, THANK YOU!
@@ishitrealbad3039 If you're talking about zirconium, nobody wants them. That's why they're sold so cheap. Don't go with them to your wife or girlfriend. She will hate you and think that you're a cheap a-hole.
Ben, I find a fundamental problem in the first example you give citing Buffet as the output created by land or Exxon is measured in US Dollars, so for the comparison to make sense you would need to assume that the US dollar will maintain its reserve currency status. What gold might hedge is the actual loss of purchasing power in case the US Dollar stops being a reserve currency due to a regime change in the international monetary system in which it drops the fiat currency system and go back to a gold backed currency, either physical or via a government issued cryptocurrency, due to “this time will be different” beliefs and gold´s long term historic use as a currency. I agree with what you said, that it actually might hedge catastrophic events like this one. Just sharing my point of view in case you read these comments again, great videos btw!
Gold and Silver are currently up; great time as an individual investor to sell and get out of the metals game completely. I'll never buy assets out of fear or speculation ever again. Buying metals because "the currency will collapse" reminds me of the common real estate tactic of "buy now or you'll never get in the market!". Like real estate, many people earn income from purchase/sale of precious metals. Gonna gradually sell off my metals and use the cash to pay my rent (which after doing the math, my yearly rent is significantly less than 5% of the value of the home I'm living in) CSI for the win! Thank you Ben for all your hard work!
Thanks Leif. I have been surprised at how few of the comments have had this view. It seems that the internet is very pro-gold. I am going to have to do a follow up video.
I own gold just like I would own USD. It is a currency, and can be sold in order to purchase another asset when an opportunity presents itself. It also will still have value if the United States ever ceases to exist (albeit unlikely, it is still possible). I can't say the same about my Treasury bills.
6:58 Brazil....from 1980 to 2000? LOL Ben come on man this is why it's so hard to believe your videos. 1980 Gold was at an all-time inflation adjusted peak and 2000 at its bottom....one could not cherry pick more favorable dates to cause gold to look bad. Why Brazil? Gold is priced in u.s. dollars around the globe?
The price of gold when this video is posted: $1200 The price of gold when I am writing this comment: $1700 40% gain in 9 months. It beats any stock index. I hope no one sold their gold after seeing this video.
I know, the peer review research is nice but the problem is this is not an exact science. History does not repeat itself, I think the gold research in the articles he mentiones failed to mention why the price of gold went up or what what teh cause of the volatility, a very important factor. Something could go up or down in one time period does not predict something going up or down in another period becuase the intrinsic factors are changing (apart from the extrinsic). I think gold does belong in a well balance portfolio, it is my opinion. I just don't like all this "artificial stimulation" and stock buy backs from the companies, I just don't like it it. People getting an edge on their returns by stock buy backs should be a sin in my opinion. Call it instinct I don't know. I just think that if investing was all about "using peer reviewed" research and making decisiones based on that than everyone would be able to seek alpha. There is a lot of stuff we still don't know about. it is nice to be informed, but I am pretty sure newer research will try to refute the past.
@@colin6003 Dow in 1929- 350 points, DOW - 1954 - 350 points. MEGA oops. Wall street is all about selling financial instruments they will justify anything.
the "Golden Butterfly" portfolio with 20 percent allocation to gold has done really well starting every year since 1970. Reasonable returns with very low volatility. Perhaps the gold diversifier is an historical anomaly since Bretton Woods...
Good question. Central banks have a time horizon much longer than most people's investment horizons; central bank gold reserves may also be analogous to holdings of foreign currency, and can be used as a tool to control foreign exchange rates. This does not make holding foreign currency a good investment strategy for individual investors. A lot of the gold may also be part of central banking reasons for historical reasons, since currency used to be pegged to the gold standard.
The Canadian central bank disposed of most of its remaining gold reserves in 2016. *Canada sells off most of its gold reserves* _"The government has a long-standing policy of diversifying its portfolio by selling physical commodities (such as gold) and instead investing in financial assets that are easily tradable and that have deep markets of buyers and sellers."_ www.cbc.ca/news/business/gold-canada-reserves-1.3443700 A 2012 paper looked at the question of why central banks hold gold at all. They found that it is used as a means to signal economic might to other countries. *Central Banks and Gold Puzzles* _"A central bank’s gold position retains the stature of signaling economic might. The intensity of holding gold is correlated with ‘global power’ - by a history of being a past empire, or by the sheer size of a country, especially by countries that are or were the suppliers of key currencies."_ cafin.ucsc.edu/research/sigfirm/pdfs/WPS-2012/WPS%203%20Gold%20Puzzles%20Aizenman%208.2012.pdf
@Carlos The paper is suggesting that central banks are irrationally building up gold reserves to be like the cool kids. It is not a true sign of economic might, but a signalling effort. The UK, very explicitly, sold a huge portion of its gold reserves in 1999 because it was a non-productive asset that had not been performing well. This is similar to Canada's 2016 decision of a similar nature.
The dog pays dividends in the form of companionship and loyalty. The gold pays dividends in the form of peace of mind that not 100% of your assets are in the financial system and depend on trusting governments, banks and insurance companies. Not all bad.
@@WW-to5rc good point. but gold is still money, and money you would use to buy more guns, vodka and cigarettes. Money is a good tool that beats out bartering. Gold is that money.
@@WW-to5rc depends on timing - like everything. I made 40% with my Barrick which I sold now after 3 months. Nice little profit. My Silver ETF made 20%, which I bought 4 months ago and my physical silver and gold is way in profit as well. That I will keep a few years until the "boom" is cooling down - or the Armageddon comes. In a bigger crash, I can sell it and buy bargain stocks. So for a non-profit asst, I made a ton of profit already ;)
I own some gold because, unfortunately, in Italy, we cannot offset losses with ETF gains due to a (stupid) law. However, we can offset them with gold ETCs. Since I shouldn't experience significant losses, a small percentage of gold is enough, and it allows me to avoid investing in individual stocks.
For me gold was an amazing investment. I started saving exactly one and a half years ago (totally debt free from then on) and I invested all of my commissions into it. Bought 6 gold coins for 1000€ each, and they are now 1450€. 45% return ain’t bad. I will sell soon though and use towards a deposit for a home 🏡
Each time I wonder if I should be doing more bizarre things, I watch your videos, and they systematically reinforce the confirmation bias I already have. Thanks much.
I hold gold and silver in my portfolio. They tend to go up when the markets go down and I can use the capital gains from the sales to buy cheap dividend stocks. Gold tends to fly up when terrorism hits, when an economic crisis hits, or a widespread natural disaster hits. These are the best times to sell gold and go bottom feeding for stocks.
I concur, i also did the same as I actually sold about half my stock portfolio in 2018 into GLD. Then when the 2020 crash hit, i sold all my GLD in early 2020 which actually rose in value (while stocks were talking) and then bought back in. In hindsight it seems smart... But now that im more knowledgeable, it would definitely be considered kinda stupid. Anyway, it worked out, so thank u gold.
Agree. My physical gold during turbulent times keeps me afloat and gives me a sense of security while cash, bonds are providing a negative return. Never regretted I kept physical gold in my portfolio. Thanks 'useless' gold.
I'm from Brazil and I have some money in IAU, gold ETF. I do it because Brazil has a very uncertain future by investing in IAU, I'm exposed both to a precious metal and a foreign currency (dollar). In this Corona virus crisis, it's being my bigger win.
Nice video! - goes beyond just buffet vs. dalio. I can see dalio's use of gold as a hedge for a levered long term Gov bond portfolio from an emotional standpoint, but you really laid out the facts showing any hedge benefit is spurious and fleeting. Also you did not mention the holding costs or contango costs of gold (which hurt the argument for gold even more) which you could approximate at libor. So the expected return of gold is really inflation - libor. Yikes.
My gold has gone up 25% over the last few months. And that's just looking at the gold price today versus my purchase price. It ignores the premium I could get for rare/ proof coins. I think It's too late to start buying gold in bulk now though. Too expensive.
@@BenFelixCSI hehe true. I am mainly invested in index funds, but my hobby of coin/PM collecting is a nice little side investment. I plan to sell the bullion if stocks crash in an upcoming recession and buy stocks with the proceeds
Interesting. It is a common strategy. I prefer bonds for the same reason, but maybe gold will be better. The data say it probably won't be, but data can't predict the future!
Hi Ben, nice video and I look forward to the follow up episode regarding gold. It would be nice if you could adress some of the issues with portfolios that include gold, like the "permanent portfolio". Particularly the problem with using gold price data going back to the beginning of the 70's for backtesting these portfolios, as it is worth noting that pre 1971 gold's price was fixated by the government for decades. So after abandoning the gold standard the price of gold increased rapidly during 1973-1975 due to the free market pricing it accordingly after decades of stagnation, which significantly distorts the outcome of these backtests and thus the conclusions of it. Also, I would like to hear about your view on the idiosyncratic risk of gold. As I believe the unsystematic risk of gold is pretty high, as it is an asset of it's own, just like any individual stock almost. In a paradox way this should mean that by overrepresenting gold in a portfolio (just as the permanent portfolio suggests), the overall risk of the portfolio should be higher. For risk reduction, in my opinion an average investor is better of by adding global bonds instead of gold: almost no idiosyncratic risk plus a much lower volatility. Just a few idea for you next video :) Keep up the good work.
I enjoy your videos, but I think it's disingenuous to start your return comparison in 1988. Why wouldn't you start from the end of the U.S. gold standard? In 1988 gold was trading around $400 per ounce. In 1971 gold was priced at $35 per ounce. You're ignoring a 17 year stretch where gold was up over 10 fold.
I would like your perspective on Gold today. World central banks are adding gold in record numbers to protect against fiat currency printing. Are the BRICS not considering backing a new fiat currency with gold? As with all things, it depends on what you paid for it. What stock went from $1800 to $2400 a share in the last three months? However, I did enjoy your video and I will take your points under advisement. Have a great day. 🇨🇦
The only thing that worries me is the limited return data in comparison to the history of gold. I won't be buying gold because i am an addict to cash producing assets but I wouldn't bet against it since there is a lot of risks facing the current global currency
I perceive the European banking system as a huge risk for the global economy. The negative interest rates of the ECB have taken away the credit margin from European banks, which need to cut cost to keep up like the Deutsche Bank cutting 20k jobs. My understanding of the subject is that the ECB is going to print immense amounts of Euros in the case of the banking system collapsing that well see massive inflation in terms of Euros. With stocks being at all time highs and bonds yielding very little to nothing at all I believe Gold to be a decent store of value in the coming years. But that's just my 2 cents. Thanks for your great content. :D
Unfortunately over the next 2 to 3 years I think the sun the moon and all the stars are going to align in phyisical Golds favor. It will switch to something else in an up cycle after. Respect to the skill set of all intelligent investors, but to me it is illogical for anyone to argue against holding an element of Gold physical in today's crazy volatile markets (Unless you are Warren Buffet then game on for you - I think WB is holding serious cash reserves now, I wonder why🤔)
@@BenFelixCSI Good question with too many aspects to cover for a youtube comment. While I do see the future of payment in non-fiat-currencies like bitcoin simply because people are intelligent and will realize what central banks are doing, a widely accepted, non-speculative, flexible and safe crypto currency simply does not exist yet. This is where gold comes in with it´s currency status since the beginning of human civilization, with it only playing a lesser role in the last century where the financial system has undergone massive changes not all benefiting the general public. I suspect, that with an increasing social and financial divide in the population like we see today this deregulated financial system will be increasingly questioned by the public leading yet again to massive change. Due to the fact that I simply do not know which crypto currency will take over the role of the Euro/ Dollar, my bet is on the one thing that has retained its value for millennia. I do understand that my outlook on this topic is very pessimistic, yet one has to agree, that the world changes very rapidly and nothing is here to stay forever, not even the dollar, even though it has been around for quite some time.
Interesting perspective Mario. I get the sentiment. But in the same way that it is not possible to identify which crypto will be *the one,* I don't see how we can settle on gold as the ultimate hedge. I think that the ultimate hedge is a supply of food and ammunition. If we really get to that place, I am highly skeptical that gold is the answer. It has been around for a long time, but the world has changed a lot.
Ben Felix Sure food and ammunition are important on a crisis. But food rottens and both need a lot of storage. If we just had some mean of exchange which maintain it' value and is easy to store...
There is one more matter that concerns me a lot when it comes to precious metals in general. It is the harsh methods mining companies employ to mine precious metals. They (many times) use cyanide to make the mining quicker and easier, or because there is not much gold in an area, at least not in a concentrated form, so they just focus on those little pieces. The problem is that this just desolates nature and ecosystems. It can poison local rivers and brooks, it can cause extinction of some species, and influence lives of people living around the areas where precious metals are mined. So even more than with gold and precious metals themselves, I have a huge problem with investing into mining companies that focus on precious metals. It is also worth mentioning that there is a lot of illegal mining of gold that is also pretty reckless towards nature. For anyone interested, just look up gold mining in Peru. Just to be clear: I know that precious metals are important for many industries and technological sector, but it just makes me sad that the materials are mined so harshly, many times without taking into account the damage done to nature and ecosystems.
