How Much Gold DO You Need?

By Brad Zigler

Nowadays, you'd be hard-pressed to miss the ads on television or in newspapers and magazines either touting gold for sale or pitching you to sell your scrap jewelry to a refiner. Gold, to put it plainly, is in demand.

There's nothing new about that except perhaps the ever-rising price targets and fever pitch taken by the infomercial gold sellers.

Sensible advisers have long counseled investors to hold at least some part of their portfolios in metal or metal proxies, either as an inflation hedge or as a stabilizer in times of crisis (to see gold's effectiveness as a bulwark against financial nastiness, see "A Picture's Worth A Thousand Words (Or Dollars)."

One such adviser, Roger Nusbaum, declared in a Hard Assets Investor interview ("Nusbaum: Buying Agriculture") last week that he'd put up a 2% portfolio position in gold, saying " ... it's not a big bet. But I don't think you need big bets to capture the effect."

Well, just how big must your gold bet be to feel an effect? After all, many gold advocates have pitched positions as large as 20% - 10 times larger than Nusbaum's - in their recommendations.

We'll keep things simple for comparison's sake. Suppose we use a classic portfolio allocation of 60% equities/40% fixed income as a control. The S&P Composite 1500 Index can serve as a proxy for the domestic stock market, while the Barclays Capital 10-20 Year U.S. Treasury Index stands in for the fixed-income universe.

Over a series of discrete time frames ranging from three months to 14.33 years (the length of the data string for the shortest-lived asset class in this study), this simple portfolio generated a time-weighted annualized return of 4.22% with a standard deviation, or risk, of 10.11%.

Overall, we can assign a "grade" to the investment mix, derived from its reward-to-risk ratio - in this case, 0.42. The higher the ratio, the more return is produced for a given level of risk.

Table 1: Asset Allocation Through 29-May-09

60% S&P 1500/40% Barclays Capital 10-20 Year Treasury

	Annualized Return (%)	Standard Deviation (%)	Reward/ Risk
3 Months	0.81	20.88	0.04
3 Years	-1.34	11.46	-0.12
5 Years	1.8	9.60	0.19
10 Years	2.85	8.69	0.33
14.33 Years	7.29	10.62	0.68
Weighted Average	4.22	10.11	0.42

To add gold to the portfolio and allow for a fair performance evaluation, we've got to pare down the size of our original asset classes, but maintain their relative weights. Thus, for any given allocation of gold, the ratio of stocks to bonds ought to be 3-to-2, as in the original 60%/40% mix. A 2% commitment to gold, as advocated by Nusbaum, would mean allocations of 58.8% and 39.2%, respectively, to stocks and bonds.

Thus tweaked, our portfolio, shown in Table 2, would have produced historically better performance over all but the longest time interval, reflecting gold's bullish bent for most of this decade.

Table 2: Asset Allocation Through 29-May-09

2% COMEX Gold/58.8% S&P 1500/39.2% Barclays Capital 10-20 Year Treasury

	Annualized Return (%)	Standard Deviation (%)	Reward/ Risk
3 Months	1.51	20.29	0.07
3 Years	-0.97	11.27	-0.09
5 Years	2.29	9.38	0.24
10 Years	3.19	8.51	0.37
14.33 Years	7.28	10.71	0.68
Weighted Average	4.43	10.03	0.44

Nusbaum's correct when he says you only need a small allocation to feel gold's effect. Of course, a larger dollop, as advocated by some of the metal's devotees, is bound to produce a more dramatic outcome. Giving over 20% of one's portfolio to gold, for example, would have cranked up average returns - again, for all but the longest interval - while significantly dampening volatility.

Table 3: Asset Allocation Through 29-May-09

20% COMEX Gold/48% S&P 1500/32% Barclays Capital 10-20 Year Treasury

	Annualized Return (%)	Standard Deviation (%)	Reward/ Risk
3 Months	7.92	16.72	0.51
3 Years	2.20	10.65	0.21
5 Years	6.83	8.99	0.74
10 Years	5.88	8.69	0.70
14.33 Years	7.19	8.24	0.73
Weighted Average	6.29	9.51	0.67

It should be noted that the performance amelioration seen here is unique to gold and is not attributable to commodities in general. If we replaced the gold allocation with a serving of the 24-commodity S&P GSCI, overall portfolio performance would, in fact, have worsened over every time period. Notably, returns in the near-term intervals would have suffered significantly as a consequence of recent sell-offs in futures. Volatility, as a consequence, increased, hitting the portfolio with a double whammy.

