Tag Archives: gld

New 50-Year Bull Market For Precious Metals? (Podcast With Avi Gilburt)

Click to enlarge Avi Gilburt is a student of Elliott Wave analysis and has been following gold (NYSEARCA: GLD ), silver (NYSEARCA: SLV ), and other precious metals for years. In this interview, he takes us behind the scenes to better understand Elliott Wave. In addition, Avi gives his argument for why he believes we are near the beginning of a 50-year bull market in precious metals. That means both the metals and miners (NYSEARCA: GDX ). (Click the play button above to hear the podcast.) When I pressed Avi for more details about what he expects a 50-year bull market in the metals to look like, he compared it to the Dow going from ~100 in 1941 to 18,000+ in the past year. Click to enlarge This chart just shows the last 30 years for the Dow, but still helps put Avi’s point in perspective a bit. I hope you enjoy the interview as much as I did. I look forward to your thoughts and comments below. – Brian Disclosure : This article is for information purposes only. Comments made my guests do not necessarily represent the views of Brian or Investor in the Family. There are risks involved with investing including loss of principal. Brian and Investor in the Family makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made. There is no guarantee that the goals of the strategies discussed by Brian and Investor in the Family will be met. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Portfolio Rebalancing – A Potentially Golden Opportunity

For a variety of reasons, gold is a widely-held asset class within investment portfolios. Many investors include gold in their asset allocation mix for its perceived ability to act as both a diversifier and as a potential store of value in times of uncertainty; these perceptions contribute to the concept of gold as a “core holding” in many diversified portfolios. Indeed, with the notable exception of Warren Buffett , 1 some of the investment community’s most distinguished names currently maintain investments in gold. 2 Like any investment, gold is subject to rebalancing or reallocation when its value relative to other portfolio components shifts significantly. Examining quarterly data from the beginning of 1976 (the year that gold started trading freely in the United States) through the quarter ended December 31, 2015, suggests that gold is overvalued relative to historical price relationships with the major agricultural crops of corn, wheat, soybeans and sugar. 3 In fact, at quarter-end December 31, 2015, the gold/corn ratio, defined herein as the number of bushels of corn an investor could buy with the proceeds from selling one troy ounce of gold, was 296 bushels versus a 39-year average value of 169 bushels. Gold investors attempting to maximize portfolio performance through disciplined quarterly or annual rebalancing may want to consider adjusting their gold holdings in tandem with their existing or anticipated agricultural sector portfolio investment mix. For example, the historical data for the gold/corn ratio suggests that a mean reversion 4 from December 31, 2015, levels of 296 bushels to the 39-year mean value of approximately 169 bushels of corn for each ounce of gold (bu/oz) could benefit an investor rebalancing gold for corn within their portfolio. Click to enlarge As illustrated in the chart above, at 296 bu/oz, the gold/corn ratio is approximately 75% above its nearly four decade average of 169 bu/oz. Hypothetically, if an investor sold gold and purchased corn at the current 296 bu/oz level, and the ratio subsequently retraced to its historical mean value of approximately 169 bu/oz, the investor would then be able to sell the corn and buy back 75% more gold than was originally sold to make the temporary reallocation from gold into corn. While the gold/corn ratio was historically above its 39-year mean at the end of Q4 2015, other major agricultural crops were also very near all-time historic highs for the same time period. Charts for the gold/wheat, gold/soybean, and gold/sugar ratios are shown below. The gold/wheat ratio was 80% above its 39-year mean value, the gold/soybean ratio was 77% above, and the gold/sugar ratio was nearly 47% above its historical 39-year mean average value. Click to enlarge Click to enlarge Click to enlarge The current availability of both futures contracts and futures-based exchange traded products for gold, corn, wheat, soybeans, and sugar makes rebalancing the gold and agricultural components within a portfolio easier than ever before. Investors and advisors need to make an assessment of the relative value of gold versus their other portfolio constituents, including agriculture, and appropriately adjust their allocations to suit their individual investment needs and objectives. 1 ” Why Warren Buffett Hates Gold .” NASDAQ 15 Aug. 2013: Web. October 9th, 2014. 2 Based on the 13-F filings for holders of the SPDR Gold Trust (NYSEARCA: GLD ) as of 12/31/15, and found using Bloomberg Professional, January 4th, 2016. 3 Analysis & corresponding charts were prepared by Teucrium Trading, LLC, using Bloomberg Professional, January 4th, 2016. All supporting detail available upon request 4 Mean Reversion : A theory suggesting that prices and returns eventually move back towards the mean or average. This mean or average can be the historical average of the price or return or another relevant average such as the growth in the economy or the average return of an industry. Additional disclosure: I have held in the near past, and may purchase in the near future, shares of DGZ as a proxy for short gold against my long agricultural holdings of corn, wheat, soybeans and sugar.

