Many suggest it is now the time to invest in gold. But holding CHF does offer similar advantages, as in times of crisis CHF perform a function of safer haven. What is the additional value offered by gold vs CHF in this juncture?
Ask yourself what you want to do with gold. Gold is expected to protect your buying power over the long term, nothing more. So if a piece of gold allows you to buy 15 hamburgers now, this same piece of gold should allow you to buy 15 hamburgers as well in 100 years, but not much more.
Other than that, I’ll let you consider the following quote:
As someone who took the leap and “invested” in gold last year, here is my feedback.
First of all I put “invested” within quotes because to me gold is more an insurance than an investment. As Julianek pointed out, gold is merely keeping its buying power at the same level over the years, nothing more. Gold does not generate any revenue, no dividend, nothing.
It does however generate costs. This is why I see it as an insurance. Holding gold as an insurance can become useful if the system crashes. That could mean:
- no more money could be withdrawn (bank run)
- banks default (bankruptcy)
- fiat money is printed frenetically (hyperinflation)
In any of these cases, holding paper money could eventually prove worthless, and holding gold could be interesting because you could buy things that would be on sale because of the current market conditions, housing for instance.
But this is an end-of-the-world scenario, where you would probably have way bigger things to worry about than purchasing a new home with your heavy shiny gold bar.
Holding gold as an insurance means buying physical gold. In addition to the markup when buying it (obviously higher for smaller amounts like coins), you have to pay for its storage. You could buy a safe and store it at home, you could rent a safe in a bank (risky, the bank could go bankrupt or simply prevent access to safes) or with a company specialised in the matter. You could even buy through said companies and hold the gold there (goldmoney does just that). Whatever you do, there will be costs, and you have to think about how you could access your gold in such a gloomy scenario.
In the end there is always a scenario where holding gold might make you money, but the conditions under which this occurs make it nothing more than a bet. Since we all know we cannot time the market (we do know that, right?), holding gold is in the end an insurance policy against something that will or will not come eventually.
Since I did buy some gold, I’m planning to keep it, either indefinitely or until it reaches a level I deem high enough to sell and most probably never buy again.
Silver might be a better fit for investment purposes, given its industrial applications and higher volatility, but I am not one to give any advice on the matter simply because I know next to nothing in that area.
Interesting topic though, I’d like to read more on that subject here.
Thank you both. Very insightful feedback
What I think of: in a world you describe (without social unrest, civil war, … ) wouldn’t it be nice to hold shares of a company that produces essentials and will accept other’s people’s gold?
I think of food companies, seed and fertilizer companies, steel factories and if you are more pessimistic weapons.
Does anyone know about this science? Which stocks could keep their values in said scenario
Lately I am more and more reading and watching videos about the risk on fiat currencies. Preston from the Investor Podcast has good content in their pods but also in youtube. This is why I started a position in Gold 2.0= Bitcoin. Said that, it is not Gold 2.0, it is an alternative to current currencies which can be hundreds of thousands in the future or zero, again, or zero. So be careful.
For Gold , I also recommend a video from Ben felix in youtube. https://youtu.be/ulgqlQWlPbo to offer different perspective.
Said that, if we need to be worried about currencies and buy Gold, that will means the world/economy how we know it is over, and I doubt we will know what to do, the collapse will be everywhere and the banks/brokers will be done, so should we worried about that scenario too much? Another story is diversification, to use it as insurance to buffer drops in stocks, as part of a proper Asset allocation with negative correlation.
Said companies would have to be prepared for that, and if made public these preparations could do more damage than good (investing in an improbable scenario -> stock price drop).
You can find various portfolios that include such risk mitigation. The first ones that come to mind are:
Of course this mitigation comes with a price, but maintaining such an allocation is not that far from a two-fund portfolio or any other lazy investment policy.
I agree, in my case I own gold as part of my pillar 3a in VIAC, which I assume many of us will do too. But that as % of the total is very small.
VIAC limits to to 10%, and while this fund is investing in physical gold its redeemability has yet to be proven in case you want to use it as an insurance. If everybody who owns shares of that ETF were to receive the corresponding amount of physical gold, well, that would probably not go smoothly.
To me a gold ETF defeats the purpose (if it exists at all) of having gold as a hedge against market crash, even more so if you can only rebalance at the end of each month (e.g. through VIAC).
I’m more annoyed by VIAC’s 10% limit on gold than I am by the fact I’ll never get my hands on it. Owning physical is one thing, possessing that physical gold is another thing. But it doesn’t matter anyhow as its very difficult to get a physical gold order fulfilled right now.
ETF gold is worth trading (e.g. hold it until the ETF catches up to the spot price), but I agree its not a decent way to own gold as an insurance.