An apple is always worth an apple. A bag of wheat is always worth a bag of wheat regardless of how much its price relative to a specific currency has changed. I have read somewhere that regardless of the price of a Toyota, its value is the same relative to gold. That is you can buy a Toyota back in 1972 with the same amount of gold as in 2019. That doesn't hold true with USDs.
I'm by no means a financial expert but I think the reason why we haven't seen any correlation between hyperinflation and gold is because the USD currently functions as the world reserve currency. As such, gold does correlate inversely fairly well against the USD, and I think if we see a dollar crisis gold will shine. The case against the USD is pretty strong. 1T deficits, 22T national debt outpacing GDP growth, huge state and municipal debts, trillions more in unfunded liabilities - it SEEMS like a matter of time before it becomes a calamity. Interesting that Buffet who is a genius made this logical fallacy earlier this year regarding the national debt- "Those who regularly preach doom because of government budget deficits (as I regularly did myself for many years) might note that our country’s national debt has increased roughly 400-fold during the last of my 77-year periods" Buffet has overcome his fear over the national debt because it's grown so dramatically yet hasn't yet been a problem. The reality is the journey is just way longer than he thought, but we are getting ever closer to the the destination. If debt growth remains exponentially greater than wealth growth the debt HAS to become a problem. It's basic arithmetic. When it becomes a problem is the harder question. Central banks lowering interest rates to record lows and printing trillions to buy sovereign debt bonds has brought down both short term and long term interest rates on sovereign bonds which certainly has helped buy some distance from a possible debt crises. But that leads to another USD concern - What is the Fed doing printing money and artificially lowering short term interest rates to such extremes? QE was a dangerous precedent and Pandora's box has now been opened. We should expect to see more of it next crisis. They claimed that QE and lowering the federal fund rates would be temporary measures, and while an effort was made neither have come close to returning to the start point. Never trust government entities when they tell us something is a temporary measure. So it would seem 11 years after the great recession the fed officially gave up the ghost when they announced a halt to quantitative tightening and reverse course from raising rates to lowering rates. This is also when gold prices started to rise - I think the market is figuring it out. I think low interest rates and fed money printing is our new normal. tl;dr gold is a hedge against the USD, which while currently stable is not on a solid foundation.
@@Da_J000 Buying Barrick Gold is not the same thing as buying gold itself. Barrick is a company with potential for growth, even if their core competency is ultimately digging up an asset that does not yield cash flow. Buffett is investing in the business, not the commodity.
I own gold. Psychologically it's a dream investment. As the US market sputters and the US nears collapse from fiscal irresponsibility, it feels so good knowing I'll be strong on the other side. Can't wait to get back to owning productive assets at that time.
This video is pure gold. Or should I say, high-alpha, low-beta, currency hedged, inflation protected, time-series back-tested, high Sharpe, high Sortino, extremely polished and lustrous?
@@BenFelixCSI You don't think so? Wait, lemme tell that to the creator of this video! You WILL hear from him, and then don't say I didn't warn you! Because Sir, I think, it will. When it saves small investors, like me, the opportunity cost of low return gold investments, earning higher alpha elsewhere.
When interest rates are zero, QE infinity is being implemented, and inflation is on the rise, I would rather have gold than bonds. Why would you buy a bond that has a negative inflation-adjusted return? Nonetheless, I look at gold not as an investment but as an alternative to cash. Every portfolio needs some dry powder. I'd rather have dry powder that appreciates rather than dollars that depreciate.
Think the lesson here is to hedge using the international market instead of with gold. As shortfalls in one economy can be more than offset by growth elsewhere. Hedging gold over the global market would imply that you're predicting a global crash.
Your a brave man to take on the Gold Bugs😁😁. Why are Central Banks holding phyisical gold and many more central banks buying physical gold. It's a tier 1 asset. I hold only physical and I can tell you for the little I have, I sleep easier knowing I have it. For something that does not provide a return in dollar terms and only increases based on changing spot price I'm doing phenomenally well this year. No fees, no hardwork no investment skills it's a very peaceful way to save money. I have my traditional investments in play but my personal risk profile and tolerance makes it a no brainer for me to hold an element of gold physical, particularly so in these volatile times. Everything is cyclical and I feel gold is about to shine over the coming years. Invest in gold miners if you have the skill, but save in gold physical. I view physical gold as saving as I'm getting nothing from cash in bank but doing quite well with gold in vault at the minute thank you😎
I would speculate that most central banks hold gold in reserve due to its perceived global market which could allow one country to raise capital in another currency in a crisis. However there are many other assets with a global market that are more liquid and easier to transport. Canada eliminated almost all of its remaining gold reserves in 2016. _"The government has a long-standing policy of diversifying its portfolio by selling physical commodities (such as gold) and instead investing in financial assets that are easily tradable and that have deep markets of buyers and sellers"_
Ricardo that's a fair point, yes I have a small safety deposit box for my house deeds and such like. Gold coins take up such little space relative to their value. Insurance yes thats a personal choice and I do renew it each year but truly as the vault is to a recognised industry standard the insurance cost is minor.
Hi Ben, I am a fan of your work, but I will agree to disagree on your final analysis on physical gold. I'm not all in on gold just enough for peace of mind relative to my understanding of what personal risk is. The one thing that I have learned about gold is that you will always find a buyer and in the quantities I have it's easy to transport😁😁 I bought 50g Pamp Suisse 24k gold bar in an Assey card 2 days ago, that's the size of a credit card that now fits in my wallet that's the equivalent of $2,500.
That's pretty cool, Gerry. I'd probably feel good about having that too. I think that if I really wanted to have this type of currency of last resort in my portfolio I would go with one of the large crypto currencies.
I think it's important to remember that the price of gold is heavily influenced by international coordination between central banks - the very entities whose supposed corruption many would-be gold investors are trying to protect themselves from.
The algorithm has taken me on quite a journey the last four videos: Meet Kevin: Buy gold, Dave Ramsey: Sell the gold and pay off debt, Andrei Jikh: Buy Gold! and now this.
It`s when gold acquires a monetary premium that it really gains values. It has excellent monetary properties: doesn`t tarnish or degrade, small and portable, divisible, can`t be inflated away, etc... When people realize that government currency is not sound, they will insist on transacting in real money: Gold.
I found it interesting that Ray Dalio came out publicly a few months ago touting the benefits of adding gold to your portfolio. Any thought to why someone with Ray’s track record would be investing in gold?
Ray vs Ben. “I know gold sounds like a kooky investment. But gold is just an alternative currency to fiat paper currencies. If your portfolio is likely to perform poorly in the adverse environment I’ve been describing-less effective monetary policy, the need to run larger fiscal deficits and monetize them, and challenging politics-the behavior of gold as alternative cash has some diversifying merit.” - Ray Dalio Here is the article: www.kitco.com/news/2019-07-17/Investors-Are-Underweight-Gold-With-Markets-on-the-Cusp-Paradigm-Shift-Dalio.html
Just curious, what would the 10% allocation returns look like if you held a gold miner/producer (i.e., tickers NEM, or FCX) instead of the commodity itself?
@@BenFelixCSI What about a gold miner ETF like GDX? I guess with the leverage in the market today everything is going to sell off once there is a crash, but looking at the March 2020 crash gold and gold producers went up a lot right after the crash, and then afterwards when the money printer kicked in the indexes caught back up by the end of 2020 and outpaced in 2021.
Sorry, but this one is plain wrong. While it hasn't outperformed the market, things like Harry Browne's Permanent Portfolio has done quite well as a conservative investment. Those with stock/bond/gold portfolios in 2020 have been very happy...especially back in March. The same was true in 2008. Also, both stocks and bonds have VERY low expected returns right now due to valuations (stocks) and record-low interest rates (bonds). Both have been in multi-decade bull markets that won't last forever.
So Ray Dalio's All Weather Portfolio (with 7.5% gold) is floored? I think given how much research he put into it, and judging by his record, having gold is a very good choice.
There's no gold in Dalio's original All-Weather strategy, though there is an asset allocation for commodities ( www.bridgewater.com/research-library/the-all-weather-strategy/ ). What you may be referring to is a version that was simplified for Tony Robbins's book. I don't know why Dalio dumbed-down the Risk Parity strategy for Robbins's book.
Don't forget when you buy gold you have to pay spot price when you sell it everyone says they pay 70% at best to buy it from you so you are already 30% down once you buy it. The buy sell margin is the biggest in investing
Yes, I also have Gold Miner etfs that pay a nice monthly net 4% dividend and right now up 15% on capital invested. This is a nice hedge waiting for cheaper stocks. You need to manage your portfolio, if you can’t do that then don’t use these instruments.
Gold makes sense for investors in countries like India with weaker currency. No matter where you invest on debt side in India currently, minus taxes and currency devaluation, the investments loose value over long term. Hence the gold.
I hear this a lot from gold bugs that gold is a safe haven in a crisis & if you don't trust fiat currency. I'm curious, even if there is such event and you need to use your gold to buy gas for the car, food or pay your mortgage, are you going to carry bits of gold with you to pay for it. No, you are going to have to try to sell it to someone else to get fiat currency. I also hear how you can actually hold your gold in your hand where stocks are on a piece of paper, but unless you are going to carry it around with you, you are going to physically store it somewhere, so it is no longer in your hand, so you probably have to pay additional funds ( once again, currency) to store & insure it) & Gold does not pay a dividend. I have zero gold in my portfolio obviously
I think gold is going to go up a ton soon. It’s hedge against gov dollar printing and debt. I think this time is different and in long term cycle were similar to 1930s like dalio says. So I think now is different then the 20-30 yrs back you’re suggesting
What bond alternatives do we have right now when the yield is negative in most developed countries? Also, the global aggregate bond index hedged in EUR (AGGH), is estimated to bring negative real returns (low yield and high prices). In this macroeconomic scenario, gold does not seem worse than bonds, but cash seems better than both. What would be your choice for the bond part as an European? What else except cash and gold can an investor use taking into account that hedging costs (USD to EUR) are estimated to be about 3% when the global aggregate bond index only brings 2.5% and this does not even count for inflation which is about 1.2% in the eurozone?
I've been waiting for this one. Though I know your analysis is always well-researched and data driven, I had a hunch this would be your stance. I would like to offer some counter arguments and I'll try to keep them as brief as possible. 1) Regarding hyperinflation, you used only one example that happened to be particularly negative for gold. True, there is no guarantee that gold will hold its exact value before, during, and after such a crisis. However, I'm curious to hear what other better alternative there is to gold or silver for someone living during such a time. Even in your particular example of Brazil, gold still did far better than the Brazilian currency even though it was negative. It certainly would've helped the folks living in Venezuela and Argentina if they bought some 10-20 years ago. 2) It's indisputable that gold is an unproductive asset and there exists an opportunity cost with putting even a small part of your portfolio in gold. However, as you state, gold is primarily used as a store or value or hedge, not an investment. People often hold large amounts of cash that are unproductive as well, or very low-yielding or even negative rate bonds. On top of all that if the unproductivity still bothers you, one could invest in gold miners (not exactly the same and carries additional risk) or GLD call options to expose yourself to the price movement of gold for a fraction of the cost. 3) Finally, gold has a long, universal history of being used as a store of value from almost every culture throughout the world. Today many central banks and even central governments hold large stores of gold. Would you consider their actions to be irrational? Humans have always attached value to gold and even today many such large and powerful organizations agree through their actions that gold is still useful as a store of value, why else would they hold so much. I think 5-10% gold or silver in one's portfolio is perfectly sound and rational. You get the benefit of having an uncorrelated asset with a long, tried and tested history.
In Brazil, people used: foreign currency (mainly USD), cars, and real estate, to protect against hyperinflation... And the banking system also had ways to invest money "overnight" - Nobody had money sitting in their checking account, not even for a single day... Most families bought groceries/fuel for the whole month during payday... Supermarkets would change the price of all items daily. Some years had inflation >1000%... It was nuts.
