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Weekend reading: Gold fingered

Weekend reading: Gold fingered post image

What caught my eye this week.

I was fortunate to come into 2020 with some gold – ETFs and a couple of miners – in my portfolio.

Please don’t say I’d ‘got religion’. (We know what happens to people who get religious about gold.) But some time after the demise of the last gold bull market I began nipping in and out of gold miners with mixed results, before deciding that gold as an asset class warranted a permanent-ish place in TheInvestor-folio.

Blame time spent fiddling at the wonderful Portfolio Charts. Blame the terrible politics of Brexit and Trump. And definitely consider my thinking aided and abetted by super-low interest rates.

If cash is paying next to nothing, it doesn’t cost much more to hold gold.

Golden tears

Old thinking dies hard, though. In my gut I still believe gold is a dumb investment. Charlie Munger’s observation that “civilized people don’t buy gold” echoes in my head whenever I get smug about the returns from gold over the past couple of years.

Because really, what a silly faff gold is. As Munger’s partner Warren Buffett pointed out, we spend millions digging up gold in one place, and then millions reburying it in a guarded vault somewhere else.

In the meantime, the gold mostly does nothing. As the graphic below from Bloomberg via MSN shows, only a fraction of new gold mined goes into technology. The rest is just shuttled away to sit around – occasionally on wrists, necks, and ears, but mostly in state banks and personal safes and jewelry boxes. Being gold:

(Click to enlarge the folly)

The Bloomberg article explains we’re a long way from running out of gold. This despite how puny most gold deposits are nowadays – because we’re prepared to spend immense energy to squeeze gold out of such stones:

The percentage of gold in ore reserves is falling, from more than 10 grams per ton in the late 1960s to barely more than 1 gram per ton nowadays.

Those concentrations are extraordinarily low – equivalent to grinding up and separating a Statue of Liberty’s-worth of ore to recover a teaspoon of precious metal.

Yuck. It’s enough to make any environmentally aware investor sell all their gold and look forward to dancing on its grave.

Well, maybe after the rally seems over for sure, eh?

Besides, what are you going to buy instead – Bitcoin?

The digital currency needs power equivalent to the output of seven nuclear power stations to keep its mines churning at the last count.

Bring back the barter system I say!

At least when you compound seashells you end up with a beach.

From Monevator

Low-cost index trackers that will save you money – Monevator

From the archive-ator: You can trade ETFs more easily than index funds – Monevator


Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1

State pension age rises to 66 from Tuesday: what will you get? – ThisIsMoney

UK house prices up 5% year-over-year, says Nationwide – Guardian

Cambridge University to divest from fossil fuels – Institutional Investor

Plastic straw ban in England comes into force – BBC

The link between perceived morality of an industry and wages – Klement on Investing

Products and services

How to apply for a £5,000 Green Homes Grant – Guardian

Broker Numis makes the case for pricey wealth manager St James’ Place – CityWire

Coronavirus travel insurance: who will cover me? – Which

Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade

Should you be buying a secondhand smartphone? – BBC

Amazon will now let you pay with your palm in its stores – Vox

One-bedroom homes for sale [Gallery]Guardian

Comment and opinion

When should you use a financial advisor? – The Irrelevant Investor

This isn’t a repeat of the Dotcom bubble – Of Dollars and Data

The path not taken – Humble Dollar

How to manage your risk of redundancy [Search result]FT

Anchoring in the stock market – A Wealth of Common Sense

A random talk with Burton Malkiel [Podcast]Animal Spirits

Five questions for your next net worth update – Banker on Fire

The higher you aim, the worse result you get – Klement on Investing

Buy British shares: FT mini-special

Retail investors shun bargain Britain [Search result]FT

Merryn: Investing in the UK is far from a lost cause [Search result]FT

Naughty corner: Active antics

Why we want to own interesting businesses – Ensemble Capital

Sales and distributions: What drives equity returns? – Verdad

BP and Shell shares hit 25-year low as Covid crushes oil price – ThisIsMoney

How should investors respond to the low yield on bonds? – Medium

Swedroe: How persistent is VC outperformance? – Evidence-based Investor

One study suggests Robinhood stock traders have beaten the professionals – MarketWatch

Corona corner, with a political insurgence

k: the overlooked variable driving the pandemic – The Atlantic

Puzzled scientists seek reasons behind Africa’s low fatality rates – Reuters

Growth in UK Covid cases may be leveling off – BBC

Quarantine breakers: “It was selfish, but I don’t regret it”BBC

Loss of smell may be a clearer sign of Covid than a cough – BBC

How supermarkets are dodging a second panic-buying spree – Wired

High prevalence of SARS-CoV-2 swab positivity in England during September 2020 [PDF]React1 / Imperial

