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All that glitters is not gold

edited September 2021 in Other Investing
Mark Twain references that fact in the ending of one of his short stories.

Nasty day Thursday if exposed to gold, silver or the miners. Gold fell about $40 from near $1800 to below $1760. Silver is reported to have lost twice as much on a same day percentage basis. Miners overall were off 4-5% for the day. And the dollar strengthened, pushing the Swiss Franc to its lowest value in relation to the dollar of 2021. BTW - PRPFX, which actually hedges pretty well against gold volatility, managed to drop about 1% Thursday. Ouch. The only bright spot is that gold has tested the $1680-$1700 level a couple times already this year and bounced back fairly quickly both times. So, just perhaps, the $1700 area represents some kind of floor.

“Moralizing, I observed, then, that ‘all that glitters is not gold.’
Mr. Ballou said I could go further than that, and lay it up among my treasures of knowledge, that nothing that glitters is gold. So I learned then, once for all, that gold in its native state is but dull, unornamental stuff, and that only lowborn metals excite the admiration of the ignorant with an ostentatious glitter. However, like the rest of the world, I still go on underrating men of gold and glorifying men of mica. Commonplace human nature cannot rise above that.”

From “Roughing It” - by Mark Twain


  • Is the gold position in PRPFX, gold metals, or miners, are good hedge against inflation?
  • edited September 2021
    Sven said:

    Is the gold position in PRPFX, gold metals, or miners, are good hedge against inflation?

    Good question, Without digging thru the latest report, I’m pretty confident the gold and silver reflected on the chart below are in bullion or certificates of ownership representing each. It’s possible they also hold a few mining stocks, but those would probably be reflected in the “stock“ holdings rather than being listed under gold.


    FWIW - PRPFX belongs to a class of funds known as “Risk Parity.” These funds attempt to hedge market risk by diversifying among distinctly different asset classes. Common ones include equities, natural resources, high quality bonds. Sometimes it works. Sometimes it doesn’t.

    I’ve come across an ETF recently that has piqued my interest. RPAR takes a somewhat different risk parity approach. I like what I see. And the fee, while high for an ETF, is less than PRPFX’s. Here’s a Link which does a nice job showing how RPAR invests.

    Just to respond to @Sven’s inflation comment. I wouldn’t buy gold expecting it to protect against inflation. It’s just too darn volatile to expect that. Possibly it would, but it’s also possible its investors have already discounted years of future inflation in its price. However, a broad basket of commodities, including some gold, may well offer better protection against future inflation than equities alone would. Plus, there may be good reasons to own gold that reach far beyond the inflation issue. But - that’s beyond my pay grade.

    @Sven - Everything I read suggests that the miners are a better buy than the bullion at this point. So, if one can stomach the risk and volatility, a slight bet on the miners wouldn’t be a bad idea. I like to invest a set dollar amount and let it ride. Helps keep me disciplined so that I don’t sell too early or, conversely, keep throwing money at them when they’re nose-diving.
  • Really appreciate your input. I invested in PRPFX for several year but I moved on to other funds. I bought small % of IAU early last year and sold it in fall after it peaked. You are right that it is a very volatile ETF. Now that prices are rising on goods and services, especially gasoline. Bonds are yielding very little and unlikely to keep up with inflation. I will review RPAR first.
  • Gold's reputation as an inflation hedge is often overstated.
    It is not uncommon for gold to generate negative real returns during a decade-long time period.
  • Thanks for the link. There are few viable options to counteract inflation when US stocks are richly priced and high quality bonds are providing below the inflation rate.
  • edited September 2021
    Unfortunately, there are not many good choices for typical investors in the current environment.
    I Bonds are relatively attractive but there is an annual $10K purchase cap*.
    Real assets such as farmland, timber, real estate, or broad-based commodity baskets can potentially generate positive real returns during certain inflationary episodes.
    However, these investments tend to be illiquid and/or volatile.
    Although not a direct inflation hedge, stocks often generate positive real returns over longer periods.