@Edric thanks for the thoughtful comment. 1) I used one example from the paper, but they offered 56 cases of historical hyperinflation in major and minor countries, all occurring in fiat regimes. There was no obvious pattern indicating a relationship between the real price of gold and hyperinflation. I believe that there are many better options. Even losing money in negative yielding German bonds would likely be more stable than an asset like gold which has been historically more volatile than stocks. Foreign currencies, real estate, and bonds all seem to be superior to gold in every way if there are concerns about your home currency. I think that it is also important to keep in mind that owning foreign stocks, while not dealing with the volatility problem, does offer protection against a devaluing currency. If CAD plummets, globally diversified Canadian investors will have fantastic returns. 2) If the goal is to hold a store of value I do not see how gold is the best thing to own. Why not global bonds, foreign currency, real estate etc.? It is not sensible to think that you can substitute gold miners for gold. The correlation of the gold spot price and the MSCI ACWI Select Gold Miners IMI Index has been 0.835 going back to 2003 (when the index starts), but the range of returns for miners has been far wider. In other words, even if the correlation is fairly high, the miners index has had much higher highs and lower lows than the gold spot price. 3) Yes, I consider the actions of many central banks to be irrational. The Canadian central bank disposed of most of its remaining gold reserves in 2016. A 2012 paper looked at the question of why central banks hold gold at all. They found that it is used as a means to signal economic might to other countries. I do not think that gold's history means anything. The world is very different now than it has been in the past. Something is not good simply because it has been good, especially when that goodness is derived from how other people feel about it. I disagree that owning gold is rational. The only argument that I can see is holding it because it feels good. *Central Banks and Gold Puzzles* _"A central bank’s gold position retains the stature of signaling economic might. The intensity of holding gold is correlated with ‘global power’ - by a history of being a past empire, or by the sheer size of a country, especially by countries that are or were the suppliers of key currencies."_ cafin.ucsc.edu/research/sigfirm/pdfs/WPS-2012/WPS%203%20Gold%20Puzzles%20Aizenman%208.2012.pdf
@@MillerMedeiros In the last 20 years in Brazil dollar holdings have yielded a nominal profit of 3 times. Gold holdings for that period yielded a nominal profit of 25 times
The issue with "investing" in gold is timing. While gold has seen an increase in value over the last ten years the increase in stock value dwarfs the increase in the value of gold. Yes, The stock bubble will eventually burst but until then gold against stocks is a loser. The critical thing is timing your withdrawal from stocks before the bubble burst. In the meantime you can still make money in stocks.
Youre watching an cpi bullshit inflation adjusted price chart. It was 800$ in 1980 when we went out of the gold standard. You'd be positive 200% today.
Alex R Gold is a Hedge not so much an investment but even when your adjust for inflation you realize golds purchasing power increases slightly every year. So while it’s a great hedge against the imaginary fiat money it still has a little investment property which is like the cherry on top!
Magoo Gouzoo Discounting inflation is stupid. A $1500 ounce of gold bought today and still $1500 40 years from now is not a good investment. But suckers like you are what keep the market going. My working life started in 1975 when Americans could again buy gold legally. The gold annualized return adjusted for inflation is 3.3% while the S&P with dividends reinvested is just over 7%. Which is the better investment? Maybe ask an adult for help.
You cited that bonds perform better than treasuries as a diversifier, but you did not compare portfolios that add gold to a portfolio that already includes bonds and stocks. I have seen simulations that show that this portfolio allocation has better risk adjusted returns than a standard 80-20 or 60-40 portfolio. And depending on the allocations the true returns can be better too, assuming some kind of regular reallocation.
Hi Ben - thanks for making this video and sharing your perspective on it with us. You say that gold has limited utility in industrial production, yet based on my research I see it having extensive use in industrial production. Medicine, dentistry, microchips, iphones and ipads, and numerous other areas. The only limit to its use seems to be the limit to its supply, as in manufacturers can find substitutes that do almost as good a job as gold, enough to warrant demand for it. But that doesn't mean that gold can't do the job even better. We agree that gold is not a cash flow producing asset, but that's because it has less risk. That doesn't mean the price of gold can't fluctuate, just the price will never be zero. It is a form of authentic cash. So it's holding real cash in your portfolio. Buffett lamenting that gold doesn't produce income or a yield misses the point. A yield is provided when an investor takes risk. Gold doesn't provide a yield because you're just holding cash. From 1975 to 2016 (where the spot gold was even lower than the 2012 Erb and Harvey study you cite), gold increased 1100%, far outpacing the 348% increase in the CPI over that same period. So I'm not following how it wasn't a good inflation hedge during that period of time. When you discuss government bonds being a better negatively correlated asset to stocks than gold, you are focused on a very limited period of time from 1988-2019, when interest rates fell to all time lows and government debt increased significantly. Remember we can't look at very limited periods of time like this and draw conclusions. You've shown us in other videos how many experts made that same mistake with value stocks, and some of them erroneously concluded the value premium disappeared. Again when you look at the price volatility, you are looking at a very limited period of time 1988-2019... and a period of unprecedented monetary expansion under a world-wide US dollar standard, a major cause that has contributed to gold volatility. Understanding the context of when the data was collected is just as important as the data itself. The better return and better risk-adjusted return of a portfolio holding government bonds over that period instead of gold is also limited by the time period examined. I'm not clear how Erb and Harvey concluded it's difficult to take gold with you in a catastrophe. Most people, if they have any savings at all, are of modest means. So most likely if they have a gold allocation of any kind, they could probably fit it in their pockets comfortably. Erb and Harvey also saying that gold won't protect you in an extremely inflationary environment is a bit misleading. I would recommend instead of reading a study, talk to some people who lived through the Brazilian hyper-inflation and ask them if they are glad they had gold. You're probably going to get a very different answer. Even though gold lost 70% of it's value v. U.S. dollar, in real terms in the Brazilian economy it was a huge increase in value. Most Brazilians at the time were not looking at how gold faired v. other currencies or foreign investments. They were concerned about putting food on the table and surviving. Looking at something from an academic mathematical point of view doesn't always tell you what the experience is on the ground in the target area of study. Ben, I appreciate you taking the time to make this video for us. All comments here are with respect, I know social media isn't always the best way to relay positions on topics. But I wanted to share some counterpoints to some of the points you made to give a more complete picture.
Patrick, nice to meet you, my name is Stevan Strambeck and I was so happy to see the video and then read your review. Man, you were exceptional in your placements, and as a Brazilian, I tell you more, happy would be the Brazilians who had bought or "stocked" gold during the period mentioned in the video. After all, today, time shows us that they would be much calmer and more secure with the profitability generated by gold against Brazilian inflation and the maxi devaluation of our currency against the dollar. Congratulations on the review.
I'm also finding the video somewhat misleading, some of which may be due to the paper itself. I looked a bit into the stats for the Brazilian example. Gold's 70% loss of value comes from the fact that the paper takes the peak price of gold pre-2006, which happens to fall into 1980 and then the lowest price since 1980, which happens to fall in the 1999-2001 period. If you shift the period to 1979-1999 you can easily show that gold maintained its value v. USD. What bothers me is that neither the paper nor the video mention this extreme start date sensitivity. I'm trying to get objective information and hiding the start date sensitivity makes me wonder how many of the other stats in the paper and video are carefully picked to support a preconceived argument.
In modern times , a lot ofpeople nneed something small and high value i dont belive that there gonna be times without gold . Its just neccsessery there is nothing better, fiat currency , uncertain market
Okay, fair enough definition. Still Doesn't take into account today situation, US, US stocks, US bonds, Europe and others are at a very high level of risk. the video is a bit blind about it. Brazil, is a thing, US and Europe and another. I understand it's not a speculation channel, it's about education, Porfolio, assets and diversification. Still, at a time where a guy like Ray Dalio ( bridge water, all weather portfolio.. ) is suggesting adding gold to potfolio I think there is something in it.. Anyway, good job, as always, thanks
Thanks. Ray Dalio is coming up a lot. I think it’s important to understand that, as a hedge fund manager, almost all of the things that Dalio does are not things that most individual investors should be doing.
I see, I just saw you also have a video about hedge founds. I will have a look! thanks again for the videos, they are really good quality of information
@@BenFelixCSI Why not? Aren't both trying to maximise profits and minimise risk? I don't understand why we should be using different investment principles as an individual vs a hedge fund.
Hedge funds take a different type of risk. They are attempting to generate equity-like returns with less risk, which sounds great, but they are introducing tremendous active risk. The reality is that there is a massive skew in hedge fund outcomes. A small subset do really well, but the majority do poorly. For an individual investor with limited capital and a non-infinite time horizon this distribution of outcomes is extremely unattractive.
@@BenFelixCSIYeah, that makes sense. When a hedge fund goes under life goes on. When a person looses his nest egg a few years out of retirement, life is over. Thanks for the answer.
Once every couple of weeks my mom (who has never invested in anything in her life) pitches gold as the investment of a lifetime to me. There is always some friend of a friend that I had never heard of before that supposedly got so rich in such a short time by "investing" in gold 💰 I always had a hunch this was BS, probably primarily because of the aforementioned source 😂 Thanks for the great content, really enjoying your vids!
Hi Ben, obviously the world has turned upside down since this. I'm wondering if you still agree with this. Ray Dalio and others are getting bullish on gold. I'd be interested in an update. Excellent channel btw!
gold is the true CURRENCY others are just credit. It is not an asset bcz an asset is something which makes money for you. If you are so worried about hyper inflation then you should buy real estate, it is an asset which increases value with inflation. If you think that recession is going to happen then you should buy bonds and then sell in recession and from that money reinvest in undervalued stocks. Because of volatile nature of gold it is really bad currency as is dependent of people's sentiment and speculation. My father has a gold business in India and for us gold is just commodity not an asset or currency.
Excellent stuff as usual. Gold is only useful as physical in your possession, in the event of catastrophe. Ask Argentines and Venezuelans. ETF is useless as insurance. However I would say in this new world of negative yielding bonds, physical gold may become much more speculative as there is no counterparty risk and I mean that in an attractive sense. Ray Dalio seems to have reached this conclusion. If currencies are destroyed and stagflation or hyperinflation appear, we may enter a short period in history when gold does very well for a few years 😉😁 so perhaps a small allocation of 10 percent not unreasonable.
Great comment, I also think negative yielding bonds and bank accounts with 0 or negative interests are making phyiscal gold very attractive. I also think at the moment it can make sense to hold gold instead of cash or near/below zero yielding bonds. I hold 5% of the portfolio in Gold.
This is when alternative investments as a whole will do extremely well. Just look what’s been happening in the VC and PE world in the past decade, there’s more money than ever because of poor interest rates despite most fund managers losing money.
@mike I don't think that negative bond yields are an argument for a gold allocation. Gold has been more volatile than stocks historically with a much lower return. Bonds have been much more stable. Even if their yields are low, their purpose in an allocation is volatility reduction. Stocks are for return generating, bonds are for volatility reduction, gold is for? Ray Dalio is making a speculative bet on why he thinks that gold will do well. We have to remember that 1. Dalio is not clairvoyant (maybe close though) and 2. Dalio is managing a hedge fund. I don't know about you, but I am not taking advice from any hedge fund managers. @Ana-Maria alternatives as a whole will probably never be a great asset class. You touched on this in your comment: there is a massive skew in the outcomes. A small number of VC/PE/HF will do extremely well, but most do terribly. Unless you can find the winners alts are a tough sell.
@@BenFelixCSI Ben I don't think I can argue with you here. Stocks for growth. Bonds to reduce that growth 😁 and that leaves gold with one virtue only, the lack of counter party risk. So agreed it's not an investment and in a portfolio as an ETF it's probably not even insurance in the event of economic collapse. I reckon Ray Dalio is worried about counterparty default. In the era of unlimited money printing it may be inflation we have to worry about.
@Marc uncorrelated assets improve risk-adjusted returns, but gold is not the only uncorrelated asset available. It is also an asset with no expected return. That is a problem. I backtested a portfolio of 90% Canadian stocks and 10% bonds vs. 90% Canadian stocks and 10% gold back to 1971. In this instance, the returns and risk-adjusted returns are almost identical, with the gold allocation portfolio beating the bond allocation by 4 bps annualized, with a standard deviation 8 bps lower. However, as much as it is easy to criticize excluding this period from the example in the video, I am hesitant to bet on the uncharacteristically high returns from when gold's price was first allowed to float repeating. Gold is not an inflation hedge in the sense that it will appreciate at the time that currencies are losing their purchasing power. It may be an asset that maintains its value during inflationary periods, but assets like stocks and real estate share the same property while having less historical volatility and a positive expected return. I of course agree that economies are cyclical. I do not agree that this creates a place for gold in a portfolio. While I agree that the risks that you are describing are real, there is no reason to believe that gold is the answer. The data from the paper that I referred to in this video examined gold's ability to offer a hedge in an inflationary environment. It's a decision to own an asset and hope (with no reason to do so) that it will maintain its purchasing power at the time that your home currency happens to be losing purchasing power. Why not own more productive assets to accomplish the same? Dalio is a hedge fund manager. He is brilliant and successful. Would I take his advice to own gold? No. This is similar to the way that I would treat the advice of most hedge fund managers. Something that is part of a brilliant hedge fund manager's thesis is more than likely not sensible investment advice for the average person.