The Trump-Biden debate [Funny. Bleakly funny.]Wait But Why

When Trump defends armed right-wing gangs, his rhetoric has echoes of fascism – Guardian

Kindle book bargains

How Will You Measure Your Life? by Clayton Christensen – £0.99 on Kindle

Just Fuck*ng Do It: Stop Playing Small. Transform Your Life by Noor Hibbert£0.99 on Kindle

Eat, Shop, Save: 8 Weeks to Better Health by Dale Pinnock – £0.99 on Kindle

RESET: How To Restart Your Life and Get F.U. Money by David Sawyer – £0.99 on Kindle

Off our beat

“The man who texted me during lockdown has now gone quiet”Guardian

The enduring attraction of cities [Search result]FT

HOTorNot: The forgotten site that shaped today’s web – Mashable

The power of the dissenting voice – More To That

How social media broke Britain – Wired

And finally…

“Modern life is, for most of us, a kind of serfdom to mortgage, job, and the constant assault to consume. Although we have more time and money than ever before, most of us have little sense of control over our own lives. It is all connected to the apathy that means fewer and fewer people vote. Politicians don’t listen to us anyway. Big business has all the power; religious extremism all the fear. But in the garden or allotment we are king or queen. It is our piece of outdoors that lays a real stake to the planet.”
― Monty Don, My Roots: A Decade in the Garden

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{ 32 comments… add one }
  • 1 ermine October 3, 2020, 12:05 am

    > Because really, what a silly faff gold is.

    True, but the rest of that paragraph reveals a dark truth, which is that well-priced productive assets are hard to find, and cash depreciates arguably faster than non-productive gold.

    Which implies something is twisted out of shape, rotten to the core… Too much funny money, surrounded by zombie companies and zombie consumers, capital sees its compass spin but show no North. What’s a fellow to do, eh?

  • 2 Al Cam October 3, 2020, 1:05 am

    I think you may have mis-interpreted the gold graphic.
    As I read it: the two segments above the zero line represent where gold comes from each year, either mined or re-cycled. And, the segments below the zero line: where that gold goes. To my eyes, the largest of the segments [below the zero line] is jewellery at roughly twice private investment and also usually greater than private investment plus central banks.

  • 3 Chris October 3, 2020, 7:24 am

    To be fair, since taking advantage of the free share link with Free Trade through you and taking a punt in GGP I’ve made more paper profit in 6 months than 4 years of passive investing…

  • 4 Playing with Fire October 3, 2020, 7:38 am

    @Al Cam, I took the paragraph to mean that the gold in jewellery is also doing nothing, it is sitting in a shaped form but only conveys status because we have decided that it conveys status.

    A hearty recommendation for RESET from David Sawyer from me. It’s a fantastic intro to financial freedom but has some gems for people already on the road.

    I’ve recently rediscovered Portfolio Charts and spent a most enjoyable afternoon contemplating a bit more cash and gold. It’s an odd sensation accepting the notion that I’ve effectively won at money (in that I have enough, not that I’m Elon Musk) and I can now shift my focus onto not losing rather than trying to maximise returns.

  • 5 The Investor October 3, 2020, 7:40 am

    @Al Cam — That’s how I read it, too. I meant sitting around in either personal or private collections, as opposed to being put to (/used in) productive use. I guess you could argue jewelry is sort of productive use compared to a bar at a bank, but I’m comparing it to say the effort that goes into extracting oil, which for all its sins at least powers much of the global economy. Anyway I’ve amended the copy slightly to clarify. Cheers!

  • 6 Al Cam October 3, 2020, 8:03 am

    @PwF & @TI:
    Fair comment – I guess the majority of jewellery spends most of its time in some kind of box! Having said that, I personally make much more use of the only piece of relevant jewellery I own (watch) than I do of most pieces of technology I own that contain gold.

    Thanks for the amendment.

  • 7 Vanguardfan October 3, 2020, 8:22 am

    Re the Atlantic article. I recall reading about over dispersion months ago, did we not discuss it here at that time? Perhaps not.
    The key practical message is that the Test and Trace system will continue to fail if it does not devolve power and resource locally, to people with the expertise to make links between cases at a local level. AIUI the serco system focuses on identifying close contacts, these are defined in a restrictive way which will exclude contacts in ‘covid secure’ workplaces or venues or public transport journeys. I am not sure that the database is capable of finding links between cases who attend the same workplace, or pub (the kind of backwards looking source tracing mentioned in the article). That kind of work can only be done at a micro level.