    *You can purchase an additional $5K in paper I Bonds each year with your IRS tax refund.
  • Thanks for the advice. I need to learn more about I bonds from the Treasury versus TIP funds and ETFs. In the meantime, I am maintaining a healthy allocation to stocks.
  • edited September 2021

    The latest two posts (09/14, 09/07) on the Tipswatch website may be of interest.
  • @Sven - this article too from Jim Sloan @SeekingAlpha.

    I-Bonds Have it All
  • edited September 2021
    Thank you so much. You guys are awesome!
  • JEPI is an options etf from JPMorgan that I'm using now for some of my idle cash.
  • edited September 2021
    Back in 2002-03, there was a lot of discussion in the media about impending hyper inflation after we entered Iraq and Afghan wars. From that time through 2020, IBonds (or inflation) disappointed. Federal Reserve repeatedly said for the past year that in its estimate the current uptick in inflation is going to be transitory. I do not know the future but neither do I have a reason to think Fed is not being sincere in its estimate of future inflation. See also for what future inflation the market is currently pricing.

    P.S.: I can not read the SA article.
  • @Mark- Yes, that link needs help.
  • msf
    edited September 2021
    Mark said:

    @Sven - this article too from Jim Sloan @SeekingAlpha.

    I-Bonds Have it All

    For I Bonds bought by October 31, the one year yield will likely be 4.8%
    This is understated. He's assuming 0% inflation in August and for September. It was 0.3% for the month of August, or 5.3% Y/Y Aug 2021/Aug 2020.

    The combined return from November 1, 2021, through October 31, 2022, will therefore be close to the combination of 1.77% for the six months ending and the 3.07% (6.14% annualized) likely for the subsequent six months, if not higher. The total one year inflation component combining the two is 4.84%

    Assuming a savings bond purchased Nov 1, the inflation adjustments would be the Mar '21 - Sept '21 inflation rate for the first six months, then the Sept '21 - Mar '22 inflation rate. The old 1.77% rate (inflation Sept '20 - Mar '21) would be irrelevant.

    OTOH if you were to purchase a savings bond before Nov, then you would get the rate as described for a year. But that year would start the in the month you purchased the savings bond and terminate before Oct 31, 2022. At that point you'd start getting the Sept '21 - Mar '22 inflation rate.

    Either way, he's missing this future, completely unknown rate in what you'd earn through Oct 31, 2022.

    IMHO, an argument for purchasing Series I savings bonds now instead of after Nov. 1 is that you're getting a guaranteed 3.54% (annualized) rate for six months in addition to whatever the future holds. Not too shabby.

    One can argue about the defects of the Urban CPI but it's what is used for all important measures such as resets of Social Security payments.
    Bzzzt. Try again. CPI-W is used for the all important measure of SS COLA.

    For I Bonds bought by October 31, the one year yield will likely be 4.8%. You can buy $10,000 electronically at TreasuryDirect and another $5000 with your tax refund.

    Yes, but a couple can't buy $10K with their refund if they file jointly. The purchase amount is limited to $5K/savings bond type/filing. So a couple filing jointly could purchase just $5K, though they could purchase $5K each if they filed separate returns.

    I Bonds give you the opportunity to avoid this [tax on phantom income] problem by electing to defer taxes until maturity.
    Meaning that you have the option to pay tax annually, e.g. if the savings bond is in the name of a low income tax payer.