I'm a new subscriber, I haven't had any real disagreements with the advice you give in your videos... except for this one. If you're going to quote Warren Buffett as an authority on gold why not also quote Ray Dalio? I've increased more value in savings with precious metals in the last year than I have with stocks & bonds in the previous three years combined.
Ya I agree. I’m going to do a better job explaining why gold is a terrible investment in my next video on the topic. No appeals to authority. Only logic and data. It’s in the queue.
@@BenFelixCSI Dalio talks about a probable paradigm shift in our lifetime (China overtaking USA as leading economy in the world), I'd love your take on that in the next gold video. Keep up the great work!
Ever since civilization began gold is recognized as an universal representation of wealth. It is unlikely that will change as it is ingrained across many cultures. Because of its mystical effect on the human mind, gold will always be of value; especially during times of economic chaos. Human psychology plays a big role in the market and most investors do not invest with common sense. Therefore it is not unwise to hold some speculative assets in your overall portfolio. I held 5% gold and 1% silver and they did the job of cushioning my losses during 2008. Yes they maybe poor investment choices but seeing them came to the rescue when the market went on a free fall was a very nice feeling. If nothing else, a bit of gold offers some peace of mind at least on an emotional level.
The Incans assigned no material value to gold. Just because some civilizations historically used gold as a store of wealth does not mean that it will/ should be expected to maintain that status long-term.
Gold & gold equities can work in a portfolio, look at the 1970s & 2000s. Gold is cheaper to hold in 2019 than German Bunds. The key is to rebalance systematically and ignore the news. William Bernstein has written of the rebalancing bonus which comes from 5% gold equities.
Hi, Ben Felix. Thanks for the great video, as always. I invest in stock & government bonds through all over the world by several ETFs. I saw your recent video about Reits and this video. and I think what you're saying is totally make senses. I'm so fascinated in portfolio diversification. But, feeling little nervous about the idea that, maybe I'm still behind about portfolio diversification. even though I'm investing in almost every country: stocks and bonds both side ! So.. Is there any alternative thing exist to diversify my portfolio.. even more..? Or am I just overthinking..? Need your help ! thx for reading my comment :)
All of Ben's videos: this asset sounds great, right? Wrong! It's shit and you should be investing in ETFs.
Hahahah
Me: Take it easy, Ben, I came here just to offer a glass of water...
Ben: That sounds great... But it would had been better if you offered me a Water Index ETF
Me: ...
Heathcliff you can check @regal.assets on insta gram. Hope you’ll like that
Not quite - GLD is also an ETF. Rather passive broad market index ETFs.
@@20sil Thank you for your insight
As being an investor that is favourable towards gold and holds some of it in his portfolio, this is a hard pill to swallow! But I very much appreciate this video, as it has shown me gold as an asset from different perspectives. I really enjoy your content as it is always backed by academic literature. I will go on to read the paper from Erb & Harvey (2013) and I might reconsider my portfolio allocation in gold. Thank you Ben!
I mean especially with the lack of liquidity. On the stock market, I can sell a share for an instant gain if I wanted to, but with gold, gold brokers are few and far between. It's a great wealth flasher if you have visitors and you wanna show off. But they could easily steal it from you too without you knowing and there's no way to prove that that is your gold without a receipt proving the principle investment. Thus gold would be something to store in a safe. I thought of investing in gold but after seeing this, realizing I need gains now, not in 300 years, not really the right investment for me.
Good video but one correction, the U.S. did not come off the gold standard in 1975, it came off of it in 1934 (when FDR seized U.S. gold). Bretton Woods was not a gold standard. It was a way for US to convince international countries to accept US currency with the promise they could redeem it for dollars backed by gold. US citizens were banned from convertibility and the money supply was not based on gold during the Bretton woods period.
Solid correction. Thanks.
@@BenFelixCSI No problem! I just finished studying the history of gold over the last week or so. I also sent a correction to the Cato Institute. There are a lot of errors in the history of gold. Another myth if interested is people (Cato and many more historians) believe Isaac Newton's decision in 1717 led to a gold standard. But this isn't true. Over-time a lot of broken telephones appear in our history. I think it's important to ensure the history remains intact
With your knowledge of gold’s history, do you think that it has any sort of “intrinsic value”? Or is it an artifact that might not serve the same purpose in the future as it did in the past?
@@BenFelixCSI I took a mining class and there were 4000 tons of gold mined in 2017, 2000 went to jewelry and 300 went to technology the rest was vaulted. So I think it's fair to say gold has some intrinsic value , but I'd agree with your analysis that I'm also not buying oil or silver or any other commodity. I'd rather buy productive assets like a farm. Obviously if all the vaulted gold started flooding the market the price would collapse to dollars so I do think it's quite risky to hold. It is a relic of our ancient monkey brained selves. And it's not a surprise guys like Buffett and Milton Friedman hate gold.
Very interesting. Thank you!
The "Adam ruins everything" of investing
Haha! Great way to put it.
Great analogy lol
Except that Adam doesn’t offer any realistic alternatives. Ben actually tellsyou what you should do (through telling you what not to do)
That's an insult
Minus the smugness and sheltered limo liberalism.
Some elders of my country still prefer to keep some physical gold in their safe boxes. Many of them has been war refugees when they were young, and a few pieces of gold could be a matter of life and death.
@Valens Got Jews out of Nazi Germany, got my parents here from a communist country in 1980s...
Well some gold will help. But then your talking about at most 5 or 15 grams of gold. That is small safety asset, not really an investment. And still: you are dependend on what others will give for the gold. If others have bigger problems or bigger needs, the relative value of gold will be less then people think. I think Ben Felix is also making this case in his video.
Yu-Wei Wang you can check @regal.assets on insta gram. Hope you’ll like that
Heathcliff you can check @regal.assets on insta gram. Hope you’ll like that
@Valens ahhh the luxury of never having lived through a crisis and thinking "it will never happen to me"
thank you so much for consistently providing such high quality and well researched videos. it is an absolute pleasure listening to you breaking things down logically. keep shining and hope you have a good day!
He almost laughed when he said 'fondle the gold' :)
Buffet is right most of the time. Except that you should drink coke every day, everything else is more or less good advice.
He was also dead wrong about Kraft Heinz
@@Phl3xable sehr gut.
@@Phl3xable And airlines 3 months ago. He's good, not always right. Unfortunately he's old and i thing age is the cause of him missing on some opportunities.
@@zampy15021993 You can't really blame him for the airlines to be fair, that came out of nowhere. But yes I agree with your point in general.
He has a ton on fist and gold what does he care and do you really think he wants you next to him at a restaurant?
The love your detailed and rigorous analysis. You go in depth and cite scientific sources to back your claims. I wish there were more channels like this!
"Gold has a expected real return of 0%". My countrys 10 year government bond right now has a nominal negative yield. I think I'll choose the gold.
Have fun when it crashes when you need the money
Tien Doan have fun with your worthless government bond when it crashes. Gold is liquid and can be sold anytime anywhere in the world!!
You don't have to buy your own country's bonds though. You could buy a diverse range of government bonds from around the world.
The expected return is still the same in local currency as the exchange rate already priced in other countries interest rates. And even if you were right, most bonds from "safe" countires still have a negative expected real return (the US 30 year bond for example). You have to look at emerging markets and some other exceptions to get anything above that. But then you're probably losing the low correlation to stocks and just buying additional risk.
The summary of this, I belive, is that reseachers never estimated negative interest rates which causes problems for their models. In this scenario and for many years to come, I belive, gold has a better fit over bonds in a portfilio.
@@tiendoan1333 You should never need the money you invest, if that's the case you did something wrong. I have a little bit of gold and i will never really need those money. In addition i don't expect any return there, it's an insurance and in my opinion definitely better than any government bond.
And by the way your argument could be used with any security. Good luck when X security crashes and you need the money. That doesn't mean anything.
I have my reservations about this one Ben. My main objection stems from the fact that simulations using historical data after 1970 show that the top performing (on a risk-adjusted base) multi-asset portfolios all included gold.
I also believe we should not forget the fact that Buffet is not a fund/portfolio manager and his insights on various issues are often biased based on his own intuitions/beliefs.
Thanks Alex. The period from 1971 through 1980 exhibited extraordinarily high annualized returns for gold (~30% per year). This was also the time period where any formal relationship between USD and gold was eliminated. Removing this extraordinary period changes the data materially. I am highly skeptical that the past returns of gold will persist into the future. Similarly, any portfolio for the past decade that included a small allocation to bitcoin would look far superior. However I am not recommending bitcoin in portfolios either. I think that gold's lack of correlation with stock returns is interesting, but its lack of reasonable return expectations preclude its usefulness in portfolio construction.
@@BenFelixCSI that's a good point. Thanks
A fellow friend and novice investor was trying to sell me on Cypto as "its the new gold". and my response was: "And who told you gold is a good asset to own?". Thanks Ben. This aged very well.
I’m curious to know Ben Felix’s response to Ray Dalio about gold in a portfolio. It would be a really good debate.
I was thinking the same thing
even to me that like having gold now at 2020 during covid crisis found his arguments pretty compelling.
I think I'd sell my gold when the time comes after covid crisis and profit the difference.
stocks are much better anyway.
I think most of it just comes down to how much you trust government bonds and how much of that opinion comes from the historical data versus your own theories. Dalio has quite the macroeconomic model in his head and I don't think historical data on government bonds will change his opinion very much on the risks they pose.
I still would always ask about he fixation on gold versus even other precious metals and non-renewable materials, which just seems to have to be irrational regardless of what fringe macroeconomic theories you hold.
Ray Dalio buys gold for the diversification benefits. Hedge fund managers have to consider that investors don't like wild swings, and that preventing them is worth reducing expected returns. For him, It's a strategy aimed at not losing fickle clients due to human nature, not aimed at maximizing risk adjusted returns.
He only holds around 5% and he has a fantastic team, amazing work culture and great tech giving insights on how to rebalance. For an unsophisticated investor we should probably avoid it.
The lack of yield and cost of holding is precisely what has put me off physical gold in the past. Personally I prefer 5-10% allocation to gold and silver mining stocks in preference with the added advantage (or disadvantage) of leverage.
What about a Gold Mining Company?
Owning gold is like dating a super model. It sits there and really doesn't do much, but damn it's pretty to look at.
The Brazil point about hyperinflation is a loaded statement. I can only assume you mean the Real was down 250% against the USD. Then you say gold was STILL down "in Brazil terms" - what does that mean? The bottom line is that gold was down huge in USD terms (probably around 70%) during that cherrypicked period (1980-2000), which coincidentally was the biggest gold bear market in modern history. So yes, a Brazilian would have been better converting their Real to USD, rather than Real to gold, in that specific period. But the analysis changes completely if you pick a period where gold is in an uptrend in USD - like Venezuela's inflation in current times. Here it would be better for a Venezuelan to convert to gold in say 2014/2015/2016, rather than USD. But the most important thing that the paper or your analysis doesn't address is the scenario of major inflation in the reserve currency (USD). The best data of that so far was the 1970's, in which commodities exploded to the upside, especially gold.
Also that was a period which Paul volker (fed chairman) implemented insane 20%+ interest rates. My god if that happened tomorrow I’d dump all my PM’s for bonds. The fact is we’re never going back to that before a major reset. Interest rates will be nearly impossible to raise without imploding the debt based system. So gold is a logical place to store money in this environment. Ben is correct that the gold is an insurance policy. But I believe he’s incorrect in how necessary that insurance policy will become at some point in his life
Any Brazilians with real money and any brains? I guarantee they did NOT hold onto Reals! THAT would be MEGA stupid! And overwhelmingly not gold either. (trouble with trying to use gold as your savings account is the damn loss in premium...you PAY but you WONT get it back) ..Their money is moved around into whatever assets make rather than lose value ....those type folks always keep getting richer while anyone living hand to mouth? sucks hind tit....I was in Brazil years ago and the tour group leader warned us "listen I know you are only here for two weeks but take my advice and only covert currency what you need for a day or so two because inflation really is THAT bad right now" I toured several countries and a few times I simply resorted to dollars rather than currency ....funny thing how many people in other countries have NO problem accepting dollars! LOL...Can you imagine you are a vendor in the US and someone tries to pay with REALS or Pesos or Yaun or even British Pounds of German Marks etc? .....Be like...."Uhhh...NO" And EVEN if they whipped out some tiny bars of GOLD! The typical vendor would be far to skeptical....would say "sorry I don't take metal as money" Though REALLY thinking "yeah right! Probably gold plated tungsten or lead ...NO WAY I'm getting suckered on THAT old ploy"
When a currency is down that much against the dollar there is WAY more going on than just typical offsets in currency valuation... THAT kind of shit denotes a TOTALLY F*CKED up government passing their dumbassedness and/or total CORRUPTION effect (most likely?) ...inflicting such to their citizens! Time to drag out the guillotines! Let the heads ROLL and the blood FLOW! Makes EXAMPLE to the other would be motherf*ckers!