The problem we all face here is that we’ve never been through a genuine shock to the economic system, on par with the Great Depression or WW1 or 2. I mean a shock where you find it necessary to pawn your wife’s jewellery and your grandfather’s watch. Owning gold is something we’ve never had to consider.
But as @romzzz said above, it is an excellent insurance against bank runs, bank defaults and hyperinflation. The first two might seem like extremes, particularly in Switzerland. But the third? C’mon, it’s pretty much a guarantee now. Consider that every single central bank around the world is printing billions and billions of fiat. Consider that the Swiss central bank is basically run like a giant hedge fund. It’s probably less diversified than you are!
As currencies around the world fail, liquidity will flee towards stability: the euro, the pound, the franc, and ultimately the US dollar, until it fails as well. What system comes after that is anyones guess.
Buy some gold, for sure. I’d say buy some bitcoin too–the upside is potentially massive (especially given the past 2 months) and the downside is only whatever you’re willing to risk.
Out of curiosity, how much gold do you plan on holding?
(at least personally, in the very unlikely situation of society collapsing, I’m not sure gold will be of much help, barter seems more likely, but I’m not a prepper )
I started increasing from 5% last summer. I’m at 17% of my portfolio now and will likely stop there.
I just find Viac the wrong place for gold. You’re paying 0.5% fee p.a. (more expensive than Gold ETF’s held at a normal broker) and you’re not profiting from any of the tax-free dividends you could get at Viac with the other ETF’s. And at Viac Gold is a USD ETF, so you have lousy fx (up to 0.75% when buying & selling).
—> Hold your gold elsewhere.
That’s a very good point… unless gold continues to rise. It’s done well for me, and my read is that it has more room to go.
Even if gold rises in value, outside of 3a you are not paying capital gain tax but in 3a you do.
3a money is taxed at withdrawal
I’d like to share my approach to “investing” in gold.
Yes, it does generate costs, but depends on how you invest and store it. This can be brought to almost zero (storage) but then you need to consider the spread (buy vs sell difference of physical gold for ex).
My planned total allocation to gold is 0.24% of my portfolio. All in physical gold. No ETFs, no Gold Mining, physical bars of 100g or higher. I have some gold coins but those are not good on the spread.
Current allocation is 0.16% of total portfolio.
Why do I buy gold and why do I want to have it in my portfolio?
Bunk run & Bank defaults - if the banking system is not working it is unlikely you can pay with gold, even less useful if you are wallking around with 1kg bars…
Hyperinflation - this is a good reason, but there are other asets which perform better and have lower spread
Intergenerational wealth - I have lived through 4 currency changes and hyperinflation in the 80’s, my grandpa hedged agains inflation by buying raw material for his company. Gold purchase was prohibited and is controlled until now (in my home country). The main issue during the period was that you had a limited amount of time to exchange your old valueless fiat currency for the new one, or that you could not do you bank transaction during a couple of days. The loss of value and assets was significant but not life threatening. However, if I already have physical gold storage, it can be kept for generations without loss of value, if controls are imposed those will not necessary affect already purchased assets (or those can be kept concealed for real emergency situations - WW3).
Not practical, not very useful. That’s why only 0.24%
Cash (or CHF) has a similar property, but is better in case of bank run or default. My CHF allocation is planned for 1.92% of total assets (0.48% physical cash, the rest on bank account). Currently it is at 3.63%.
Cash also does not pay dividends, does not increase in value and has the same storage costs as physical gold.
Can you please tell us which assets perform better during hyperinflation?
These proportions have absolutely insignificant effect on your overall portfolio.
Or did you mistype the decimal point, twice?
Why are you talking in promils, beats me.
Those amounts change literally on an hourly basis, what’s the point of being that precise?
Just for being more liquid. there is a market for more mundane assets to store during those time which are easier to sell as needed. It is from the practical point of view.
edit: I just seen you wanted some examples, I know (first hand) that in Venezuela apartments are a good store of value and sold in USD. Also first hand, I know in Iran someone who bought electronic equipments (raw material for his business) and stored in quantities. During high inflation he adjusts the prices of his goods. Government cannot confiscate (easily) and is evident (necessary) on his tax declarations. My grandpa stored polyurethane granulates as raw material, which he could capitalise as needed during hyperinflation time.
Correct. It is just for piece of mind sake. Irrelevant on overall picture but still there.
Sorry if this annoyed you. No need to be precise, in fact it is not meant to indicate any precision, the numbers were just too small that I expanded the decimals on the excel. I just make a monthly static appraisal of my account. From that static appraisal I calculated the percentage to total assets and targets.