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Are you holding your Gold and Silver positions?

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livingontheedge
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Are you holding your Gold and Silver positions?

Postby livingontheedge » Wed, 18 Dec 2013 12:36 am

Gold and Silver has had 2 extremely bad years. Are you still holding on to your positions, disposed off your positions or will buy more?

As for myself - having bought my positions pre-2008, I continue to hold my position, despite the tremendous downward pressure. Never sold an ounce since and despite the falling prices - however my positions are long-term, perhaps up to 2020.

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Postby JR8 » Wed, 18 Dec 2013 9:48 am

Nope. Precious metals tend to act as a hedge against inflation. I.e. the price increases in line with inflation. I.e. 'inflation-adjusted' it's not changing value at all. So, you have the hedge, but you have no risk-on assets in parallel.

You get 'noise on the radar' from issues at mines. Them closing down, labour going on strike, new sites being located etc. This will cause prices to move around, but long-term they track inflation. Nothing more/nothing less.

At the simplest level, if one were to invest with a say 20 year horizon, I'd much rather put it into a stalwart stock, Coca Cola, Unilever, HSBC... etc. If you can do that via an account/vehicle where you don't pay tax on the dividends, all the better. Over a generation these small sums really compound up. Then the next step would be a diversified portfolio of such stocks, and re-investing all dividends into additional stock.

That is going to way, way, way beat precious metals over just about any time period, and certainly (unless the world ends) over 25 years!

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Re: Are you holding your Gold and Silver positions?

Postby Beeroclock » Wed, 18 Dec 2013 10:24 am

livingontheedge wrote:Gold and Silver has had 2 extremely bad years. Are you still holding on to your positions, disposed off your positions or will buy more?

As for myself - having bought my positions pre-2008, I continue to hold my position, despite the tremendous downward pressure. Never sold an ounce since and despite the falling prices - however my positions are long-term, perhaps up to 2020.


What's the reason for the position ? You see these as good investments in their own right, or more to diversify/hedge your portfolio.

Personally I'm not a believer in Gold as an investment, but I can understand the reasons why others do. Commodities in general, ok for trading but for long-term investment I would much prefer assets that generate cash flows (equities, property etc).

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Postby taxico » Wed, 18 Dec 2013 11:45 am

i bought a bunch of gold in 1997... it's value has risen almost 4 fold (sure, i could have done better, but it felt like the right thing to do back then).

i'm thinking of cashing out but i'm not sure where to put the money today (i may have missed quite a few boats) so i'm just hanging on in there...

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Postby livingontheedge » Wed, 18 Dec 2013 12:54 pm

I bought it pre-2008 because stock markets have been on a bull market with lot of hot money going into equities - when S&P hit record highs, there were fears of a bubble and crash.

Although we have recovered since 2008, I can't help to ease my thoughts of the rampant inflation and crisis in sovereign debts. Yeah the government reports say inflation is between 2% to 3% - however, my own observation tells me otherwise.

Generally I love properties - easy investment vehicles. Perhaps my Gold and Silver is more for insurance which was why I had never brought myself to sell my positions. Despite stock markets are on upward trends, I felt I should be protected, nonetheless.

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Postby Wd40 » Wed, 18 Dec 2013 2:10 pm

I think its too late to sell gold now. I read somewhere that the cost of producing gold is about $1100 or something and if gold falls below that mines wont be profitable and may shutdown, so that automatically acts as a cushion.

But if your question is, whether there are other instruments that will generate better returns than gold, then the answer is yes. Find a emerging market currency that has crashed a lot like the Indian Rupee and open a fixed deposit with rates as high as 9%. Its a contrarian call, but at these levels, the rupee has already 60% undervalued according to this article.

http://www.bloomberg.com/news/2013-12-1 ... opper.html

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Postby Beeroclock » Wed, 18 Dec 2013 2:20 pm

Fair enough, I'm also quite concerned about global economy although it's apparently recovering I can't help but think it's a house of cards. Inflation is perplexing, while you say it's rampant, many economies are still worried about deflation actually. The long-term effects of QE are highly unpredictable.

Personally I'm not convinced gold is an effective "inflation" hedge. Reckon this is more theoretical than practical, and a marketing tactic for those selling commodity derivative products. Perhaps over the ultra long-term there might be some correlations, but in any shorter period you can easily find inflation high and gold price at the same time plummeting, or vice versa. A more direct insurance policy for bubbly equity markets is to buy out of the money put options on the relevant index. property on the other hand is difficult to hedge but as per most people, can just buy and hold forever if you bought a good one, or let it go if the market prices get completely ridiculous.

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Postby JR8 » Wed, 18 Dec 2013 2:35 pm

Beeroclock wrote: A more direct insurance policy for bubbly equity markets is to buy out of the money put options on the relevant index.


And you'd do that Naked would you? Have you? Who do you trade options through?

You haven't asked for my opinion, but I'll cut it short and give it to anyway (pardon me).

You do not seem to have a first clue what you're talking about ('option strategies in bubbly markets', sure, bubbly, that's the technical term lol).