Just to note that Brazil's currency at the time of hyperinflation was not the real and in fact it was created along with the fiscal policy of the time to address exactly this issue
I definitely agree with everything you have said Ben. This video has been extremely useful for my decision of holding gold in my portfolio, which I will not be.
I do however trade gold as I am a proprietary trader. My view on this is that gold is an asset that performs better in my technical analysis as apposed to trading currencies.
Thanks for the extremely useful information. Cheers!
Thoughtful, logical, evidenced-backed, calmly presented arguments. I don’t own gold in my portfolio, because... Ben Felix.
The last part of my comment was written with tongue in cheek. I would, of course, not base any decision, let alone an investment decision, on a single RUclips video. However, after reading, watching and listening widely, I do often reach the same conclusions as Ben. Particularly in relation to low cost index funds.
@Marc your fear mongering is doing far more of a disservice than my presentation of logical arguments, data, and academic research.
Ben Felix DESTROYS Marc with FACTS and LOGIC
what a polite way of telling him to shut up
@Marc You are all over this comment thread, and of comments I've seen you post, he's replied to every one of the threads. Besides, neither he nor I am obligated to respond to your comments.
There's no point in responding to your cherry picked timespan, you're well aware that argument is being made in bad faith.
You don't need to get so salty over me making a joke.
Missed that last one. Added a response. Jeez Marc we should collate this comment section into a book. I don't shy away from rebuttals. I only miss notifications :)
The strongest case I heard for gold was from Anthony Deden. He prefers holding gold over cash, treasury bills, and short term bonds. His logic is that he doesn't want his assets to be someone's liability. Hence, a huge percentage of his fund's uninvested amount is parked in gold.
But for selling gold he is subject to what others will give for gold right? So in that case he is still dependend on the decision of other people. So not a strong case after all.
Dr. Salman Khan you can check @regal.assets on insta gram. Hope you’ll like that
@@heathcliff3873 It's the same for cash. When you sell cash for food, it depends on the decision of the grocery store. If you haven't noticed, every year they ask for more and more cash.
Facts might be correct in this video, but I think the conclusion is wrong. That 10% bond allocation you state would be better than a 10% gold allocation, wont be the case forever with interest rates dropping, and in many countries being negative. My goverments 10 year bonds have -0.65% interest rate. So going forward the expected real return on that bond is obviously not very good. For US based investors that can still get 1-2% on their government bonds, that might still be a better diversifier. But for many of us in europe, I think going forward a 10% gold allocation will outperform a 10% bond allocation.
That is pure speculation. Plus why can’t you own global bonds? In Canada we have global bond ETFs hedged to Canadian dollars.
@@BenFelixCSI Good point. I could own iShares Core Global Aggregate Bond UCITS ETF hedged to euro. With an average weighted yield to maturity of 1.16%. I agree its a valid choice although one with a _negative_ real return considering inflation is above that. So bonds might conceivably be better for me in a portfolio than gold until that ETF hits 0% yield. But then its definately game over for bonds. In other words, I think the information in this video have an experation date on it, since its based on a backtest of bonds during a "goldilocks" period of 1988 to 2019. Viewers should be careful not to extrapolate that bond performance period too far into the future.
@@timmok7862 What's the total return of that ETF if yield goes to 0%? Is there an impediment, like high taxation, that would dissuade you from selling a bond holding for a capital gain?
@@BenFelixCSI Many global bonds are still negative in real terms, especially on the short term duration which gold should be compared to since short term bonds are similar to cash, such as gold buyers see gold being, money.
I'll bet his thoughts are it's impossible to know what individual stock will be a winner or loser. Be safe and buy Low fee broad market diversified ETF instead.
As a vegan I wish you luck with your investment though. 🤗🌿
Coming from Brazil to say that your channel is really awesome. Thank you for the knowledge you have been passing for us.
This video was a major eye-opener for me. Due to the elevated amount of uncertainty at the moment, and authoritative voices such as Ray Dalio and Peter Schiff emphasizing gold so hard as a hedge against devaluation of USD, I ended up putting a sizeable portion of my assets into the GLD ETF. Sentiment-wise it’s been working out great so far, but your data-driven arguments about why I shouldn’t rely on that asset were quite convincing.
Perhaps it would be a good follow-up video to explain why you think such prominent investing figures (Dalio in particular) are so strongly insistent on the need for gold - specifically as a means of protection against what they see as an impending 'USD crisis’. Do you think they are mistaken? Are they maybe following long-held beliefs and missing the data?
Gold is not an investment 🤦🏾♂️ it’s a hedge a protection u don’t put all ur money in it smh anyway it will be going to 3000+
What do you think about the very specific situation currently in Europe/Japan, where riskfree bonds have negetaive interest rates and are a guaranteed loss if kept till maturity.? Dont you think it could be interesting to keep as an Euro Based investor 5-10% Gold in order to create a Portfolio with better risk adjusted returns/less vol than a full equity portfolio ?
regards
But how does 5-10% gold create a better risk adjusted return? The upshot of The Gold Dilemma is that gold's a crap shoot. Nobody knows why it goes up or down. Gold may well benefit from negative interest rate fear, but who is to say it will have a better risk adjusted return than, say, dividend paying stocks with historically low volatility?
I have been listening to your channel from a while, and I find all the videos have made my portfolio management decision easy (include this one and one on REITs). So, THANK YOU!
You can't print Gold.
That's the problem
But you can print gold backed securities. More people shares of gold then there actually is gold.
until china finds a way to reproduce it, like the did diamonds i think.
@@ishitrealbad3039 If you're talking about zirconium, nobody wants them. That's why they're sold so cheap. Don't go with them to your wife or girlfriend. She will hate you and think that you're a cheap a-hole.
But you can mine it...
Ben, I find a fundamental problem in the first example you give citing Buffet as the output created by land or Exxon is measured in US Dollars, so for the comparison to make sense you would need to assume that the US dollar will maintain its reserve currency status. What gold might hedge is the actual loss of purchasing power in case the US Dollar stops being a reserve currency due to a regime change in the international monetary system in which it drops the fiat currency system and go back to a gold backed currency, either physical or via a government issued cryptocurrency, due to “this time will be different” beliefs and gold´s long term historic use as a currency. I agree with what you said, that it actually might hedge catastrophic events like this one. Just sharing my point of view in case you read these comments again, great videos btw!
Gold and Silver are currently up; great time as an individual investor to sell and get out of the metals game completely.
I'll never buy assets out of fear or speculation ever again.
Buying metals because "the currency will collapse" reminds me of the common real estate tactic of "buy now or you'll never get in the market!".
Like real estate, many people earn income from purchase/sale of precious metals.
Gonna gradually sell off my metals and use the cash to pay my rent (which after doing the math, my yearly rent is significantly less than 5% of the value of the home I'm living in)
CSI for the win!
Thank you Ben for all your hard work!
Thanks Leif. I have been surprised at how few of the comments have had this view. It seems that the internet is very pro-gold. I am going to have to do a follow up video.
I own gold just like I would own USD. It is a currency, and can be sold in order to purchase another asset when an opportunity presents itself. It also will still have value if the United States ever ceases to exist (albeit unlikely, it is still possible). I can't say the same about my Treasury bills.
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6:58 Brazil....from 1980 to 2000? LOL Ben come on man this is why it's so hard to believe your videos. 1980 Gold was at an all-time inflation adjusted peak and 2000 at its bottom....one could not cherry pick more favorable dates to cause gold to look bad. Why Brazil? Gold is priced in u.s. dollars around the globe?
The price of gold when this video is posted: $1200
The price of gold when I am writing this comment: $1700
40% gain in 9 months. It beats any stock index.
I hope no one sold their gold after seeing this video.
Negative correlation to stocks and hedge against inflation. Makes sense considering how things are right now.
@@UnimpressedI RN thinking the same thing
I know, the peer review research is nice but the problem is this is not an exact science. History does not repeat itself, I think the gold research in the articles he mentiones failed to mention why the price of gold went up or what what teh cause of the volatility, a very important factor. Something could go up or down in one time period does not predict something going up or down in another period becuase the intrinsic factors are changing (apart from the extrinsic). I think gold does belong in a well balance portfolio, it is my opinion. I just don't like all this "artificial stimulation" and stock buy backs from the companies, I just don't like it it. People getting an edge on their returns by stock buy backs should be a sin in my opinion. Call it instinct I don't know. I just think that if investing was all about "using peer reviewed" research and making decisiones based on that than everyone would be able to seek alpha. There is a lot of stuff we still don't know about. it is nice to be informed, but I am pretty sure newer research will try to refute the past.
Price of gold in 2011 - $1900. Price of gold today - $1700. Oops.
@@colin6003 Dow in 1929- 350 points, DOW - 1954 - 350 points. MEGA oops. Wall street is all about selling financial instruments they will justify anything.
the "Golden Butterfly" portfolio with 20 percent allocation to gold has done really well starting every year since 1970. Reasonable returns with very low volatility. Perhaps the gold diversifier is an historical anomaly since Bretton Woods...
Thanks for watching and commenting, for more guidance ...
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Why do Central banks store tonnes of the stuff? 😀
Good question. Central banks have a time horizon much longer than most people's investment horizons; central bank gold reserves may also be analogous to holdings of foreign currency, and can be used as a tool to control foreign exchange rates. This does not make holding foreign currency a good investment strategy for individual investors. A lot of the gold may also be part of central banking reasons for historical reasons, since currency used to be pegged to the gold standard.
The Canadian central bank disposed of most of its remaining gold reserves in 2016.
*Canada sells off most of its gold reserves*
_"The government has a long-standing policy of diversifying its portfolio by selling physical commodities (such as gold) and instead investing in financial assets that are easily tradable and that have deep markets of buyers and sellers."_
www.cbc.ca/news/business/gold-canada-reserves-1.3443700
A 2012 paper looked at the question of why central banks hold gold at all. They found that it is used as a means to signal economic might to other countries.
*Central Banks and Gold Puzzles*
_"A central bank’s gold position retains the stature of signaling economic might. The intensity of holding gold is correlated with ‘global power’ - by a history of being a past empire, or by the sheer size of a country, especially by countries that are or were the suppliers of key currencies."_
cafin.ucsc.edu/research/sigfirm/pdfs/WPS-2012/WPS%203%20Gold%20Puzzles%20Aizenman%208.2012.pdf
@@BenFelixCSI if that was true, United Kingdom gold reserve should be higher than say Japan, Russia or Switzerland?
@Carlos The paper is suggesting that central banks are irrationally building up gold reserves to be like the cool kids. It is not a true sign of economic might, but a signalling effort. The UK, very explicitly, sold a huge portion of its gold reserves in 1999 because it was a non-productive asset that had not been performing well. This is similar to Canada's 2016 decision of a similar nature.
What is the rationale behind China buying up a lot of gold? Diversification?
the best valuable channel on yt ever
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I like my gold. My dog does not pay dividend but I like my dog anyway. When things go wrong, I can grab a few ounces and hire a place on a ship.
ruclips.net/video/C8cURkwIqLs/видео.html&t=38
😂 if gold makes you happy that’s fine.
The dog pays dividends in the form of companionship and loyalty. The gold pays dividends in the form of peace of mind that not 100% of your assets are in the financial system and depend on trusting governments, banks and insurance companies. Not all bad.
@@WW-to5rc good point. but gold is still money, and money you would use to buy more guns, vodka and cigarettes. Money is a good tool that beats out bartering. Gold is that money.
@@WW-to5rc depends on timing - like everything. I made 40% with my Barrick which I sold now after 3 months. Nice little profit. My Silver ETF made 20%, which I bought 4 months ago and my physical silver and gold is way in profit as well. That I will keep a few years until the "boom" is cooling down - or the Armageddon comes. In a bigger crash, I can sell it and buy bargain stocks. So for a non-profit asst, I made a ton of profit already ;)
I own some gold because, unfortunately, in Italy, we cannot offset losses with ETF gains due to a (stupid) law. However, we can offset them with gold ETCs. Since I shouldn't experience significant losses, a small percentage of gold is enough, and it allows me to avoid investing in individual stocks.
For me gold was an amazing investment. I started saving exactly one and a half years ago (totally debt free from then on) and I invested all of my commissions into it. Bought 6 gold coins for 1000€ each, and they are now 1450€. 45% return ain’t bad. I will sell soon though and use towards a deposit for a home 🏡
That shows gold has given you an excellent gain.
Congratulations on having good timing. It’s better to be lucky than good.