All The Time, Every Time

Most investors, especially those at or near retirement, would give a limb or two for consistent returns. They wouldn’t even have to be staggering, Bernie Madoff 12% consistent returns. 4-5% real returns year in and year out is a pension trustee’s dream. Of course, it’s not surprising then that so many investment products and strategies promise this, or something that smells enough like it to pass muster. Some of these have become quite popular in recent years as investors are still trying to avoid another 2008-2009 bear market but keep stock-like returns (or at least something better than a 2.2% Treasury yield). Some risk parity or “all-weather” strategies have gained notoriety, including a spin on Ray Dalio’s All-Weather retail strategy highlighted in Tony Robbins’ recent book (which I covered in some detail here ). So just how all-weather has said strategy been of late? I ran a historical simulation with publicly available products to fill in the allocations as follows: 40% long-term Treasury bonds (NYSEARCA: TLT ) 30% US stocks (NYSEARCA: VTI ) 15% intermediate bonds (NYSEARCA: BND ) 7.5% commodities (NYSEARCA: GSG ) 7.5% gold (NYSEARCA: GLD ) Now, as I’ve pointed out before, this portfolio allocation is bond heavy and duration heavy. When long-term bonds hold up, this portfolio will too. When they don’t, it’s going to be tough going. Year to date through 11/30/2015, this allocation is down -2.30% despite long-term bonds (TLT) having an impressive gain of 9.07% over the same period. Commodities have been crushed (-42.35%) and gold is down (-8.79%), wiping out gains elsewhere. It’s not like I’m sitting here saying -2.30% is terrible. The Vanguard Balanced Index Fund (MUTF: VBINX ) is only up 1.80% over the same period (YTD through 11/30/2015). But the “All Weather” portfolio doesn’t come with any guarantees. The worst 12-month period in my simulation (4/2007-11/2015) had a double-digit loss like most other strategies (-15.26 through 2/2009). And we honestly haven’t seen an environment with rising rates to really test this out. The returns from long-term bonds (TLT) over this period drove more than 100% of the return of this “All Weather” strategy over the test period. That’s right, diversifying away from long-term bonds hurt you (How many people made that bet when the Fed took the Fed Funds rate to zero?). If you think that long-term returns from high-duration bonds are going to be 7-8% from here, you might have a surprise coming. With an average duration of 14.30 in this portfolio, there’s no escaping the impact of higher long-term rates on performance, if and when they come. My real point here isn’t to pick on the All-Weather portfolio per se. It’s to help us all understand that no strategy is ideal. Nothing is going to work all the time, every time. “All Weather” is a misnomer. It’s not totally unreasonable to think there is a period of time when rates can go up (long bonds go down) and stocks are flat or down. Or when rates are up enough to offset any potential gains from stocks. Or a year like 2015 when losses in commodities are sufficient to take out healthy gains from the long-term bonds. Despite our best attempts, investing involves risk. We can mitigate that through portfolio diversification, but there is no eliminating inconsistent short-term returns. Some years are going to be better, and some will be worse. I don’t know which will be the case for your portfolio next year, but if you aren’t prepared for that, you’re going to find yourself making some nasty mistakes.