What is your investment approach? What is the strategy called? If it's viable, why are you 'adjuncting' it with options? Are you speculating or investing?

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Postby PrimroseHill » Wed, 18 Dec 2013 2:46 pm

What do you mean buying gold or silver? As in holding actual smallish jeweller's type gold and silver bars?
ETF (Exchange Traded Funds) or stocks in the like Rio Tinto, Impala Platinum would less risky.
Saying that commodities especially precious metals and base metals have had a revival unseen for the past few years. It had previously been in the doldrums.
What's the predicted apetite of gold and silver consumers in 2014? Will China and India's consumption apetite be the same or increase?
In terms the QE, IMHO, it is all rather uncertain to be honest. Yes, US and UK economy seems to be improving. However, given the debt levels of both countries, if tapering did occur and interest rates rises, that will have a detrimental effect of pulling these countries back into recession. UK, as before, economy improves due to housing market. Housing market has improved due to the 2 govt lending schemes, which in the short and medium term will pull the country out of recession. However, in the longer term, it is a ticking time bomb. In the UK, look into the levels of sales and purchases of properties above GBP2m, whereby stamp duty on individual purchases have gone up to 7% and ltd companies to 15%.

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Postby PrimroseHill » Wed, 18 Dec 2013 2:49 pm

JR8 wrote:
Beeroclock wrote: A more direct insurance policy for bubbly equity markets is to buy out of the money put options on the relevant index.


And you'd do that Naked would you? Have you? Who do you trade options through?

You haven't asked for my opinion, but I'll cut it short and give it to anyway (pardon me).

You do not seem to have a first clue what you're talking about ('option strategies in bubbly markets', sure, bubbly, that's the technical term lol).

What is your investment approach? What is the strategy called? If it's viable, why are you 'adjuncting' it with options? Are you speculating or investing?

I am too scared to ever do naked options. ICAP?Cantors and its brothers?

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Postby Beeroclock » Wed, 18 Dec 2013 3:25 pm

JR8 wrote:
Beeroclock wrote: A more direct insurance policy for bubbly equity markets is to buy out of the money put options on the relevant index.


And you'd do that Naked would you? Have you? Who do you trade options through?

You haven't asked for my opinion, but I'll cut it short and give it to anyway (pardon me).

You do not seem to have a first clue what you're talking about ('option strategies in bubbly markets', sure, bubbly, that's the technical term lol).

What is your investment approach? What is the strategy called? If it's viable, why are you 'adjuncting' it with options? Are you speculating or investing?


Thanks for your opinion, JR8.

No definitely not naked, the context of my comment is hedging/insurance and I meant only to hedge against shares you're holding and lock-in gains in equities if you think they're overvalued or going into a bubble phase. Of course you can simply sell the shares and re-adjust your portfolio accordingly. But a lot of people don't re-allocate often and/or don't want to upset their long-term share holdings and dividend collection if they're very confident and comfortable in the underlying companies. So another possible way is to buy put options with strike level beneath current market, and this will start making money if share markets fall a lot, to offset the losses on the actual shares you're holding. Effectively like a trailing stop loss to lock-in gains.

livingontheedge said he bought gold "pre-2008 because stock markets have been on a bull market with lot of hot money going into equities - when S&P hit record highs, there were fears of a bubble and crash."

Perhaps I mis-interpreted this, but I get the sense a lot of people go into gold to diversify and as some kind of insurance against other assets in their portfolio. I wasn' trying to recommend trading options, just saying if the objective is to take insurance against your equity portfolio going down in value, there are other approaches to achieve this that more directly offset the risk.

Hope the above clarifies and makes more sense what I was trying to say.

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Postby JR8 » Thu, 19 Dec 2013 11:11 am

Thanks for an interesting explanation. So the Put strategy is a form of insurance against market-Armageddon? Have you calculated what the cost of these options expiring value-less is, versus the yield off the underlying portfolio?

In any case, for me, and my circumstances, any such kind of 'active' approach is too much. It presumes that I have The Power required to reasonably predict what the markets will do, which I do not, and I'm not kidding myself that I do (when I've done that in the past it's always ended up costing me a lot of money lol). I'll never forget the truism 'The markets can remain irrational, longer than you can remain solvent' ... lol!!

In fact the only time that I have considered trading options, was when I looked at writing Calls, backed off an existing stock portfolio (covered calls). Frequently cited as being very low risk, if not 'Easy Money'. But then you have to consider that you are at risk of selling people the opportunity to buy your topmost performing stocks. Surely they're the ones you want to keep though aren't they! :)

Experience has taught me 'slow and steady' is way better than hastily and with a changing strategy. The Hare and the Tortoise. The starting point is defining the objective, 'play money' essentially gambling the markets, or building a pension? - completely opposite goals and strategies. Of course there are many shades in between (15 year strategy saving to send children through university? 20 year strategy to buy the dreamed of retirement holiday home? 30 year strategy to accumulate a decent personal pension (that you are in 100% control of) etc etc)

About 80% of my assets are in investment property (too much, I know). That just ticks along and 'does it's own thing'. Properties held for 10-20 years. Generates a decent income. No big drama bar the occasional 'nightmare tenant' [who I realise, going through the mill with one right now, that within my personal experience, three out of four I've been landlord to have been Australian women!? WTH is that all about? Sadly I'm seriously considering never renting to Aussies again...]