Each time I wonder if I should be doing more bizarre things, I watch your videos, and they systematically reinforce the confirmation bias I already have. Thanks much.
I hold gold and silver in my portfolio. They tend to go up when the markets go down and I can use the capital gains from the sales to buy cheap dividend stocks. Gold tends to fly up when terrorism hits, when an economic crisis hits, or a widespread natural disaster hits. These are the best times to sell gold and go bottom feeding for stocks.
I concur, i also did the same as I actually sold about half my stock portfolio in 2018 into GLD. Then when the 2020 crash hit, i sold all my GLD in early 2020 which actually rose in value (while stocks were talking) and then bought back in. In hindsight it seems smart... But now that im more knowledgeable, it would definitely be considered kinda stupid. Anyway, it worked out, so thank u gold.
Agree. My physical gold during turbulent times keeps me afloat and gives me a sense of security while cash, bonds are providing a negative return. Never regretted I kept physical gold in my portfolio. Thanks 'useless' gold.
I'm from Brazil and I have some money in IAU, gold ETF. I do it because Brazil has a very uncertain future by investing in IAU, I'm exposed both to a precious metal and a foreign currency (dollar).
In this Corona virus crisis, it's being my bigger win.
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Nice video! - goes beyond just buffet vs. dalio. I can see dalio's use of gold as a hedge for a levered long term Gov bond portfolio from an emotional standpoint, but you really laid out the facts showing any hedge benefit is spurious and fleeting.
Also you did not mention the holding costs
or contango costs of gold (which hurt the argument for gold even more) which you could approximate at libor. So the expected return of gold is really inflation - libor. Yikes.
Great points.
My gold has gone up 25% over the last few months. And that's just looking at the gold price today versus my purchase price. It ignores the premium I could get for rare/ proof coins.
I think It's too late to start buying gold in bulk now though. Too expensive.
Hmmm. Username checks out.
@@BenFelixCSI hehe true. I am mainly invested in index funds, but my hobby of coin/PM collecting is a nice little side investment. I plan to sell the bullion if stocks crash in an upcoming recession and buy stocks with the proceeds
Interesting. It is a common strategy. I prefer bonds for the same reason, but maybe gold will be better. The data say it probably won't be, but data can't predict the future!
Can you help me get buyers for my grandad's gold ?
Hi Ben,
nice video and I look forward to the follow up episode regarding gold.
It would be nice if you could adress some of the issues with portfolios that include gold, like the "permanent portfolio". Particularly the problem with using gold price data going back to the beginning of the 70's for backtesting these portfolios, as it is worth noting that pre 1971 gold's price was fixated by the government for decades. So after abandoning the gold standard the price of gold increased rapidly during 1973-1975 due to the free market pricing it accordingly after decades of stagnation, which significantly distorts the outcome of these backtests and thus the conclusions of it.
Also, I would like to hear about your view on the idiosyncratic risk of gold. As I believe the unsystematic risk of gold is pretty high, as it is an asset of it's own, just like any individual stock almost. In a paradox way this should mean that by overrepresenting gold in a portfolio (just as the permanent portfolio suggests), the overall risk of the portfolio should be higher. For risk reduction, in my opinion an average investor is better of by adding global bonds instead of gold: almost no idiosyncratic risk plus a much lower volatility.
Just a few idea for you next video :)
Keep up the good work.
I enjoy your videos, but I think it's disingenuous to start your return comparison in 1988. Why wouldn't you start from the end of the U.S. gold standard? In 1988 gold was trading around $400 per ounce. In 1971 gold was priced at $35 per ounce. You're ignoring a 17 year stretch where gold was up over 10 fold.
Absolutely agree with you - this video is disengenous on a number of fronts.
I would like your perspective on Gold today. World central banks are adding gold in record numbers to protect against fiat currency printing. Are the BRICS not considering backing a new fiat currency with gold? As with all things, it depends on what you paid for it. What stock went from $1800 to $2400 a share in the last three months? However, I did enjoy your video and I will take your points under advisement. Have a great day. 🇨🇦
This is correct. This video is such a narrow sighted outlook on gold. It's headed back to being the world reserve asset
The only thing that worries me is the limited return data in comparison to the history of gold. I won't be buying gold because i am an addict to cash producing assets but I wouldn't bet against it since there is a lot of risks facing the current global currency
I perceive the European banking system as a huge risk for the global economy. The negative interest rates of the ECB have taken away the credit margin from European banks, which need to cut cost to keep up like the Deutsche Bank cutting 20k jobs. My understanding of the subject is that the ECB is going to print immense amounts of Euros in the case of the banking system collapsing that well see massive inflation in terms of Euros. With stocks being at all time highs and bonds yielding very little to nothing at all I believe Gold to be a decent store of value in the coming years. But that's just my 2 cents. Thanks for your great content. :D
Unfortunately over the next 2 to 3 years I think the sun the moon and all the stars are going to align in phyisical Golds favor. It will switch to something else in an up cycle after. Respect to the skill set of all intelligent investors, but to me it is illogical for anyone to argue against holding an element of Gold physical in today's crazy volatile markets (Unless you are Warren Buffet then game on for you - I think WB is holding serious cash reserves now, I wonder why🤔)
Why gold and not bitcoin?
@@BenFelixCSI Good question with too many aspects to cover for a youtube comment. While I do see the future of payment in non-fiat-currencies like bitcoin simply because people are intelligent and will realize what central banks are doing, a widely accepted, non-speculative, flexible and safe crypto currency simply does not exist yet. This is where gold comes in with it´s currency status since the beginning of human civilization, with it only playing a lesser role in the last century where the financial system has undergone massive changes not all benefiting the general public. I suspect, that with an increasing social and financial divide in the population like we see today this deregulated financial system will be increasingly questioned by the public leading yet again to massive change. Due to the fact that I simply do not know which crypto currency will take over the role of the Euro/ Dollar, my bet is on the one thing that has retained its value for millennia.
I do understand that my outlook on this topic is very pessimistic, yet one has to agree, that the world changes very rapidly and nothing is here to stay forever, not even the dollar, even though it has been around for quite some time.
Interesting perspective Mario. I get the sentiment. But in the same way that it is not possible to identify which crypto will be *the one,* I don't see how we can settle on gold as the ultimate hedge. I think that the ultimate hedge is a supply of food and ammunition. If we really get to that place, I am highly skeptical that gold is the answer. It has been around for a long time, but the world has changed a lot.
Ben Felix Sure food and ammunition are important on a crisis. But food rottens and both need a lot of storage. If we just had some mean of exchange which maintain it' value and is easy to store...
There is one more matter that concerns me a lot when it comes to precious metals in general.
It is the harsh methods mining companies employ to mine precious metals. They (many times) use cyanide to make the mining quicker and easier, or because there is not much gold in an area, at least not in a concentrated form, so they just focus on those little pieces. The problem is that this just desolates nature and ecosystems. It can poison local rivers and brooks, it can cause extinction of some species, and influence lives of people living around the areas where precious metals are mined. So even more than with gold and precious metals themselves, I have a huge problem with investing into mining companies that focus on precious metals. It is also worth mentioning that there is a lot of illegal mining of gold that is also pretty reckless towards nature. For anyone interested, just look up gold mining in Peru.
Just to be clear: I know that precious metals are important for many industries and technological sector, but it just makes me sad that the materials are mined so harshly, many times without taking into account the damage done to nature and ecosystems.
Do other precious metals (silver, platinum, palladium) or jem stone (diamond, rubies, saphires) share the same fate as gold within a Portfolio?
Yes
Probably
First sensible talk on gold
An apple is always worth an apple. A bag of wheat is always worth a bag of wheat regardless of how much its price relative to a specific currency has changed. I have read somewhere that regardless of the price of a Toyota, its value is the same relative to gold. That is you can buy a Toyota back in 1972 with the same amount of gold as in 2019. That doesn't hold true with USDs.
I'm by no means a financial expert but I think the reason why we haven't seen any correlation between hyperinflation and gold is because the USD currently functions as the world reserve currency. As such, gold does correlate inversely fairly well against the USD, and I think if we see a dollar crisis gold will shine.
The case against the USD is pretty strong. 1T deficits, 22T national debt outpacing GDP growth, huge state and municipal debts, trillions more in unfunded liabilities - it SEEMS like a matter of time before it becomes a calamity.
Interesting that Buffet who is a genius made this logical fallacy earlier this year regarding the national debt-
"Those who regularly preach doom because of government budget deficits (as I regularly did myself for many years) might note that our country’s national debt has increased roughly 400-fold during the last of my 77-year periods"
Buffet has overcome his fear over the national debt because it's grown so dramatically yet hasn't yet been a problem. The reality is the journey is just way longer than he thought, but we are getting ever closer to the the destination. If debt growth remains exponentially greater than wealth growth the debt HAS to become a problem. It's basic arithmetic. When it becomes a problem is the harder question. Central banks lowering interest rates to record lows and printing trillions to buy sovereign debt bonds has brought down both short term and long term interest rates on sovereign bonds which certainly has helped buy some distance from a possible debt crises. But that leads to another USD concern -
What is the Fed doing printing money and artificially lowering short term interest rates to such extremes? QE was a dangerous precedent and Pandora's box has now been opened. We should expect to see more of it next crisis. They claimed that QE and lowering the federal fund rates would be temporary measures, and while an effort was made neither have come close to returning to the start point. Never trust government entities when they tell us something is a temporary measure. So it would seem 11 years after the great recession the fed officially gave up the ghost when they announced a halt to quantitative tightening and reverse course from raising rates to lowering rates. This is also when gold prices started to rise - I think the market is figuring it out. I think low interest rates and fed money printing is our new normal.
tl;dr gold is a hedge against the USD, which while currently stable is not on a solid foundation.
So, is it better to purchase bonds instead?
I own like 2-4% of my portfolio in gold bullion because it’s really shiny and my reptile brain likes the idea of having it
Maybe we should ask Buffett about his massive silver position he took years back.
JP Morgan has the biggest physical holding of silver in the United States for sure, and they only started accumulating in 2005/2007
shhhhhhhhhh
He said it was one of the worst investment mistakes he has ever made.
Latest news - Buffett brought about ¬500mio of barrick gold last week
@@Da_J000 Buying Barrick Gold is not the same thing as buying gold itself. Barrick is a company with potential for growth, even if their core competency is ultimately digging up an asset that does not yield cash flow. Buffett is investing in the business, not the commodity.
I own gold. Psychologically it's a dream investment. As the US market sputters and the US nears collapse from fiscal irresponsibility, it feels so good knowing I'll be strong on the other side. Can't wait to get back to owning productive assets at that time.
Can you explain why gold is recently being bought by many banks than?
This video is pure gold.
Or should I say, high-alpha, low-beta, currency hedged, inflation protected, time-series back-tested, high Sharpe, high Sortino, extremely polished and lustrous?
I don't think that we have sufficient data to say that this video produced real alpha.
@@BenFelixCSI You don't think so? Wait, lemme tell that to the creator of this video! You WILL hear from him, and then don't say I didn't warn you!
Because Sir, I think, it will. When it saves small investors, like me, the opportunity cost of low return gold investments, earning higher alpha elsewhere.
I like it. Alpha confirmed.
When interest rates are zero, QE infinity is being implemented, and inflation is on the rise, I would rather have gold than bonds. Why would you buy a bond that has a negative inflation-adjusted return?
Nonetheless, I look at gold not as an investment but as an alternative to cash. Every portfolio needs some dry powder. I'd rather have dry powder that appreciates rather than dollars that depreciate.
Think the lesson here is to hedge using the international market instead of with gold. As shortfalls in one economy can be more than offset by growth elsewhere. Hedging gold over the global market would imply that you're predicting a global crash.
where is the evidence that inflation is on the rise?
@@Shadow1986 Asset prices
@@TXLionHeart which specific assets are your refering to?
@@Shadow1986 Which asset prices haven't been inflated? lol
Your a brave man to take on the Gold Bugs😁😁. Why are Central Banks holding phyisical gold and many more central banks buying physical gold. It's a tier 1 asset. I hold only physical and I can tell you for the little I have, I sleep easier knowing I have it. For something that does not provide a return in dollar terms and only increases based on changing spot price I'm doing phenomenally well this year. No fees, no hardwork no investment skills it's a very peaceful way to save money. I have my traditional investments in play but my personal risk profile and tolerance makes it a no brainer for me to hold an element of gold physical, particularly so in these volatile times. Everything is cyclical and I feel gold is about to shine over the coming years. Invest in gold miners if you have the skill, but save in gold physical. I view physical gold as saving as I'm getting nothing from cash in bank but doing quite well with gold in vault at the minute thank you😎
so you have pshisical gold, do you have to pay insurance and storage for it?
