All assets have risk, but what is the #1 risk that is perceived to be alleviated by PMs?
cohodk
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???
Excuses are tools of the ignorant
Knowledge is the enemy of fear
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Inflation.
Worry is the interest you pay on a debt you may not owe.
"Paper money eventually returns to its intrinsic value---zero."----Voltaire
"Everything you say should be true, but not everything true should be said."----Voltaire
That is a great discussion topic!
To really believe that gold makes sense in a portfolio, you need to either (a) have some confidence in your ability to market time, or (b) be concerned about very severe and prolonged inflation-close to a point of a breakdown in society.
Over the long term, gold is not going to outperform inflation; unless you can market time, it is hard to justify. Market timing, by the way, may be more of a sell side issue. Accumulate gold during stable, low inflation periods, and sell gradually during the course of nightmare scenarios.
Although I do own gold, I don’t think I have a particularly rational reason for doing so. It’s just kind of cool stuff! However, as an inflation hedge, I tend to lean towards real estate.
currency risk. re: Zimbabwe, Venezuela. After all, currencies are backed by "faith."
And it's a reality, not just a perception.
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
@derryb
I can construct plausible scenarios that lead to double digit US dollar inflation, but have trouble constructing a scenario that leads to hyperinflation. Even in a disaster scenario (like war with China or worst case global warming), I suspect we wouldn’t see worse than double digits.
Try running your risk analysis using "confidence" and not "inflation." Gold price offers a good measurement in currency confidence levels. Note that it did not take war in either Zimbabwe or Venezuela to rattle that confidence.
Also note that double digit US inflation has occurred in modern history and it did not take an earth rattling event to awaken it.
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
Definitely we could see double digit inflation in the “normal course of things”. Personally, I view it as highly likely within a 10-15 timeframe, sooner depending on political events. However, I view the risk of runaway inflation as essentially negligible.
Just like any asset class.....Timing...either in selling or buying.
Daisy-chained debt infarction.
I knew it would happen.
My 2 cents, On a personal level the reason that I am a buyer of Precious metals today is as a hedge against a severe stock market correction, diversification, Quantitative easing( Federal reserve just prints more money to add liquidty to the capital markets and banks), US fiat currency risks , and the next big debt crisis worldwide, China and Japan own almost 2.25 trillion in us debt. We have world central banks buying huge positions in the capital markets (they are buying stocks and telling no one). They use to buy gold. The list just continues to grow. I am not confortable buying " Bitcoin as an alternative investment". At this point I have significant stock market holdings, a 401K an old fashion company pension, A home, and I will get social security BUT I would like all my bases covered and want assets in every investment class. Besides I love physical metal. I do not believe it smart to have only one investment. My wife and myseld grew up with very little and I want to make sure that doesnt happen again. The paragraphs below came from something I read.
"When investors lose faith in paper currencies and other asset markets, gold and other precious metals have traditionally retained their values. Therefore, precious metals are a store of wealth during times of uncertainty or economic turmoil and often have a negative correlation with other asset classes.
During periods of hyperinflation or government upheaval, precious metals have traditionally been assets that serve as flight capital. During the exodus from Nazi Germany in the 1930s, many people bribed their way out of the country or paid for passage with gold and other precious metals. There are many other examples throughout history where precious metals replaced paper currency as the only acceptable means of exchange.
Precious metals have been currencies for thousands of years, while most paper money has only been around for a much shorter time. The long tradition of value for these metals is a testament to their staying power.
Precious metals are fungible; they are mutually interchangeable, just like money. Therefore, precious metals are the oldest form of money in the world."
MIKE B.
sounds like an insurance policy.
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
Exactly!!
MIKE B.
Insurance against the overinflated pig known as fiat currency. Of course if NASA brings back that golden asteroid we will all be jacked. Until then, stack on!!
The whole worlds off its rocker, buy Gold™.
BOOMIN!™
Gold is not an investment. Rather, it's a means for preserving wealth and it's good to own during times of economic uncertainty.
Worry is the interest you pay on a debt you may not owe.
"Paper money eventually returns to its intrinsic value---zero."----Voltaire
"Everything you say should be true, but not everything true should be said."----Voltaire
Exposure.
PMs are a viable asset class that can have both monetary and industrial correlations as well as a long history of perceived and realized value.
The #1 risk eliminated by having PMs in a diverse portfolio is just that, exposure to said asset class.
Of course one could argue that exposure to PMs also comes with it's own downside risks but I believe that can be said of any asset class.
It's all about what the people want...
what would the prospectus of cash look like?
"It's value is determined by the person accepting it, not by the person tendering it. What it's worth today is not guaranteed (or likely) tomorrow"
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
That of Anxiety
One thing not mentioned here is "counterparty risk". Gold (held in one's own possession) has no counterparty risk.
If you have a bank deposit, somebody has to repay you that deposit.