Anyway, I digress. What are your investment objectives?

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Postby PrimroseHill » Thu, 19 Dec 2013 11:38 am

Like JR8, our investment are mainly in properties, much much too long in the property market. For us, investment in the property market isn't to make a quick buck or two. It is to be our pension or savings. It will be our spending money when we are old. It will be a lending hand to our daughter to get on the first rung of the property ladder.
Property investment in SG differs greatly from UK, I have found. Being a landlady in London, I find that I do have to "invest" in our properties in order to gain. So, the decorative order of the flats have to be in "excellent" condition. White goods used have to be the usual brands of Bosch, Siemen, Miele, that sort. Furniture- not IKEA. Whereas here, landlords, do not invest, instead it is all about milking the tenants for all their worth with sub-standard quality of white goods provided and furniture. The only decent thing going for them is the location of their properties. Sorry, went off on a tangent.
The other investments are tax efficient vehicles that we are utilising - funds, SIPPS. All those have a long term investment objective. All are diversified into most sectors.

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Postby Beeroclock » Thu, 19 Dec 2013 12:22 pm

Yes you can view it as insurance against your shares. Like all insurance there is a cost (the put option premium), which you need to weigh up against the benefit/protection. It will depend a lot how close you set the strike level, e.g. DowJ currently 16,000, if you only want to protect at 12,000 (approx. half the increase since 2009), then this put option is far out of the money and should be relatively cheap. If you want protection from 15,000 or such nearby level, it will start to get expensive. But I was more intending the Armageddon scenario where markets panic/freefall and most investors freeze, in such cases a pre-arranged insurance policy to limit your downside could be useful.

I understand your first reaction and I'm the same, quite skeptical of options generally. Especially the complex ones marketed like zero cost collars etc. But this kind of basic put option hedge is a simple strategy with small/finite cost and relatively large upside/protection. I haven't done it personally but have seen it applied professionally. The Mexicans do it every year around October as an insurance for their oil production revenue.

Covered calls also one of the more simple strategies I have considered in the past but never went ahead personally as yet. Like you said it gives away the upside, so not a good idea if you're investing in growth companies, but maybe a worthwhile strategy if you're chasing dividend/income yield.

As for my investment objective.... to be financially independent / live off passive income (sorry for the cliché). Seems we're quite similar I also have too much in residential property, but it has served us well over the years so hard to quit a good thing. My risk appetite has changed substantially over the years, much more conservative nowadays, keep borrowings down and hold a bigger chunk in cash/fixed interest. I also tend to be a slow & steady investor but every now and then like to think I can enhance my returns by timing the market. Sometimes it works, and the other times are a good reminder to revert back to slow & steady, and find a less expensive hobby :wink:

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Postby Beeroclock » Thu, 19 Dec 2013 12:50 pm

PrimroseHill wrote:Like JR8, our investment are mainly in properties, much much too long in the property market. For us, investment in the property market isn't to make a quick buck or two. It is to be our pension or savings. It will be our spending money when we are old. It will be a lending hand to our daughter to get on the first rung of the property ladder.
Property investment in SG differs greatly from UK, I have found. Being a landlady in London, I find that I do have to "invest" in our properties in order to gain. So, the decorative order of the flats have to be in "excellent" condition. White goods used have to be the usual brands of Bosch, Siemen, Miele, that sort. Furniture- not IKEA. Whereas here, landlords, do not invest, instead it is all about milking the tenants for all their worth with sub-standard quality of white goods provided and furniture. The only decent thing going for them is the location of their properties. Sorry, went off on a tangent.
The other investments are tax efficient vehicles that we are utilising - funds, SIPPS. All those have a long term investment objective. All are diversified into most sectors.


One of the unique differences I find for SG property investment it's possible to find cash flow positive properties (with the exception of district 9, where asset price vs rent ratio is much higher). Elsewhere in UK/Australia it's a challenge to find cash flow neutral and most are cash negative, so you rely completely on capital gain. Maybe this fits with your observation that elsewhere it's more critical to invest and upgrade the asset.

Of course situation here is less attractive now after all the cooling measures, but still the key factor being the low interest rate, if you get around 4% rental yield it can be enough to cover your mortgage repayment, other expenses and still put some cash in your pocket. Not to mention more than half your mortgage repayment is paying off principal and creating equity in the property. This seems an attractive proposition to me, keeping capital gain purely to the upside.

The key risk to monitor is interest rates, but they seem set to stay low for a while yet. Finally the Fed announcing the taper overnight, but only cutting 85 to 75 bn per month. At this rate it will take a long while to stop the money printing, let alone start tightening rates, but need to keep a close eye on it.


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