Table 4: Asset Allocation Through 29-May-09

20% S&P GSCI/48% S&P 1500/32% Barclays Capital 10-20 Year Treasury

	Annualized Return (%)	Standard Deviation (%)	Reward/ Risk
3 Months	-3.14	20.17	-0.16
3 Years	-3.84	12.68	-0.30
5 Years	0.61	10.69	0.06
10 Years	3.75	11.06	0.34
14.33 Years	6.84	10.62	0.64
Weighted Average	3.82	11.14	0.36

The performance differential shouldn't be surprising. While gold is positively correlated to commodities in general, the relationship's not particularly strong, even in the long term.

Table 5: Long-Term Asset Class Correlations

	S&P GSCI	COMEX Gold	S&P 1500	10-20 Year Treasury
S&P GSCI	1.00	0.26	0.19	-0.01
COMEX Gold	0.26	1.00	-0.02	0.18
S&P 1500	0.19	-0.02	1.00	-0.09
10-20 Year Treasury	-0.01	0.18	-0.09	1.00

What you can see from the correlation table is gold's distinguishing characteristic as a portfolio diversifier. Over the long run, gold exhibits a rather weak direct relationship with bonds and a neutral-to-inverse connection to stocks. That's not to say that gold can't or doesn't move sympathetically with other asset classes at times. Correlations over the most recent three-year interval, in fact, are significantly higher, symptomatic of a wholesale shedding of assets in recent months.

By and large, no matter what time frame is selected, a hefty gold allocation improved portfolio performance by augmenting returns and/or trimming overall risk. Gold's salutary effect is felt more in the near term as demonstrated in Chart 1 below, largely as the result of the metal's relative buoyancy during recent declines in the commodity markets.

Compared to commodities in general, gold's best performance was turned in over the last five years; in the longest time frame, however, gold's outperformance wanes. That's not surprising when you consider that the longest time interval dates back to 1995, a period when precious metals were still languishing.

This artifact shouldn't be ignored by investors. Given enough time, the effect of mean reversion - the mathematical premise that assumes prices will eventually move toward their average - is bound to be felt in any asset class. The cyclicality in gold's price is manifested in the proximity of the reward-to-risk ratios of the longest-term portfolios.

Chart 1: Reward/Risk Ratios In Gold/Commodity Allocations

The impact of mean reversion can be better visualized by regarding the portfolios' returns in Chart 2 below. Note how increasing allocations of gold improve portfolio returns for every time period except the longest term. After a decade, portfolio returns actually decrease marginally as more gold is added.

Still, overall portfolio performance is better with gold, at least as measured by risk-adjusted returns, i.e., reward-to-risk ratios. All this points to gold's inherent value to stock and bond investors as a portfolio diversifier.

Chart 2: Annualized Returns For Gold-Weighted Portfolios

So, how much gold do you need? Is it 2% or 20%?

Well, everyone's different, of course. Let's just say you need enough to get the job done, but not so much that your gold ingots drag your portfolio under water.

Comments

[Larry House:]

To answer the title, I would pose a question--how big is your truck?

Jun 02 01:56 PM

[RiskReturnO...:]

As a hedge for falling dollar / potential for hyperinflation, I would suggest a mix of assets so that you are "diversified" even among all the reflation trades.

GLD (30%)
TBT (20%)
DBA (20%)
DBO (20%)
DBV (10%)

With these five core holdings in your reflation basket, you can sleep well at night, and be protected in case the US currency blows up.

In terms of how much inflation hedge you need, it obviously depends on what other assets you have in what country, and how long you plan to live.

Jun 02 02:03 PM

[Pink Panther:]

Brad:
Would be interesting to compare your 20% portfolio with Gold Stocks (HUI) instead of GLD.
seekingalpha.com/symbo...

Jun 02 02:49 PM

[walleke:]

After the U.S. invaded Afghanistan and deposed the Taliban, the Afghan currency collapsed. A new currency was created. It is backed by 200 tons of gold deposited in a Swiss bank. A German company printed the notes. After all that has gone wrong there, there is one unqualified success. The new currency continues in use and is accepted by all parties from warlords to opium traders to militants to everyone else.