I would speculate that most central banks hold gold in reserve due to its perceived global market which could allow one country to raise capital in another currency in a crisis. However there are many other assets with a global market that are more liquid and easier to transport. Canada eliminated almost all of its remaining gold reserves in 2016.
_"The government has a long-standing policy of diversifying its portfolio by selling physical commodities (such as gold) and instead investing in financial assets that are easily tradable and that have deep markets of buyers and sellers"_
Ricardo that's a fair point, yes I have a small safety deposit box for my house deeds and such like. Gold coins take up such little space relative to their value. Insurance yes thats a personal choice and I do renew it each year but truly as the vault is to a recognised industry standard the insurance cost is minor.
Hi Ben, I am a fan of your work, but I will agree to disagree on your final analysis on physical gold. I'm not all in on gold just enough for peace of mind relative to my understanding of what personal risk is. The one thing that I have learned about gold is that you will always find a buyer and in the quantities I have it's easy to transport😁😁 I bought 50g Pamp Suisse 24k gold bar in an Assey card 2 days ago, that's the size of a credit card that now fits in my wallet that's the equivalent of $2,500.
That's pretty cool, Gerry. I'd probably feel good about having that too. I think that if I really wanted to have this type of currency of last resort in my portfolio I would go with one of the large crypto currencies.
I think it's important to remember that the price of gold is heavily influenced by international coordination between central banks - the very entities whose supposed corruption many would-be gold investors are trying to protect themselves from.
bluequiltedness you can find something great on @regal.assets on Instagram
This dude is the anti-BS investment dude. Such a dude.
The algorithm has taken me on quite a journey the last four videos: Meet Kevin: Buy gold, Dave Ramsey: Sell the gold and pay off debt, Andrei Jikh: Buy Gold! and now this.
Met Kevin is gambling addict , Andrei is good at editing videos not giving financial advice
It`s when gold acquires a monetary premium that it really gains values. It has excellent monetary properties: doesn`t tarnish or degrade, small and portable, divisible, can`t be inflated away, etc... When people realize that government currency is not sound, they will insist on transacting in real money: Gold.
you can find something great on @regal.assets on Instagram .....
I found it interesting that Ray Dalio came out publicly a few months ago touting the benefits of adding gold to your portfolio. Any thought to why someone with Ray’s track record would be investing in gold?
Ray vs Ben.
“I know gold sounds like a kooky investment. But gold is just an alternative currency to fiat paper currencies. If your portfolio is likely to perform poorly in the adverse environment I’ve been describing-less effective monetary policy, the need to run larger fiscal deficits and monetize them, and challenging politics-the behavior of gold as alternative cash has some diversifying merit.” - Ray Dalio
Here is the article: www.kitco.com/news/2019-07-17/Investors-Are-Underweight-Gold-With-Markets-on-the-Cusp-Paradigm-Shift-Dalio.html
@@syncmeandroid www.igmchicago.org/surveys/gold-standard/
Ben was trying very hard not to laugh at 9:04 xD
Just curious, what would the 10% allocation returns look like if you held a gold miner/producer (i.e., tickers NEM, or FCX) instead of the commodity itself?
It would depend on the miner. In terms of portfolio theory, adding any individual stock is probably not a good idea.
@@BenFelixCSI What about a gold miner ETF like GDX? I guess with the leverage in the market today everything is going to sell off once there is a crash, but looking at the March 2020 crash gold and gold producers went up a lot right after the crash, and then afterwards when the money printer kicked in the indexes caught back up by the end of 2020 and outpaced in 2021.
Sorry, but this one is plain wrong. While it hasn't outperformed the market, things like Harry Browne's Permanent Portfolio has done quite well as a conservative investment. Those with stock/bond/gold portfolios in 2020 have been very happy...especially back in March. The same was true in 2008. Also, both stocks and bonds have VERY low expected returns right now due to valuations (stocks) and record-low interest rates (bonds). Both have been in multi-decade bull markets that won't last forever.
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So Ray Dalio's All Weather Portfolio (with 7.5% gold) is floored? I think given how much research he put into it, and judging by his record, having gold is a very good choice.
There's no gold in Dalio's original All-Weather strategy, though there is an asset allocation for commodities ( www.bridgewater.com/research-library/the-all-weather-strategy/ ). What you may be referring to is a version that was simplified for Tony Robbins's book. I don't know why Dalio dumbed-down the Risk Parity strategy for Robbins's book.
Don't forget when you buy gold you have to pay spot price when you sell it everyone says they pay 70% at best to buy it from you so you are already 30% down once you buy it. The buy sell margin is the biggest in investing
I own Gold & Silver in the form of ETFs and sell covered calls against it. That way you can produce cashflow off of it
Interesting perspective
Yes, I also have Gold Miner etfs that pay a nice monthly net 4% dividend and right now up 15% on capital invested. This is a nice hedge waiting for cheaper stocks. You need to manage your portfolio, if you can’t do that then don’t use these instruments.
Gold makes sense for investors in countries like India with weaker currency. No matter where you invest on debt side in India currently, minus taxes and currency devaluation, the investments loose value over long term. Hence the gold.
I hear this a lot from gold bugs that gold is a safe haven in a crisis & if you don't trust fiat currency. I'm curious, even if there is such event and you need to use your gold to buy gas for the car, food or pay your mortgage, are you going to carry bits of gold with you to pay for it. No, you are going to have to try to sell it to someone else to get fiat currency. I also hear how you can actually hold your gold in your hand where stocks are on a piece of paper, but unless you are going to carry it around with you, you are going to physically store it somewhere, so it is no longer in your hand, so you probably have to pay additional funds ( once again, currency) to store & insure it) & Gold does not pay a dividend. I have zero gold in my portfolio obviously
Well spoken!
Just imagine world trades return to Gold as a main way of payment. Then you will understand how valuable gold is.
I think gold is going to go up a ton soon. It’s hedge against gov dollar printing and debt. I think this time is different and in long term cycle were similar to 1930s like dalio says. So I think now is different then the 20-30 yrs back you’re suggesting
What bond alternatives do we have right now when the yield is negative in most developed countries?
Also, the global aggregate bond index hedged in EUR (AGGH), is estimated to bring negative real returns (low yield and high prices). In this macroeconomic scenario, gold does not seem worse than bonds, but cash seems better than both.
What would be your choice for the bond part as an European? What else except cash and gold can an investor use taking into account that hedging costs (USD to EUR) are estimated to be about 3% when the global aggregate bond index only brings 2.5% and this does not even count for inflation which is about 1.2% in the eurozone?
I want know your thoughts on Robert Kiyosaki. Can you do a video on his investment advice ike you did for Dave Ramsay?
Should we keep our investment in bond now or switch to gold?
I've been waiting for this one. Though I know your analysis is always well-researched and data driven, I had a hunch this would be your stance. I would like to offer some counter arguments and I'll try to keep them as brief as possible.
1) Regarding hyperinflation, you used only one example that happened to be particularly negative for gold. True, there is no guarantee that gold will hold its exact value before, during, and after such a crisis. However, I'm curious to hear what other better alternative there is to gold or silver for someone living during such a time. Even in your particular example of Brazil, gold still did far better than the Brazilian currency even though it was negative. It certainly would've helped the folks living in Venezuela and Argentina if they bought some 10-20 years ago.
2) It's indisputable that gold is an unproductive asset and there exists an opportunity cost with putting even a small part of your portfolio in gold. However, as you state, gold is primarily used as a store or value or hedge, not an investment. People often hold large amounts of cash that are unproductive as well, or very low-yielding or even negative rate bonds. On top of all that if the unproductivity still bothers you, one could invest in gold miners (not exactly the same and carries additional risk) or GLD call options to expose yourself to the price movement of gold for a fraction of the cost.
3) Finally, gold has a long, universal history of being used as a store of value from almost every culture throughout the world. Today many central banks and even central governments hold large stores of gold. Would you consider their actions to be irrational? Humans have always attached value to gold and even today many such large and powerful organizations agree through their actions that gold is still useful as a store of value, why else would they hold so much.
I think 5-10% gold or silver in one's portfolio is perfectly sound and rational. You get the benefit of having an uncorrelated asset with a long, tried and tested history.
In Brazil, people used: foreign currency (mainly USD), cars, and real estate, to protect against hyperinflation...
And the banking system also had ways to invest money "overnight" - Nobody had money sitting in their checking account, not even for a single day...
Most families bought groceries/fuel for the whole month during payday... Supermarkets would change the price of all items daily.
Some years had inflation >1000%... It was nuts.
@Edric thanks for the thoughtful comment.
1) I used one example from the paper, but they offered 56 cases of historical hyperinflation in major and minor countries, all occurring in fiat regimes. There was no obvious pattern indicating a relationship between the real price of gold and hyperinflation. I believe that there are many better options. Even losing money in negative yielding German bonds would likely be more stable than an asset like gold which has been historically more volatile than stocks. Foreign currencies, real estate, and bonds all seem to be superior to gold in every way if there are concerns about your home currency. I think that it is also important to keep in mind that owning foreign stocks, while not dealing with the volatility problem, does offer protection against a devaluing currency. If CAD plummets, globally diversified Canadian investors will have fantastic returns.
2) If the goal is to hold a store of value I do not see how gold is the best thing to own. Why not global bonds, foreign currency, real estate etc.? It is not sensible to think that you can substitute gold miners for gold. The correlation of the gold spot price and the MSCI ACWI Select Gold Miners IMI Index has been 0.835 going back to 2003 (when the index starts), but the range of returns for miners has been far wider. In other words, even if the correlation is fairly high, the miners index has had much higher highs and lower lows than the gold spot price.
3) Yes, I consider the actions of many central banks to be irrational. The Canadian central bank disposed of most of its remaining gold reserves in 2016. A 2012 paper looked at the question of why central banks hold gold at all. They found that it is used as a means to signal economic might to other countries. I do not think that gold's history means anything. The world is very different now than it has been in the past. Something is not good simply because it has been good, especially when that goodness is derived from how other people feel about it.
I disagree that owning gold is rational. The only argument that I can see is holding it because it feels good.
*Central Banks and Gold Puzzles*
_"A central bank’s gold position retains the stature of signaling economic might. The intensity of holding gold is correlated with ‘global power’ - by a history of being a past empire, or by the sheer size of a country, especially by countries that are or were the suppliers of key currencies."_
cafin.ucsc.edu/research/sigfirm/pdfs/WPS-2012/WPS%203%20Gold%20Puzzles%20Aizenman%208.2012.pdf
@@BenFelixCSI Thanks for the reply. Good points.
Edric Machi great response ! I would have just said Ben. Is an idiot who will find out himself soon enough.
@@MillerMedeiros In the last 20 years in Brazil dollar holdings have yielded a nominal profit of 3 times. Gold holdings for that period yielded a nominal profit of 25 times
The issue with "investing" in gold is timing. While gold has seen an increase in value over the last ten years the increase in stock value dwarfs the increase in the value of gold. Yes, The stock bubble will eventually burst but until then gold against stocks is a loser. The critical thing is timing your withdrawal from stocks before the bubble burst. In the meantime you can still make money in stocks.
Gold at 1530 USD an oz today ... remember this comment and post in the coming years maybe months lol.
In 1980 it hit $1900 an oz. So if you had bought in then you'd be negative while all your idiot friends who bought stocks would be buying fancy cars.
Youre watching an cpi bullshit inflation adjusted price chart. It was 800$ in 1980 when we went out of the gold standard. You'd be positive 200% today.
Buy in 2001 at 300 $ and youre up 500% today
Alex R Gold is a Hedge not so much an investment but even when your adjust for inflation you realize golds purchasing power increases slightly every year. So while it’s a great hedge against the imaginary fiat money it still has a little investment property which is like the cherry on top!
Magoo Gouzoo Discounting inflation is stupid. A $1500 ounce of gold bought today and still $1500 40 years from now is not a good investment. But suckers like you are what keep the market going.
My working life started in 1975 when Americans could again buy gold legally. The gold annualized return adjusted for inflation is 3.3% while the S&P with dividends reinvested is just over 7%.
Which is the better investment? Maybe ask an adult for help.
You cited that bonds perform better than treasuries as a diversifier, but you did not compare portfolios that add gold to a portfolio that already includes bonds and stocks. I have seen simulations that show that this portfolio allocation has better risk adjusted returns than a standard 80-20 or 60-40 portfolio. And depending on the allocations the true returns can be better too, assuming some kind of regular reallocation.