  • 8 Warren Bogle October 3, 2020, 8:42 am

    No, This Isn’t a Repeat of the Dot-Com Bubble
    The author fails to point out that Amazon currently has a PE ratio of 120, ouch!
    That price is a bit rich for me but others may think differently.

  • 9 Algernond October 3, 2020, 9:43 am

    Notice you have a few links to ‘green’ stuff this week.
    For balance, can I recommend Bjorn Lomborg’s book ‘False Alarm’?
    Whilst the title will obviously be triggering for many, he doesn’t deny climate change; it’s a critique & discssion of the the highly dubious socio-economic reaction to it.
    (weirdly parallels with something else going on at the moment…)

  • 10 Algernond October 3, 2020, 9:50 am

    Gold. I’ve been thinking of diversifying the 40 part of my 60/40 portfolio, due to my concern about the future of Sterling. Thinking of Gold (and unhedged bonds). However, since they’ve been doing well this year, can’t decide on instant asset allocation change, or gradual drip feeding change, which would take years. Any thoughts anyone?

  • 11 Brod October 3, 2020, 10:46 am

    @TI – I too have flip-flopped on Gold before deciding in my November epiphany that it’s different from equities and fixed income and that can’t be a bad thing surely? I’m an unsophisticated investor, long only equities, fixed income and gold is as diversified as I can get. So I hold 10% gold in my portfolio. Had to sell 20% of that a month or so ago as it breached my rebalancing limits. So still 10% and I never intend to buy any more, just let it do its own stuff.

    And a big shout out to Premium Bonds – won £25 x 2 this month! To get a 1% return I need this every other month. Now they’ve suckered me in, cue not win anything else for 25 years…

  • 12 ZXSpectrum48k October 3, 2020, 11:15 am

    Gold is just part of my cash allocation. No different to owning USD, AUD, cryptocrap etc. It’s got a three digit currency code, XAU, for a reason. It’s really just another fiat currency. Granted, one with a track record of thousands of years, rather than hundreds, but still dependent on our collective willingness to believe. I’ve increased the cash allocation in my passive benchmark from 5% to 10% at end 1Q20, and that required me to add additional gold to the portfolio. Not ideal levels but whatever.

    I tend toward the view that the behaviour of gold has changed somewhat because it’s doesn’t have the negative carry it used to. It even has positive carry to some currencies (EUR, CHF etc). For those in EM countries (85% of the world), Gold has always been a key holding. With carry differentials so low now in many of those countries, there is even less reason for them not to want to hold it. Imagine you’re a wealthy Brazilian: 2015: Gold at 0% or Brazil Real at 16%. Tough choice. 2020: Gold at 0% or Brazil Real at 2%. Not so tough choice.

  • 13 Steve21020 October 3, 2020, 12:28 pm

    — “Modern life is, for most of us, a kind of serfdom to mortgage, job, and the constant assault to consume. Although we have more time and money than ever before, most of us have little sense of control over our own lives. ” —

    That’s something I’ve always found bewildering. I was a student just before shops started opening on Sundays and remember that there two topics that we rarely hear about these days. One was ‘Overpopulation’ and the other was ‘Consumerism gone mad.’ There was even talk of consumer-free days to try and slow down the senseless mass of junk that people seemed to buy and thus, somehow save the world. Fast forward 40 years and society is now being told, maybe indirectly, that we should consume more to save the economy. WTF? The joys of decluttering suddenly brought this home to me a few years ago and so there is one little part of the planet here that has cut down drastically on consumption. Though I don’t expect Amazon shares to collapse overnight, just because I no longer buy every little chinese-made gadget that goes ‘ping’. 🙂

  • 14 Akseli Jaatinen October 3, 2020, 12:31 pm

    No need to feel bad about holding gold.

    Citing Luke Gromen:
    A generation of investors have been told by pundits “Yes, but gold doesn’t have any yield.”

    But the pundits always left out the 2nd half of that statement: “…b/c gold doesn’t have default risk or currency risk.”

    COVID = most everything now has either default or currency risk.

    And I would add:
    Want yeld? Get into gold royalty companies.

  • 15 Tony Edgecombe October 3, 2020, 6:09 pm

    @Algernond I’d be a bit careful about taking that book at face value, there are plenty of mis-representations of the data in it.