I believe gold will go up in value because demand is increasing. Investment demand is surging, and this will continue until European and U.S. central banks say "Uncle!" and begin to purchase gold and contemplate a return to the gold standard. In the meantime, Asian banks (including Russia) will want gold. Put yourself in their shoes.

At present, the price of gold is kept unnaturally low by the manipulations of central banks by means of short selling through the money center banks. It is possible to manipulate a market, but it is not possible to manipulate a market and make a profit! Compare, say, to China manipulating the market for its currency (keeping its value low). Today, China has a trillion dollars and grief. They wish they had gold.

People misunderstand the utility of gold. They think because it has little industrial application it as little utility. Gold is too valuable to be used in industry. Its utility is to confer status and to back money. Status is more than a conceit. It is a human need shortly behind food, water, and air. Gold can back money because it has the correct physical, chemical and (yes) cultural properties. No other substance comes close.

We are not having the great depression or great recession. We are having the first tremors before the volcano of a financial crisis blows up. This does not mean the end of the world. It does not mean you need canned goods or guns. The sun will still shine, the crops will still grow, the high-speed dentist's drill will still whir.

If you want diversification, try silver.

If you want to know who is to blame for the crisis, first look at the suburban sprawl which is what we bought with the great debt. Second, consider that there hasn't been a year without American troops fighting wars since Jimmy Carter, and then not since Herbert Hoover. Then look in the mirror.

Jun 02 03:06 PM

[Brad Zigler:]

Gold stocks, as equities, won't provide the diversification effect of metal itself.

The correlation between a broader-based miners portfolio based upon the NYSE Alternext (formerly the Amex) Gold Miners Index and bullion is 75%.

That said, about 57% of the price movement of the ETF based upon the index can be attributed to bullion; the rest is a manifestation of stock market risk.

For the year, bullion's up 10.6%; the miners have appreciated 28.1%.



On Jun 02 02:49 PM Pink Panther wrote:

> Brad:
> Would be interesting to compare your 20% portfolio with Gold Stocks
> (seekingalpha.com/symbo...) instead of GLD.
> seekingalpha.com/symbo...;s=hui

Jun 02 03:31 PM

[Van1:]

As I continue to read and learn I've realized a few things in answer to the question that is the title to this article.
1. The number one reason to even have gold is wealth preservation/insurance for when/if the day comes when the dollar totally collapses and were to be replaced with something else. The gold that you own would give you VALUE to exchange into that new currency since your dollars are worthless. If the dollar were to fall to 10% of its value, it is likely that gold will be worth 10 times what it was. This is wealth preservation or insurance, whichever you prefer. This is why many say that you should have at least 10% of your net assets in Gold.

2. The second reason to always hold gold is its correlation with inflation which will always be there until you get rid of the The Fed.

3. The 3rd reason to consider at least looking at gold is bc of the wide demographics of everyone buying it. Look...it's Banks, Individuals, Countries, Investment bankers and Funds are all buying Gold...If gold was so "not that important" what is Fort Knox for, you would just get rid of it, right?

Jun 02 03:49 PM

[Pink Panther:]

Thank you for the response!

That would mean an allocation of 30% gold stocks, 30% other (inflation resistant) stocks and 40% bonds (for the "classic" 60/40 allocation scheme) also results in about a 20% correlation to GLD.
I propose this only as not to lose earnings/dividend yields for the 20% part.

On Jun 02 03:31 PM Brad Zigler wrote:

> Gold stocks, as equities, won't provide the diversification effect
> of metal itself.
>
> The correlation between a broader-based miners portfolio based upon
> the NYSE Alternext (formerly the Amex) Gold Miners Index and bullion
> is 75%.
>
> That said, about 57% of the price movement of the ETF based upon
> the index can be attributed to bullion; the rest is a manifestation
> of stock market risk.
>
> For the year, bullion's up 10.6%; the miners have appreciated 28.1%.
>
>

Jun 02 05:17 PM

[bcncv:]

Thank you for the numerical analysis on gold. Too often, I will see articles and comments talking about the good & bad of gold without any thought to what percentage makes sense. It is refreshing to see a real, rationale analysis of gold's place in a portfolio.

My only criticism is that this analysis is based on the actual returns of the last few years, which are clearly not sustainable over a long period of time. I would be very curious to see how this analysis worked if you used an average growth rate of gold over the last X years. That would give a much better perspective on the long term viability in a portfolio.

