Good reads from around the Web.
There are probably several reasons why the gold price soared over the last decade. Pulling apart the exact drivers for the valuation of this weird commodity-cum-currency-cum-trinket is notoriously difficult.
Personally, I believe a combination of – in chronological order – the arrival of cheap and accessible gold price ETF trackers, low/negative real interest rates, and economic meltdown mania did the bulk of the heavy lifting. Plus Gordon Brown (who sold most of the UK’s gold near $200) clearly did something awful in a previous life.
Unlike many personal website proprietors, I see stockpiling by genius investor savants who’ve correctly predicted the demise of fiat currency from their shacks in Alabama as playing a relatively minor role.
But I shouldn’t be too smug; I too continue to follow the gold price like some prehistoric Ape-man wondering who drives the sun.
Not only is the price of gold now down around $1,600, but demand also seems to be falling:
Source: Business Insider [1]
The graph shows demand falling by tonnage, though the World Gold Council has pointed out that in dollar terms, 2012 was still a record.
The collapse in jewellery demand is interesting. Here we see the economics of most commodities at play – as the price soars, demand tends to fall because fewer people can pony up, whether they’d like more of it or not.
So who is buying? Besides the “investment” category (which I still think could turn on a dime) the main driver seems to be Central Bank buying. Emerging market countries in particular have been big net buyers.
I have changed my tune on gold in the past few years, as I’ve admitted [2] before. At first I was dismissive of the asset, but I’ve come to see the point of a small allocation – say 2-5% – for diversification reasons.
I do believe gold is different in a world where most assets are increasingly correlated – though I’m not sure this isn’t just a self-fulfilling prophecy.
In other words: Because enough people believe gold is special, it is.
The price would probably have to fall another $300-$600 or a good few years would have to pass before I’d consider building a meaningful allocation, however.
From the blogs
Making good use of the things that we find…
Passive investing
- Thoughts on dollar cost averaging – Financial Ramblings [3]
- What to do when the market crashes – Oblivious Investor [4]
- Ignore price fluctuations: Focus on yield – RIT [5]
- The awful cost of pursuing alpha – The Big Picture [6]
- More low volatility ETFs arrive in US – Schaeffer’s Investment Research [7]
Active investing
- The Income Investor’s Manifesto – Clear Eyes Investing [8]
- Value stocks are in the eye of the beholder – Rick Ferri [9]
- The accidental income portfolio revisited – iii blog [10]
- The new P/E ratio: Price to ego – The Reformed Broker [11]
- The corporate cash horde puzzle – Noahpinion [12]
- Explaining my position on secular bear markets – The Big Picture [13]
Other articles
- Latecomers arrive at the equity pre-party – Investing Caffeine [14]
- Mr Money Mustache Vs The Internet Retirement Police – Mr M.M. [15]
- What’s in my purse? – No More Spending [16]
Product of the week: RBS has upped the interest-free period on its Platinum balance transfer credit card [17] to 24 months, but watch out for transfer fees, warns The Telegraph [18]. Barclaycard [19] has a better offering for those who can get it. (Remember, shuffling debt is not a long-term solution).
Mainstream media money
Note: Some links are to Google search results – these enable you to click through to read the piece without you being a paid subscriber of the site.
Passive investing
- Can anything beat an index fund? – Ask a Banker [20]
- Why we fear simple money solutions – The Bucks Blog [21]
- Look out for hidden costs in free ETF trading – MarketWatch [22]
Active investing
- The Australian stock market looks expensive… – iShares blog [23]
- … and Europe isn’t as cheap as they say, either – FT [24]
- Ray Dalio’s All Weather Portfolio strategy – Learn Bonds [25]
- Dividends plus buybacks: Total yield – Fortune [26]
- It’s risky trading the stocks of bankrupt companies – Swedroe/CBS [27]
Other stuff worth reading
- Africa: Calling patient investors [Search result] – FT [28]
- Halifax claims buying is £120 a month cheaper than renting – Telegraph [29]
- Alternative assets are a heaven for fraud – New York Times [30]
- Funds flows follow investment returns, not vice versa – The Economist [31]
- Buy-to-let lending hits a four-year high – The Guardian [32]
- 3D printing will change the world – Harvard Business Review [33]
- Dilbert creator Scott Adams loves our robotic future – Dilbert.com [34]
Book of the week: I used to read a new investing book a fortnight, but these days I tend to re-read a select few that speak more wisdom every time. Currently it’s Howard Mark’s brilliant The Most Important Thing [35]
Like these links? Subscribe [36] to get them every week!