  • 16 Seeking Fire October 3, 2020, 9:34 pm

    I often find it beneficial to read older Monevator articles linked on the weekend to read the older comments, some of which forecast near to medium term events with a strong degree of certainty that end up being well, lets face it, entirely wrong (that’s not a criticism of those commentators). A good example, is the “get religious” link to 2012 about gold bugs and associated comments about the death of fiat currencies. It reminds you to be humble in your thinking and mentally take yourself down a peg or two from time to time. No one has any certainty at all and if you know that and apply that thinking to your personal portfolio, well you are ahead of many others and can avoid major wealth reducing decisions through over concentration. Imagine if in 2012, you were convinced fiat currencies were near collapse and you could soon pick up assets at pennies in the pound. You might ultimately one day be right but today is a very tricky spot to be in I would say.

    A point being, without that certainty gold is a good asset to hold to some limited degree. Personally, I see it as part of my liquidity, held in physical form, never sold and ultimately gifted. It’s an incomplete hedge against a set of tail events I hope don’t come to pass. It also forms part of my hedge against the possibility of a depreciating pound (which I would be delighted if this turned out to be wrong). Owning gold was of some comfort in March, was of some comfort in 2008 and I dare say will be some comfort in the future. I don’t see it as an investment but am aware the data indicates it as a useful diversifier. In a world of negative real rates the case for owning gold seems stronger. Just important not to forget that shiny shiny does not generate anything.

    So on to UK shares, the FTSE 100 index is about where it was in 1998. Never spend your capital goes the adage, so assume you’ve gone deep into the FTSE 100 in 1998 and are merrily spending your dividend and 22 years later your capital has more than halved in real terms. It’s a bit of a knock against the yield shield strategy isn’t it? Moreover the constituents look pretty sickly (Take the top 10 – HSBC – Fintech should see to that, BP / Dutch Shell – Wind / Solar?, Vodafone – about as agile as a WW1 battleship, Glaxo / Astra – patent cliff edges?, Barclays – Ditto HSBC, BAT – Smoking in decline). That’s the top ten and a little shy of 50% of the index. Somewhat reflects the state of the British economy one might say if that’s the best we’ve got. And yet if you are a contrarian it’s pretty interesting – relative valuations are wider than they’ve been for decades (UK has a CAPE of 12, US 30 https://www.starcapital.de/en/research/stock-market-valuation), everyone absolutely hates it and the consensus trade is tech. So I’m a overweight the UK a little through holding the vanguard life strategy. Feeds the urge to tinker. Plus when the £ falls the index rises.

    The power of the dissenting voice is a fantastic article. Never be shy to speak up!

  • 17 Matthew October 3, 2020, 9:44 pm

    Does anyone have data on whether the demand for gold jewlery increased in line with the A team and Mr T wannabies? As I heard that one time medallions, gold chains such were in fashion. There was/is also a bling culture surrounding certain street gangs – ie bloods & crips, so maybe changes to the drug supply impacts gold – all these commodities/currencies (as cars) are ways of laundering so in effect they give you a way to track the criminal market

  • 18 Algernond October 3, 2020, 11:17 pm

    Yes, the power of the dissenting voice – really great.
    I hadn’t come across the ‘Banality of Evil’ before.

    Also re-reading the @Accumulator’s US unhedged bond article from 28-Arpil.
    Now definitely made up my mind to diversify into unhedged global bond fund come Monday..

  • 19 Richard October 4, 2020, 8:28 am

    So I finally followed the freetrade link. Now I am thinking about what to do with the account. One thought is to take advantage of their fractional share offering and start to ‘play’ with a dividend portfolio. Just a little bit of cash, but to try something more ‘active’ alongside my main ‘passive’ portfolio. I should be able to diversify across a large number of dividend shares with only a limited amount of cash. Anyone else trying this? Any thoughts? Or is it really a waste of time and just stick with the passive portfolio – in which case it is just about weighing up the cost difference between the accounts?

    I am referring back to: https://monevator.com/how-to-build-a-dividend-portfolio/

  • 20 Paul October 4, 2020, 9:03 am

    I have contemplated gold (and bitcoin) due to the uncorrelation with other stuff. I couldn’t stomach the pointless waste of energy involved with Bitcoin. As the article points out, gold is much more pointless and damaging to the world (only a tiny amount is extracted for industrial use) so I shall continue to ignore that.

  • 21 Marco October 4, 2020, 9:44 am

    Stick with passive

  • 22 SemiPassive October 4, 2020, 11:43 am

    I heard Ray Dalio has something like 20% of Bridgewater Associates assets in gold ETFs now, in comparison to the 7.5% in his All Weather Portfolio. That is quite a strong conviction in the ongoing devaluation of cash.
    Still has a weighty amount of the rest in S&P500 trackers.
    I may increase my overly modest 5% gold holding to at least 7.5% if it is to do enough to make any material difference in overall portfolio performance.