    Not mentioned is the opportunity for a deceased savings bond owner to pay tax on accumulated interest to date of death. This can be advantageous if the deceased is in a low tax bracket (likely if retired), or in the alternative, if the deceased is subject to estate taxes at state or federal level. If the deceased elects to pay the deferred taxes after death, that reduces the size of the taxable estate. And similar to inheriting a Roth, the beneficiary inherits savings bonds with no built in tax liability. Though liability attaches going forward, as the savings bond continues to accrue interest.
  • edited September 2021
    Follow up to my previous post -

    Fixed interest rate on Series EE bonds currently being issued is 0.10%. I would not bother with them, even though they are guaranteed to double in value in 20 yrs because one is locked in for 20 yrs or earn practically nothing if withdrawn sooner, including a one year lock up. It is scary to think the Govt economic projections lead them to the current pricing @ 0.10%. From TreasuryDirect -

    "How does Treasury decide on the interest rate?
    We determine the fixed interest rate for EE bonds by taking market yields and adjusting them to account for the value of components unique to savings bonds, including options that permit early redemption (redemption after the first 12 months) and tax deferral.

    We do this twice a year: May 1 and November 1. The new fixed rate of interest then applies to all EE bonds bought in the following six months."

    P.S.: An IBond with a principal of $10K purchased on May 1, 2004 has a current balance of $17.3K, after 17 years. That is, a 73% accrued interest (or increase balance) in 17 years.
  • edited September 2021
    - “IMHO, an argument for purchasing Series I savings bonds now instead of after Nov. 1 is that you're getting a guaranteed 3.54% (annualized) rate for six months in addition to whatever the future holds. Not too shabby.”

    Not shabby at all. Is there an ETF or mutual fund that uses these to boost yield? Suspect there’s a timing element involved that would complicate the work of an ordinary investor in meeting what appear pretty stringent dates, Also, would it be possible to keep rolling the $$ over into these - perhaps automatically? (KISS).

    - “Not mentioned is the opportunity for a deceased savings bond owner to pay tax on accumulated interest to date of death. This can be advantageous if the deceased is in a low tax bracket (likely if retired) … “

    Most assuredly retired (one way or the other):)
  • A beautiful Sunday Michigan morning to you @hank

    Travel the TIP ETF route or equivalent from whichever provider to fulfill the I-bond space.
    E.R. = .19%, the majority of holdings are 1-5 year duration, no limitation for when to buy or sell, no $ limits, well suited to a tax deferred account holding; a fully flexible holding in this area of one's total account.
    Annualized return sample periods since Dec. 2003 inception = LIFE, 4.4% and 3 year of 7.5%.

    TIP ETF performance

  • edited September 2021

    Nice. Thanks. Has me wondering … Does this ETF only go up?

    It’s possible that chart reflects investor enthusiasm for TIPS (a fad) rather than real value vs conventional bonds. Charts that go up in that manner sometimes do. Looks like it’s really ramped up since beginning of 2019. I don’t know the answer. Just asking those “in-the-know”.


    Note that in recent months the “angle of attack” has really steepened. Were it an aeronautical craft it would be about to stall.:)
  • @hank

    The chart below won't necessarily clarity much, but provides a reference to 2 other U.S. bond types. NOTE: TIP also has the feature of "flight to safety bonds" during a "melt", being a US gov't. issue.

    3 year chart total return: TIP vs IEF (7-10 year Treasury vs LQD (investment gr. corp. bonds
  • edited September 2021
    thanks @Catch - Nice chart if one clicks the link.

    BTW folks - My Lipper chart appears to display properly at first, but than looses traction for unknown reason. So, here’s the LINk to said chart.
  • @hank
    Not sure what's with the YTD numbers with your Reuters chart link........which indicates a +.82%. I-Shares site indicates a +4.3%, which M* also indicates.
  • Really like HNDL, the others meh except for HIPS which is a train wreck.
  • Howdy folks,

    Interesting discussion and most everything is spot on. Hank's and the others have been doing this for a long time.

    Is golds still a hedge against inflation? That remains to be seen. The market is extremely manipulated not in a conspiratorial way but legally by all the central banks and countries that wish to do so. This makes it tough to play in the short run. Almost impossible.

    First of all I see gold in a couple of different ways. First I see it as a core investment for all portfolios. Say in the 3-7% range, preferably in physical bullion. More that this size of a holding is speculation. This is fine as long as you know it speculation.