Jun 02 07:32 PM

[KAIMU BIZ:]

ALOHA !!

Brad, we appreciate your input here and it is clear you would recommend that portfolio's mainly stay weighted in equities, be it IBM or indexes. The way I read your article from a purely monetary view is this portfolio you use is 98% RISK based and 2% RISK hedged. Have you ever heard the term DEADWEIGHT LOSS? This is essentially what the current markets based in "monopoly pricing " result in over long term trends. The distortion of financial and monetary data to preserve the political and banking agendas have destroyed any true risk depth perception. In reality what would your portfolio look like had all the major US Banks been allowed to fail along with AIG and GM and a multitude of others on the cliffs precipice today and tomorrow. The markets have been distorted by the BUBBLE ECONOMY of the past thirty years.

What everyone here leaves out of this discussion is the one word that the entire US EMPIRE is based on and that is "CONFIDENCE". Right now our money is backed by our ability to service our debts and that can be translated into the terminology most often heard "faith and credit". Faith that the USA can accumulate enough credit to to pay our DEBT until the next National Debt Ceiling must be raised in 2010. Accounting tricks aside "it is what it is"!

On June 1, 2009, the US TREASURY reported that they had SPENT a total of $8.04TRIL USD so far during FY 2009(eight months). That is a SPEND RATE of 5.88, or for every $1 in receipts(tax revenues) our government spends $5.88 in outlays(expenditures). To put that into perspective the current National Debt(I am not even including the External Debt of $13.6TRIL USD)Limit is $12.4TRIL USD. As of Jan 1st our government spent 55% of that National Debt in eight months. How long did it take to accumulate a National Debt Limit of $12.4TRIL USD? Well the last year the USA had ZERO DEBT was in 1835, under President Andrew Jackson, so that's 174 years of DEBT accumulation. If you take 174 times 55% you get 95.7 years. So it took Obama eight months to spend what the USA took 95.7 years to accumulate in DEBT. He is spending 2.87 times more than FDR did at the height of WW2(1945), D-DAY and all.

Then an often missing part of every portfolio is DEBT. I consider paying off DEBT a much more important part of my investment plan than I do owning stocks or gold. How many people in America have been forced to sell their 401ks and IRAs at the bottom of the market due to DEBT ATTRITION? Recall that already oft quoted word to describe this phenom "REDEMPTIONS". Ask any of the LEH shareholders if they paid off their house before they bought LEH stock. Those that did not will be WalMart Greeters and I suspect there will be a lot of fierce competition for that job in every city in America. Where is DEBT in your portfolio? Where is MONETARY RISK? You call it USD hedge. The USD is extremely risky as money. Gold is not. Gold has always had value over a 5,000 year history. Gold never gets BAILOUTS ... Never files BK ... Never has a AIG(counterparty). As we have seen with the SubPrime fiasco, AAA is meaningless. This all boils down to CONFIDENCE. Why? Because without CONFIDENCE there can be no TRUST and once there is no TRUST your money is Zimbabwe.

US PAYROLL TAX REVENUES have fallen off a cliff within the past two quarters.. The last time this happened was 2002 when the USDX was at 120. Over the next few years after that the USDX fell to 72. The current US PAYROLL TAX REVENUE crisis started in Q4 2008 and has accelerated into Q1 2009 when the USDX was maxxed at 92(intraday). If what happened in 2002 happens again then we can see the USDX at 44(92 minus 48). A four handle!

A blast from the past, the Clinton era ... ITS THE DEBT STUPID! Its the DEBT in every way you know it ... US government, State, County, City, School, Business and Personal. Its all about DEBT devaluation and attrition. Our leaders are just buying time and their using our money to but it!

Honestly pay off your DEBT first. I own my house. At least accomplish that in your lifetime.

Then after that 2% is very low!

GOVERNMENT IS ONLY AS HONEST AS ITS MONEY ...

Jun 02 08:33 PM

[Brad Zigler:]

As indicated in the article, the maximum term (14+ years) used in the study was predicated by the tenure of the S&P/GSCI, the proxy for commodities.

You can tell by comparing the returns and reward-to-risk ratios of the 14-year period to the shorter intervals that gold's contribution to a portfolio would have been negative in earlier years.

Most assuredly, one should not expect the past decade's gold trend to be replicated in the future. Neither should one expect gold's preceding 20-year bear market to be relived.

