Gold Bond Hedge

percyb

Seems to make sense to hedge new gold purchases with 1 year treasuries that pay 5 1/4 percent. The T bonds/bills give nice downside protection on gold. If gold falls 5 percent add to the positions 1-1

TwoSides2aCoin

Good balance never upset the apple cart.

derryb

The logical thing to do. But, what happens to gold and to treasuries if rates go up (and they will) and the dollar's purchasing power goes down (and it will)?

Treasury Direct I-bonds, although limited in amount of annual purchases, are a also great way to earn high interest. However, most of my "eggs" are being incubated by a extremely liquid SoFi Checking account that is currently paying 4.3%.

In times of high inflation, rising interest rates and dollar devaluation, liquidity is paramount. Not "locking in" on a rate in this environment could be a good thing.

Goldminers

The 5-year TIPS this week auction went for 1.8% rate + the CPI-U. It is another hedge option, if you believe the CPI will stay above 3-4%. The Treasury direct I-bonds have been doing very well as inflation bounced. There are 7-8% dividend rates in some select dividend stocks like BHP and RIO with commodity metal exposure.

A diversified mix of the above along with a few shorter-term 5%+ bank cd's and treasuries, and currently 4.8% is available in liquid short-term mutual funds from Schwab and Fidelity. If you do a lot of these in Roth IRAs, there is no Federal tax. And of course, a few collectable graded coins and various precious metals are nice to keep for distractions. It all seems to balance out OK for now.

GoldFinger1969

5-Year TIPs break-evens:

https://ycharts.com/indicators/5_year_tipstreasury_breakeven_rate#:~:text=5 Year TIPS/Treasury Breakeven Rate is at 2.18%,,long term average of 1.91%.

GoldFinger1969

Plenty of money market funds approaching 5%.

GoldFinger1969

@derryb said:
The logical thing to do. But, what happens to gold and to treasuries if rates go up (and they will) and the dollar's purchasing power goes down (and it will)?

That implies out-of-control inflation and if anything it will be coming down in the next 6-12 months. If anything, inflation is higher in other countries.

The dollar should benefit.

percyb

@derryb said:
The logical thing to do. But, what happens to gold and to treasuries if rates go up (and they will) and the dollar's purchasing power goes down (and it will)?

Treasury Direct I-bonds, although limited in amount of annual purchases, are a also great way to earn high interest. However, most of my "eggs" are being incubated by a extremely liquid SoFi Checking account that is currently paying 4.3%.

In times of high inflation, rising interest rates and dollar devaluation, liquidity is paramount. Not "locking in" on a rate in this environment could be a good thing.

I was thinking short term t-bills 1 year or less, and rolling as they mature. The dollar should remain strong in a rising rate environment. The gold won’t rise, generally, unless large scale war occurs imho.

derryb

@GoldFinger1969 said:

@derryb said:
The logical thing to do. But, what happens to gold and to treasuries if rates go up (and they will) and the dollar's purchasing power goes down (and it will)?

That implies out-of-control inflation and if anything it will be coming down in the next 6-12 months. If anything, inflation is higher in other countries.

No, it implies a continuing inflation problem higher than the FED's desirable 2-3%, something that has a high chance of continuing. The fact that inflation is higher in other parts of the world indicates inflation is world wide problem - a serious problem making it harder for local economies to deal with. Stagflation is here, what it becomes remains to be seen. Locking in on a rate now is likely to be regretted later. Stay liquid, go with a MM or high paying savings or checking account. Be in a position to take advantage of higher paying returns when they become higher paying returns. Another safe play would be to begin locking in now with baby steps keeping cash in reserve for the next steps up.