    I try to play gold and silver in a momentum investing manner. When they start to show some momentum, you scale in and ride it until it starts to break down at which point you scale out. There is no positive momentum at this point in time.

    I mentioned silver only because I do prefer to trade it and as was pointed out, the mining stocks, particularly the juniors. All I can say is that this is where the leverage is and it can truly be nose bleed stuff.

    Most precious metal mutual funds contain mining stocks and zero bullion. And you want to be careful with bullion ETF's because they are taxable at the collectibles rate if held in a taxable account. Ouch!

    Permanent Portfolio PFPFX is based upon a diversified portfolio that Harry Browne came up with. He felt be diversifying between select asset classes you could smooth the market cycles. WTF knows. I do own it and have for years and will continue to do so.

    As for wealth diversification, the Elder Rothschild said a long time ago, that to protect your assets you should have 1/3 invested in securities, 1/3 in real estate and 1/3 in rare art. Rare art can be a lot of things but it ain't beanie babies. In my case, I sub rare coins and bullion for the latter category.

    Of note with the current market in bullion, there is a major divergence between paper price and street price. This means that official paper price is viewed as bogus by the people buying and selling physical bullion and therefore there is a very large premium attached to all bullion purchases.

    and so it goes,

    peace and wear the damn mask,

  • edited September 2021
    While @rono is a familiar and most welcome poster to us oldsters, newbies to the board during the past decade may not fully appreciate his experience and knowledge on this subject. In the days of MFO’s predecessor, Fund Alarn, rono regularly posted a daily early morning edition called “Asia and the Metals” summarizing recent developments in those areas along with point-on perspectives. Always a class act.

    Personally, I’ve long held alternative type investments / inflation hedges which include a 1-3% exposure to a mining fund. That’s in addition to significant exposure to PRPFX which was earlier discussed. I don’t mind saying that even in picking my entry points carefully over the past 12-18 months I’ve ‘had my “bell rung” on the miners. The action over the past 6 months or so simply stinks. Likely some of the carnage stems from the “big boys” (hedge funds, etc) strategically pushing around the metal (playing both long and short) in what is a very thinly traded market and also trying to spook smaller investors and gain an edge. Rono mentions buying / selling by sovereign banks. And there’s the strong dollar plus the current crypto craze.

    The thing to keep in mind is that the precious metals and miners can turn on a dime. It’s not unheard of for prices of either to double in a year or two - though the downside can be just as extreme. I suspect at some not too distant stage the precious metals will again be in vogue. All markets in recent years appear much more prone to running to the extremes along with public sentiment . Likely many have over-shot on both the up side and down side since the ‘07-‘09 crash. So, I continue to hold to a roughly 2% position in the p/m miners.
  • Howdy hank,

    Hope you're doing well.

    For those stackers that DCA, now is the time to be buying physical bullion while watching the premiums.

    take care,

  • edited October 2021
    The I-bond semiannual variable inflation rate, based on the Sept vs. Mar CPI-U, will be 3.56% starting Nov 1st, for a composite rate of 7.12% (for 6 months) even if the fixed rate (not announced until Monday, Nov 1st) remains 0%, as seems likely.

    If an I-bond is purchased before Nov 1st, because interest is compounded semiannually, one would get (1+1.77%)*(1+3.56%) = 5.39% for that bond's first year.
  • edited October 2021
    @orage - Thanks for insights on I Bonds. Whatever floats your boat. Gives me a chance to say the metals have popped - pretty much across the board. Gold’s been rising now for a couple weeks, making up for at least a month’s recent decline. Around $1800 again after flirting with $1700. Miners, against the recent trend, have been outperforming the metals of late. Up better than 2% on average today. Silver’s doing even better lately.


    Should add -It’s not just the precious metals that have perked up. Seems many industrial metals (like copper & aluminum) have gone ballistic. Not sure how to classify platinum - as it has industrial uses - but it has also turned up lately.
  • Bought some SLV today. We are heading into the season.
  • edited October 2021
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