It's for that very uncertainty that endowments maintain long-term baseline exposures to a panoply of asset classes.


On Jun 02 07:32 PM bcncv wrote:

> Thank you for the numerical analysis on gold. Too often, I will see
> articles and comments talking about the good & bad of gold without
> any thought to what percentage makes sense. It is refreshing to see
> a real, rationale analysis of gold's place in a portfolio.
>
> My only criticism is that this analysis is based on the actual returns
> of the last few years, which are clearly not sustainable over a long
> period of time. I would be very curious to see how this analysis
> worked if you used an average growth rate of gold over the last X
> years. That would give a much better perspective on the long term
> viability in a portfolio.

Jun 02 09:02 PM

[Brad Zigler:]

I'm NOT advocating any portfolio, actually. I'm merely illustrating gold's utility as various contribution levels.

You'll not, too, that I'm not advocating a 2% weighting in metal. I've examined contribution levels between 0% and 20%.

I leave it up to individuals to decide what's appropriate for their particular circumstances.


On Jun 02 08:33 PM KAIMU BIZ wrote:

> ALOHA !!
>
> Brad, we appreciate your input here and it is clear you would recommend
> that portfolio's mainly stay weighted in equities, be it IBM or indexes.
> The way I read your article from a purely monetary view is this portfolio
> you use is 98% RISK based and 2% RISK hedged. Have you ever heard
> the term DEADWEIGHT LOSS? This is essentially what the current markets
> based in "monopoly pricing " result in over long term trends. The
> distortion of financial and monetary data to preserve the political
> and banking agendas have destroyed any true risk depth perception.
> In reality what would your portfolio look like had all the major
> US Banks been allowed to fail along with AIG and GM and a multitude
> of others on the cliffs precipice today and tomorrow. The markets
> have been distorted by the BUBBLE ECONOMY of the past thirty years.
>
>
> What everyone here leaves out of this discussion is the one word
> that the entire US EMPIRE is based on and that is "CONFIDENCE". Right
> now our money is backed by our ability to service our debts and that
> can be translated into the terminology most often heard "faith and
> credit". Faith that the USA can accumulate enough credit to to pay
> our DEBT until the next National Debt Ceiling must be raised in 2010.
> Accounting tricks aside "it is what it is"!
>
> On June 1, 2009, the US TREASURY reported that they had SPENT a total
> of $8.04TRIL USD so far during FY 2009(eight months). That is a SPEND
> RATE of 5.88, or for every $1 in receipts(tax revenues) our government
> spends $5.88 in outlays(expenditures). To put that into perspective
> the current National Debt(I am not even including the External Debt
> of $13.6TRIL USD)Limit is $12.4TRIL USD. As of Jan 1st our government
> spent 55% of that National Debt in eight months. How long did it
> take to accumulate a National Debt Limit of $12.4TRIL USD? Well the
> last year the USA had ZERO DEBT was in 1835, under President Andrew
> Jackson, so that's 174 years of DEBT accumulation. If you take 174
> times 55% you get 95.7 years. So it took Obama eight months to spend
> what the USA took 95.7 years to accumulate in DEBT. He is spending
> 2.87 times more than FDR did at the height of WW2(1945), D-DAY and
> all.
>
> Then an often missing part of every portfolio is DEBT. I consider
> paying off DEBT a much more important part of my investment plan
> than I do owning stocks or gold. How many people in America have
> been forced to sell their 401ks and IRAs at the bottom of the market
> due to DEBT ATTRITION? Recall that already oft quoted word to describe
> this phenom "REDEMPTIONS". Ask any of the LEH shareholders if they
> paid off their house before they bought LEH stock. Those that did
> not will be WalMart Greeters and I suspect there will be a lot of
> fierce competition for that job in every city in America. Where is
> DEBT in your portfolio? Where is MONETARY RISK? You call it USD hedge.
> The USD is extremely risky as money. Gold is not. Gold has always
> had value over a 5,000 year history. Gold never gets BAILOUTS ...
> Never files BK ... Never has a AIG(counterparty). As we have seen
> with the SubPrime fiasco, AAA is meaningless. This all boils down
> to CONFIDENCE. Why? Because without CONFIDENCE there can be no TRUST
> and once there is no TRUST your money is Zimbabwe.
>
> US PAYROLL TAX REVENUES have fallen off a cliff within the past two
> quarters.. The last time this happened was 2002 when the USDX was
> at 120. Over the next few years after that the USDX fell to 72. The
> current US PAYROLL TAX REVENUE crisis started in Q4 2008 and has
> accelerated into Q1 2009 when the USDX was maxxed at 92(intraday).
> If what happened in 2002 happens again then we can see the USDX at
> 44(92 minus 48). A four handle!
>
> A blast from the past, the Clinton era ... ITS THE DEBT STUPID! Its
> the DEBT in every way you know it ... US government, State, County,
> City, School, Business and Personal. Its all about DEBT devaluation
> and attrition. Our leaders are just buying time and their using our
> money to but it!
>
> Honestly pay off your DEBT first. I own my house. At least accomplish
> that in your lifetime.
>
> Then after that 2% is very low!
>
> GOVERNMENT IS ONLY AS HONEST AS ITS MONEY ...

