With inflation on the rise, is anyone moving a portion of their portfolios to Gold bullion or precious metals? I’m considering investing some funds into asx: GOLD as an inflationary hedge. Would be interested to hear what others are doing in this regard.
Hi MTR, For my smsf, I’d consider investing up to 5% but no more. Looking at ASX:GOLD etf which is backed by physically allocated gold bullion held by J.P Morgan Chase bank as custodians in London. I’ve been reading about the Precious Metals etf: ETFS which tracks a basket of gold, silver, platinum and palladium. Are you thinking of buying in your smsf?
I actually think you are better considering investing in the companies that produce the gold. This is because over the long term the leverage compared to the gold price can be multiples (as can the losses if the gold price heads south). Expect very high volatility with gold stocks as the gold price can be very erratic. Black line below is the gold price which has increased 40% over 5 years. This group of producers has in that time delivered capital return 120% to 150% ( between and 3 to 4 x the move in the gold price ). Of the group below I only currently hold GOR. I previously held EVN but sold it when I moved some of my super over to an SMSF. The good ones will at least give you a reasonable income return. NST Dividends. EVN dividends. GOR dividends. Another angle of attack is to invest in late feasibility stage Gold Mining companies. By this I mean companies that have completed defining resources and are raising capital to build their mines. You can generally achieve a 100% return before they enter production. There are numerous on the ASX.
There's a fundamental reason for the leverage. Let's look at a scenario. Let's say gold price is USD $2,000 per ounce and a producer has a gross profit USD $1,000 per ounce (means cost of production is USD $1,000 per ounce). If the gold price moves to USD $3,000 (gold price increase by 50%), all other things being equal the producer's gross margin will move from USD $1,000 to USD $2,000 (an increase of 100% ). That roughly means their Earnings Per Share will increase by 100%. If the gold price drops from USD $2,000 to USD $1,500 (a drop of 25%), the producer's gross margin would drop from USD $1,000 to USD $5,00 (a drop of 50%). Their Earnings Per Share would drop by 50%. That's why gold stocks can be very volatile since share price sentiment will be driven by growth or reduction of profits as the gold price fluctuates. As an aside I recommend following NorthstarCharts on twitter. His gold charting / forecasting is fantastic. https://twitter.com/NorthstarCharts/status/1397872457042862081?s=20
I am basically using the strategy that Wombat outlines. I have shares in several small gold exploration companies as well as shares in the larger more established gold producers.
Been buying physical gold and silver, also own miners by default as they are actually good businesses that I want to own.
I dont like gold, but I do like benefiting from the suckers who do, I do have small exposure to miners, but I prefer capital light business's selling something useful, with recurring and growing revenue who make money with little effort and cost . Last august I as Fargo in the 10 bagger thread, said RUL was better than gold, sells software for running and managing mines, bagged it in 9 months, and growing fast. 3 weeks ago I said LBL, technology that makes equipment last longer and reduce down time is better than gold already gained 25%. There will all ways be a market for shovels because fools will always want to hold something as useless as gold and producers will look for easier and more efficient way to dig it up.
The main issue for me with gold is that it doesn't have an expected return. Good discussion at Episode 62: The Rational Round Up: Tax Loss Selling, Gold, Michael Burry and More! — Rational Reminder including Warren Buffet's classic gold explanation from 2011 comparing the worlds stock of goal to an equivalent value of all US cropland, plus 16 Exxon Mobils, plus $1 trillion cash as a much more productive asset. https://www.berkshirehathaway.com/letters/2011ltr.pdf
How's every1's Gold investing journey going? This is a class, I have never invested but lately thinking about it. ETFs vs Real Physical Investing in the companies that produce or explore!
Gold doesn't pay interest, dividends, rent or royalties. And you (or your ETF) have to spend money to keep it safe. From a cost-benefit perspective, it's a NO for me. Gold is like Bitcoin backed by a shiny rock whose value lies on it being used in actual products like jewellery and electronic components.