If you own a bond, somebody has to stand ready to repay you at maturity.
If you have an option, another party has to be ready to pay you off if you are correct on your bet.
If you have a bitcoin, somebody has to buy and successfully process your sale when you wish to redeem.
Many other examples.
But a Gold coin hidden in your old wool sock eliminates the need to rely on a counterparty.
Just don't throw away the sock.
@BillDugan1959 said “Just don't throw away the sock.”
For most people, the risk of throwing away the sock is probably bigger than well-diversified counterparty risk.
My wife threw away sixteen ounces of gold coins once.
I had a travel job at the time. Thank goodness I got home that week before the trash went to the curb.
That must have been a relief when you got it all back before they came to pick up the trash...So from this scenario is it smart for us or not ..to let at least your wife or husband know that you have a hidden stash so that they do not throw away say that old motor oil can filled with gold ...or not smart because they can divorce you and take away your stash after the dust settles? But what if you were on the road and its your time....never got back home and she did not know about your hidden fortunes and sells the house and moves away leaving everything to the new buyer to dispose of etc.?
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Is inflation the top risk perceived to be alleviated, or is gold the best asset to protect against inflation?
Knowledge is the enemy of fear
Both Venezuela and Zimbabwe are/were military dictatorships who turned weapons against its own people. The loss of confidence was in the political leadership that destroyed its economic engines.
What would it take to destroy the economic engines of the USA?
Knowledge is the enemy of fear
Can you elaborate on the anxiety that is alleviated?
Knowledge is the enemy of fear
If you have a bitcoin, somebody has to buy and successfully process your sale when you wish to redeem
Is that also not true of PMs? Or could Bitcoin not be directly "redeemed" for another good or service?
Knowledge is the enemy of fear
I think this is a wonderful concept, and one that can and would be and has been applied to any and all assets in a crisis.
Knowledge is the enemy of fear
Great explanation of value of diversity.
Knowledge is the enemy of fear
Does insurance not carry counterparty risk?
Knowledge is the enemy of fear
Im having difficulty in disagreeing with a single word.
Knowledge is the enemy of fear
To what sort of economic uncertaintity do you refer and how has gold done a better job of preserving wealth that other assets?
Knowledge is the enemy of fear
Good one. But she from whom it was hidden probably had something to say.
I don't see gold as an hedge against inflation - hence, why the long decline from 79 to mid 90's? There was plenty of inflation and gold was dropping and flat. Same for the 2010-2011 runup till recently.
Gold is store of value that endures centuries. It is like taking a dollar and putting it into a deep vault that time and government mismanagement cannot touch. The USA as a nation will be long gone before gold is not accepted.
"The USA as a nation will be long gone before gold is not accepted."
I would have agreed to the above statement 100 years ago, but with spaceflight "around the corner" and the possibility of abundant gold on other Asteroids or Planets, Gold in the 22d Century may become just another relic of the past.
With millennial apathy...
wow
you can double post with this software.
Great discussion with valid points on both sides....Diversity in investments certainly helps to spread the risk. However, in the case of a major disaster (be it physical or political), gold will weather the storm....along with a safe haven and means to defend it. Cheers, RickO
And so will toilet paper, coffee, "smokes" & nail clippers
Interesting that inflation risk, currency crisis risk, counterparty risk, asset allocation risk were all mentioned, but im not sure if there was/is a consensus #1 risk PMs cover.
Knowledge is the enemy of fear
There will never be a consensus as that changes from person to person and their individual situation.
We all (i'm assuming) own PM's for a variety of reasons. Part of the reason I own gold and silver are the ones noted above, another is PRIVACY and to physically own an asset in the digital age. Its cool to see my bank account and 401(K) growing but being able to hold a gold/silver bar in my hand is completely different.
Only my wife and I truly know what we have in our SDB and that is one of the only assets that I consider private.
consensus? did you expect everyone to name everything?
But none of these will survive, unscathed, at the bottom of a lake for an extended period of time after a boating accident.
The threat of destruction by fire.
What am I doing on a lake? Unless you are expecting a "Water World" scenario. Last time I checked, PM bars & coins don't float.
For many of my clients its "fear of confiscation".
To me gold is no different than any other currency. Not all currency are accepted everywhere, know you market.
History shows that gold and infinitely printable currency are very different asset classes.
However currently printed currency can be handed over for a loaf of bread, or used to start a fire, if thats its value at the time. Gold has to be converted to another currency to be used in trade. There are only so many people who will take gold in trade for goods/services.
I guess it comes down to "prepper"
Well the most important word in the op question is “perceived”,
the above quote by Shady, is why gold is simply, and nothing more, than pure speculation...
No..
I thoight maybe there would be a preponderance of agreement on one risk.
Knowledge is the enemy of fear
So this and DavidK answer lean toward hiding assets.
Hiding is a derivative of fear.
Knowledge is the enemy of fear