Jun 02 09:08 PM

[Donald Ingram:]

In Rome at the height of the Empire you could purchase a tailor made toga, sandals and hand tooled belt for 1 ounce of gold.
In New York City at the height of the Great Depression you could purchase a tailor made suit and new pair of shoes for 1 ounce of gold.
Today, you can still purchase a new tailor made suit and pair of shoes for that same 1 ounce of gold.
That is why people hold gold - it retains it's value over time. Plain and simple.
By the way - it's not an artifact (atho can be) It's MONEY.

Jun 02 10:02 PM

[KAIMU BIZ:]

ALoHa !!

Brad ... at the beginning of your article you site HAI Nusbaum saying, " [2%] ... it's not a big bet. But I don't think you need big bets to capture the effect."

You never really site any % ... and sure it is up to the individual to work out their own "asset allocation".

If you use companies like GG or NEM then you have to deal with the intricacies and human conditions of management and their affinity for DEBT. It does not matter if it is IBM or NEM or GS or DRYS or PG they all own DEBT like they own a tuxedo! Its embedded ... GOLD has no DEBT because it has no Balance Sheet ... GOLD has no CEO because it has no company ... In terms of "real risk" in a World of DEADWEIGHT LOSS, where is "real risk analysis"? Its not at the US TREASURY, or WALL STREET or GSCI or COMEX or GLD or your local branch of the US FED.

What I try to point out is the DEBT issues inherent in the US Dollar and in the American psyche. It is easily embedded because we are the World Reserve Currency, but you cannot divorce the SPENDING that is rampant which translates to rampant DEBT and this is all any global currency has as its "basis" ... DEBT. And so it becomes a choice not as to which currency is "safe" but which currency is "more" safe than the multitude of other DEBT based currencies that "float" the global GDPs. What "real money" is not DEBT based?

Write an article on the monetary aspect of portfolios instead of allocations. The COMEX is not money and neither is the GSCI or GG or IBM or GLD. THey are all paper trades with unlimited liabilities and counterparties. Good for short term "trading" of DEBT based paper(a USD). Don't you have to sell positions to make a profit? When you sell what sort of debt paper are you handed for your efforts?

The WORLD IS DEBT!


On Jun 02 09:08 PM Brad Zigler wrote:

> I'm NOT advocating any portfolio, actually. I'm merely illustrating
> gold's utility as various contribution levels.
>
> You'll not, too, that I'm not advocating a 2% weighting in metal.
> I've examined contribution levels between 0% and 20%.
>
> I leave it up to individuals to decide what's appropriate for their
> particular circumstances.

Jun 03 03:46 AM

[Beach Bubba:]

All I know is, all of my gold and silver coins are worth a lot more than I paid for them (some bought in the early 70's) and my gold miners are in the doubles and going for triples.

Right now, today who would you ask for investment advice...Brad, what's his name, or Jeff Nielson....?

Try to buy small arms ammunition today, or re-loading supplies with cash; it aint to be had....better have gold or silver and lots of it and know where to look.

In case you haven't heard, the world (and USA) is in an awful mess right now and is not looking to get better real soon.....

I think I'll have another Mango.

Jun 03 09:06 AM

[The Honest ...:]

I think almost every "mainstream" investor in the world is underweight precious metals (I mean most average investors probably don't even have gold or silver in their portfolio, what happens when these allocations move to even 2-5%)... as this changes the precious metals and underlying metals stocks should surge.

the honest trader
thehonesttrader.blogsp.../

Jun 03 10:56 AM

[Brad Zigler:]

I, in fact, examine SIX gold allocation levels in the analysis (see Chart 2), but advocate none. This is merely a dispassionate look at the past performance of gold as a portfolio component.