    As to the Medium article on low bond yields, one of my other diversifying asset (sub?) classes that wasn’t mentioned in the article is green energy infrastructure.
    Solar and wind trusts are still paying nice chunky yields of between 5 and 6% but are a lot less volatile, and a lot more Covid-proof compared to Commercial Real Estate trusts (one asset class I exited from).

  • 23 Richard October 4, 2020, 6:06 pm

    On the gold front, I have been umming and ahhing over adding it to my portfolio for some time now. The issue I am having is changing my asset allocation is painful. I have to sell something and buy gold, so for the short term I introduce all the risk of market timing. And right now that would seem to be selling shares ‘low’ (at least FTSE) and buying gold ‘high’ the opposite of what rebalancing and averaging have been doing for me all these years. Not really sure how to approach this, put a limited fixed amount every month to prevent moving into it too fast and get the averaging benefit. Probably continue to wait it out for now….

  • 24 TahiPanas2 October 5, 2020, 12:47 pm

    From my list of tired old stories to be whipped out at the merest whiff of relevance:
    I imagine almost nobody buys gold to use should Armageddon actually arrive.
    At such extremes, gold has been found to be of no value. For example, in the interregnum period between the fall of the South Vietnam government and the establishment of the new communist regime, there was briefly no formal currency , banks, functioning economy, etc. The population took to street bartering and those who produced gold bars (Asian taels in handy smaller sizes) found no takers. Cigarettes became a tradeable currency.
    Even with the worst possible prediction for covid, or some even worse pandemic, it will never come to that. Will it?


  • 25 The Investor October 5, 2020, 1:59 pm

    @TahiPanas2 — Interesting comment, cheers. However I don’t buy gold for Armageddon. I buy it for *people fearing* Armageddon.

  • 26 SemiPassive October 5, 2020, 2:11 pm

    TahiPanas2, temporarily in the heat of battle it may have had reduced barterable value against smaller purchases like foodstuffs, but compare to what would happen to local stocks, govt bonds or local currency cash under a Communist invasion or coup then gold looks a lot more sensible for wealth preservation in most “bad” scenarios short of nuclear war or a giant asteroid hitting the earth.

    It has worked well for various economic/currency crises experienced in Argentina, Zimbabwe, Lebanon, Turkey, numerous war torn countries, potentially Greece a few years back. Maybe even here under the right set of circumstances.

  • 27 Onedrew October 6, 2020, 11:25 am

    All the Gold ETCs I can find are USD based. Anyone know of a GBP hedged version or is that an impossibility?

  • 28 ZXSpectrum48k October 6, 2020, 12:11 pm

    @Onedrew. WisdomTree HDG Metal Securities Physical Gold – GBP Daily Hedged (Bloomberg ticker GBSP LN) is an example. 0.25% fee as far as I recall.

  • 29 Onedrew October 6, 2020, 1:13 pm

    ZXSpectrum48k: Thank you, that’s very useful.

  • 30 wephway October 7, 2020, 1:00 pm

    I saw an interesting/baffling article this week, I’m not sure how I came across it – Financial Samurai is now suggesting the SWR (safe withdrawal rate) for retirees is 0.5%. I don’t usually read his blog but I think he might have lost the plot. He appears to be basing his retirement plans off bond yields alone which seems unreasonably risk-averse to me. Also, a 0.5% SWR would suggest he thinks he’s going to live beyond the age of 200, or he thinks that shares/dividends will underperform inflation in the long run – both seem very unlikely to me.

  • 31 Alex Palcuie October 9, 2020, 10:37 am

    Quoting from ZXSpectrum48k:

    > Gold is just part of my cash allocation. No different to owning USD, AUD, cryptocrap etc. It’s got a three digit currency code, XAU, for a reason. It’s really just another fiat currency. Granted, one with a track record of thousands of years, rather than hundreds, but still dependent on our collective willingness to believe. I’ve increased the cash allocation in my passive benchmark from 5% to 10% at end 1Q20, and that required me to add additional gold to the portfolio. Not ideal levels but whatever.

    I agree on this opinion. Do you have any tips for infusing some “passiveness” into the cash allocation? I have tried to use the gold market cap (~$11 trln right now from World Gold Council) and compare it with different things. My first try was with the M2 money supply was my first try, but it fails miserably. In the end I always arrive at some hand wavy number that doesn’t feel too much and doesn’t feel too little, but it feels arbitrarly.

  • 32 Al Cam October 9, 2020, 12:41 pm

    Suggest you take a look at the following from Karsten (aka Big Ern):
    As usual, Ern provides a thorough analysis.

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