Hi Ben - thanks for making this video and sharing your perspective on it with us. You say that gold has limited utility in industrial production, yet based on my research I see it having extensive use in industrial production. Medicine, dentistry, microchips, iphones and ipads, and numerous other areas. The only limit to its use seems to be the limit to its supply, as in manufacturers can find substitutes that do almost as good a job as gold, enough to warrant demand for it. But that doesn't mean that gold can't do the job even better. We agree that gold is not a cash flow producing asset, but that's because it has less risk. That doesn't mean the price of gold can't fluctuate, just the price will never be zero. It is a form of authentic cash. So it's holding real cash in your portfolio. Buffett lamenting that gold doesn't produce income or a yield misses the point. A yield is provided when an investor takes risk. Gold doesn't provide a yield because you're just holding cash. From 1975 to 2016 (where the spot gold was even lower than the 2012 Erb and Harvey study you cite), gold increased 1100%, far outpacing the 348% increase in the CPI over that same period. So I'm not following how it wasn't a good inflation hedge during that period of time. When you discuss government bonds being a better negatively correlated asset to stocks than gold, you are focused on a very limited period of time from 1988-2019, when interest rates fell to all time lows and government debt increased significantly. Remember we can't look at very limited periods of time like this and draw conclusions. You've shown us in other videos how many experts made that same mistake with value stocks, and some of them erroneously concluded the value premium disappeared. Again when you look at the price volatility, you are looking at a very limited period of time 1988-2019... and a period of unprecedented monetary expansion under a world-wide US dollar standard, a major cause that has contributed to gold volatility. Understanding the context of when the data was collected is just as important as the data itself. The better return and better risk-adjusted return of a portfolio holding government bonds over that period instead of gold is also limited by the time period examined. I'm not clear how Erb and Harvey concluded it's difficult to take gold with you in a catastrophe. Most people, if they have any savings at all, are of modest means. So most likely if they have a gold allocation of any kind, they could probably fit it in their pockets comfortably. Erb and Harvey also saying that gold won't protect you in an extremely inflationary environment is a bit misleading. I would recommend instead of reading a study, talk to some people who lived through the Brazilian hyper-inflation and ask them if they are glad they had gold. You're probably going to get a very different answer. Even though gold lost 70% of it's value v. U.S. dollar, in real terms in the Brazilian economy it was a huge increase in value. Most Brazilians at the time were not looking at how gold faired v. other currencies or foreign investments. They were concerned about putting food on the table and surviving. Looking at something from an academic mathematical point of view doesn't always tell you what the experience is on the ground in the target area of study. Ben, I appreciate you taking the time to make this video for us. All comments here are with respect, I know social media isn't always the best way to relay positions on topics. But I wanted to share some counterpoints to some of the points you made to give a more complete picture.
Patrick, nice to meet you, my name is Stevan Strambeck and I was so happy to see the video and then read your review. Man, you were exceptional in your placements, and as a Brazilian, I tell you more, happy would be the Brazilians who had bought or "stocked" gold during the period mentioned in the video. After all, today, time shows us that they would be much calmer and more secure with the profitability generated by gold against Brazilian inflation and the maxi devaluation of our currency against the dollar. Congratulations on the review.
@@stevanstrambecktargino7597 my pleasure Stevan, and it's nice to meet you too here. Success with your investing my friend!
I'm also finding the video somewhat misleading, some of which may be due to the paper itself. I looked a bit into the stats for the Brazilian example. Gold's 70% loss of value comes from the fact that the paper takes the peak price of gold pre-2006, which happens to fall into 1980 and then the lowest price since 1980, which happens to fall in the 1999-2001 period. If you shift the period to 1979-1999 you can easily show that gold maintained its value v. USD.
What bothers me is that neither the paper nor the video mention this extreme start date sensitivity. I'm trying to get objective information and hiding the start date sensitivity makes me wonder how many of the other stats in the paper and video are carefully picked to support a preconceived argument.
@@tvepaddler excellent analysis. Thanks for sharing this.
I'd be curious if the same arguments all apply to silver stacker portfolios. (Other than the "Non-productive asset" one)
“In normal times” the paper says. These aren’t “normal times”.
Trillions in negative yield debt is one of the signs we aren't in normal times
Hey guys...just wanted to say God bless your families, and God bless America!🇺🇸🇺🇸🇺🇸🇺🇸
In modern times , a lot ofpeople nneed something small and high value i dont belive that there gonna be times without gold . Its just neccsessery there is nothing better, fiat currency , uncertain market
Okay, fair enough definition. Still Doesn't take into account today situation, US, US stocks, US bonds, Europe and others are at a very high level of risk. the video is a bit blind about it. Brazil, is a thing, US and Europe and another.
I understand it's not a speculation channel, it's about education, Porfolio, assets and diversification. Still, at a time where a guy like Ray Dalio ( bridge water, all weather portfolio.. ) is suggesting adding gold to potfolio I think there is something in it..
Anyway, good job, as always, thanks
Thanks. Ray Dalio is coming up a lot. I think it’s important to understand that, as a hedge fund manager, almost all of the things that Dalio does are not things that most individual investors should be doing.
I see, I just saw you also have a video about hedge founds. I will have a look! thanks again for the videos, they are really good quality of information
@@BenFelixCSI Why not? Aren't both trying to maximise profits and minimise risk? I don't understand why we should be using different investment principles as an individual vs a hedge fund.
Hedge funds take a different type of risk. They are attempting to generate equity-like returns with less risk, which sounds great, but they are introducing tremendous active risk. The reality is that there is a massive skew in hedge fund outcomes. A small subset do really well, but the majority do poorly. For an individual investor with limited capital and a non-infinite time horizon this distribution of outcomes is extremely unattractive.
@@BenFelixCSIYeah, that makes sense. When a hedge fund goes under life goes on. When a person looses his nest egg a few years out of retirement, life is over. Thanks for the answer.
Once every couple of weeks my mom (who has never invested in anything in her life) pitches gold as the investment of a lifetime to me.
There is always some friend of a friend that I had never heard of before that supposedly got so rich in such a short time by "investing" in gold 💰
I always had a hunch this was BS, probably primarily because of the aforementioned source 😂
Thanks for the great content, really enjoying your vids!
Hi Ben, obviously the world has turned upside down since this. I'm wondering if you still agree with this. Ray Dalio and others are getting bullish on gold. I'd be interested in an update. Excellent channel btw!
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gold is the true CURRENCY others are just credit. It is not an asset bcz an asset is something which makes money for you. If you are so worried about hyper inflation then you should buy real estate, it is an asset which increases value with inflation. If you think that recession is going to happen then you should buy bonds and then sell in recession and from that money reinvest in undervalued stocks. Because of volatile nature of gold it is really bad currency as is dependent of people's sentiment and speculation. My father has a gold business in India and for us gold is just commodity not an asset or currency.
Interesting perspective. Thank you!
All I've seen is "BUY GOLD!". Great video, man. Gotta a subscriber (y)
Laboratório 2000 you can know something interested @regal.assets on insta gram. Just check their bio
how about using it instead of saving accounts ?
Potentially a very volatile savings account.
Excellent stuff as usual. Gold is only useful as physical in your possession, in the event of catastrophe. Ask Argentines and Venezuelans. ETF is useless as insurance. However I would say in this new world of negative yielding bonds, physical gold may become much more speculative as there is no counterparty risk and I mean that in an attractive sense. Ray Dalio seems to have reached this conclusion. If currencies are destroyed and stagflation or hyperinflation appear, we may enter a short period in history when gold does very well for a few years 😉😁 so perhaps a small allocation of 10 percent not unreasonable.
Great comment, I also think negative yielding bonds and bank accounts with 0 or negative interests are making phyiscal gold very attractive. I also think at the moment it can make sense to hold gold instead of cash or near/below zero yielding bonds. I hold 5% of the portfolio in Gold.
This is when alternative investments as a whole will do extremely well. Just look what’s been happening in the VC and PE world in the past decade, there’s more money than ever because of poor interest rates despite most fund managers losing money.
@mike I don't think that negative bond yields are an argument for a gold allocation. Gold has been more volatile than stocks historically with a much lower return. Bonds have been much more stable. Even if their yields are low, their purpose in an allocation is volatility reduction. Stocks are for return generating, bonds are for volatility reduction, gold is for? Ray Dalio is making a speculative bet on why he thinks that gold will do well. We have to remember that 1. Dalio is not clairvoyant (maybe close though) and 2. Dalio is managing a hedge fund. I don't know about you, but I am not taking advice from any hedge fund managers.
@Ana-Maria alternatives as a whole will probably never be a great asset class. You touched on this in your comment: there is a massive skew in the outcomes. A small number of VC/PE/HF will do extremely well, but most do terribly. Unless you can find the winners alts are a tough sell.
@@BenFelixCSI
Ben I don't think I can argue with you here. Stocks for growth. Bonds to reduce that growth 😁 and that leaves gold with one virtue only, the lack of counter party risk. So agreed it's not an investment and in a portfolio as an ETF it's probably not even insurance in the event of economic collapse. I reckon Ray Dalio is worried about counterparty default. In the era of unlimited money printing it may be inflation we have to worry about.
@Marc uncorrelated assets improve risk-adjusted returns, but gold is not the only uncorrelated asset available. It is also an asset with no expected return. That is a problem.
I backtested a portfolio of 90% Canadian stocks and 10% bonds vs. 90% Canadian stocks and 10% gold back to 1971. In this instance, the returns and risk-adjusted returns are almost identical, with the gold allocation portfolio beating the bond allocation by 4 bps annualized, with a standard deviation 8 bps lower. However, as much as it is easy to criticize excluding this period from the example in the video, I am hesitant to bet on the uncharacteristically high returns from when gold's price was first allowed to float repeating.
Gold is not an inflation hedge in the sense that it will appreciate at the time that currencies are losing their purchasing power. It may be an asset that maintains its value during inflationary periods, but assets like stocks and real estate share the same property while having less historical volatility and a positive expected return.
I of course agree that economies are cyclical. I do not agree that this creates a place for gold in a portfolio. While I agree that the risks that you are describing are real, there is no reason to believe that gold is the answer. The data from the paper that I referred to in this video examined gold's ability to offer a hedge in an inflationary environment. It's a decision to own an asset and hope (with no reason to do so) that it will maintain its purchasing power at the time that your home currency happens to be losing purchasing power. Why not own more productive assets to accomplish the same?
Dalio is a hedge fund manager. He is brilliant and successful. Would I take his advice to own gold? No. This is similar to the way that I would treat the advice of most hedge fund managers. Something that is part of a brilliant hedge fund manager's thesis is more than likely not sensible investment advice for the average person.
He who loses money, loses much; He who loses a friend, loses much more; He who loses faith, loses all. --Eleanor Roosevelt;
I'm a new subscriber, I haven't had any real disagreements with the advice you give in your videos... except for this one. If you're going to quote Warren Buffett as an authority on gold why not also quote Ray Dalio? I've increased more value in savings with precious metals in the last year than I have with stocks & bonds in the previous three years combined.
Ya I agree. I’m going to do a better job explaining why gold is a terrible investment in my next video on the topic. No appeals to authority. Only logic and data. It’s in the queue.
@@BenFelixCSI "If you don't own gold, you know neither history nor economics." -Ray Dalio
@@BenFelixCSI Dalio talks about a probable paradigm shift in our lifetime (China overtaking USA as leading economy in the world), I'd love your take on that in the next gold video. Keep up the great work!
Ever since civilization began gold is recognized as an universal representation of wealth. It is unlikely that will change as it is ingrained across many cultures. Because of its mystical effect on the human mind, gold will always be of value; especially during times of economic chaos. Human psychology plays a big role in the market and most investors do not invest with common sense. Therefore it is not unwise to hold some speculative assets in your overall portfolio. I held 5% gold and 1% silver and they did the job of cushioning my losses during 2008. Yes they maybe poor investment choices but seeing them came to the rescue when the market went on a free fall was a very nice feeling. If nothing else, a bit of gold offers some peace of mind at least on an emotional level.
The Incans assigned no material value to gold. Just because some civilizations historically used gold as a store of wealth does not mean that it will/ should be expected to maintain that status long-term.
Lol buy stocks that are about to crash and bonds yielding négative instead of gold. Good advices
I see that you can predict the future.
@@BenFelixCSI you can find something great on @regal.assets on Instagram
Gold & gold equities can work in a portfolio, look at the 1970s & 2000s. Gold is cheaper to hold in 2019 than German Bunds. The key is to rebalance systematically and ignore the news. William Bernstein has written of the rebalancing bonus which comes from 5% gold equities.
Hi, Ben Felix.
Thanks for the great video, as always.
I invest in stock & government bonds through all over the world by several ETFs.
I saw your recent video about Reits and this video.
and I think what you're saying is totally make senses.
I'm so fascinated in portfolio diversification. But, feeling little nervous about the idea that, maybe I'm still behind about portfolio diversification. even though I'm investing in almost every country: stocks and bonds both side !
So.. Is there any alternative thing exist to diversify my portfolio.. even more..?
Or am I just overthinking..?
Need your help !
thx for reading my comment :)