The gold component in the analysis is represented by the COMEX gold settlement price which is a real-time proxy for the cost of cash metal. I'm not using gold mining stocks or futures in the portfolio study.

The object of scientific research is to look at reality. People hold portfolios made up of real-world assets including, among other things, stocks, bonds, commodities and, perhaps, metal. For many people and institutions, investment simply isn't a binary operation: it isn't all-gold or nothing.

These investors deserve to know what effect is engendered by making space in their portfolios for one asset or another. This article deals, for the sake of brevity and focus, with ONE issue: the impact of varying commitments to gold over discrete time periods in the past one and a half decades.

I'd suggest that if you want to make a case for your debt argument, that YOU pen an article.


On Jun 03 03:46 AM KAIMU BIZ wrote:

> ALoHa !!
>
> Brad ... at the beginning of your article you site HAI Nusbaum saying,
> " [2%] ... it's not a big bet. But I don't think you need big bets
> to capture the effect."
>
> You never really site any % ... and sure it is up to the individual
> to work out their own "asset allocation".
>
> If you use companies like GG or NEM then you have to deal with the
> intricacies and human conditions of management and their affinity
> for DEBT. It does not matter if it is IBM or NEM or GS or DRYS or
> PG they all own DEBT like they own a tuxedo! Its embedded ... GOLD
> has no DEBT because it has no Balance Sheet ... GOLD has no CEO because
> it has no company ... In terms of "real risk" in a World of DEADWEIGHT
> LOSS, where is "real risk analysis"? Its not at the US TREASURY,
> or WALL STREET or GSCI or COMEX or GLD or your local branch of the
> US FED.
>
> What I try to point out is the DEBT issues inherent in the US Dollar
> and in the American psyche. It is easily embedded because we are
> the World Reserve Currency, but you cannot divorce the SPENDING that
> is rampant which translates to rampant DEBT and this is all any global
> currency has as its "basis" ... DEBT. And so it becomes a choice
> not as to which currency is "safe" but which currency is "more" safe
> than the multitude of other DEBT based currencies that "float" the
> global GDPs. What "real money" is not DEBT based?
>
> Write an article on the monetary aspect of portfolios instead of
> allocations. The COMEX is not money and neither is the GSCI or GG
> or IBM or GLD. THey are all paper trades with unlimited liabilities
> and counterparties. Good for short term "trading" of DEBT based paper(a
> USD). Don't you have to sell positions to make a profit? When you
> sell what sort of debt paper are you handed for your efforts?
>
> The WORLD IS DEBT!

Jun 03 12:02 PM

[Brad Zigler:]

To say that investors hold gold for only one purpose, "pure and simple," ignores investment reality. Gold is viewed through a lens of utility for fiduciaries who are obliged by the "prudent man" dictum to hold a diversity of assets.

The term "artifact," by the way, refers to a CHARACTERISTIC of gold, not gold itself.

On Jun 02 10:02 PM Donald Ingram wrote:

> In Rome at the height of the Empire you could purchase a tailor made
> toga, sandals and hand tooled belt for 1 ounce of gold.
> In New York City at the height of the Great Depression you could
> purchase a tailor made suit and new pair of shoes for 1 ounce of
> gold.
> Today, you can still purchase a new tailor made suit and pair of
> shoes for that same 1 ounce of gold.
> That is why people hold gold - it retains it's value over time. Plain
> and simple.
> By the way - it's not an artifact (atho can be) It's MONEY.

Jun 03 12:43 PM

[5142152-337:]

This is a YAWN article, plain and simple. Brad, my boy, you need to get back on your meds. Your last couple of articles have done little to enlighten, but much to aggravate---not ilicit spirited debate--take a breather!

Jun 03 04:21 PM

[Brad Zigler:]

Enlightenment won't come to those who choose to remain in the dark.

Ad hominem attacks are weapons employed by those lacking the intellectual gifts to engage in reasoned discourse.

Jun 03 05:04 PM

[harammph:]

Brad: don't take offense, 5142 has been using that phrase recently, probably doesn't even know its offensive.

" you need to get back on your meds".

But its better than the shouting he does in most of his comments as if yelling makes a difference.

Jun 04 01:06 AM