E On Gold, Orderbooks, And Oil

Back on October 21, 2014 I ran the following article on my website by Adrian Ash, who runs the bullionvault.com site on behalf of The World Gold Council, a mining group. Gold is up nearly 20% year to date. Back then, Adrian wrote:

The Case for Gold

“As the stock market slumps, gold's unique appeal stands out again, Gold has risen nearly 4% so far this month. Major world stock markets have dropped up to 10%. Hot-money hedge funds pile back into gold futures and options. Headline writers proclaim the return of 'safe haven' gold.

“If you want insurance against wars, plagues, or financial woes, a lump of metal won't work. But if you want to insure your own savings, reducing losses, and boosting long-term return history says gold really can help.

“Over the past 4 ½ decades, gold has risen in each of the 5 years when the S&P has lost 10% or more, averaging 34% gains. Adding gold to a standard portfolio split between equities and bonds would have reduced your risk and boosted your returns.

“Short term gold often leaves pundits and hacks scratching their heads. When the US stock market tanked, in short order gold often went with it.

“The S&P 500 index on 8 occasions since 1969 [sank] 10% or more in one month. Gold has fallen alongside it 4 times, including the Lehman's crash of October 2008, and lost a monthly average of 4.5% overall.

“Longer term, beyond the horizon of newspaper headlines, gold has helped smooth losses and boost returns.

“Start with a simplified model of 60% in US shares and 40% in Treasury bonds. Since 1969, that has earn[ed] 9.7% annualized with a maximum 1-yr loss of 14.2%.

“Switching 1/10th of your money into gold and holding 55% stocks, 35% bonds, and 10% gold would have earned 10% annualized with a maximum 1-yr loss of 12.8%. Equity dividends and bond interest are included but [not transaction costs or ] taxes. You rebalance to keep your target allocation each new year.

“Or go plumb crazy and put 20% of your savings into gold. Your split of 50% stocks, 30% bonds, and 20% gold would have earn[ed] 10.1% annualized since 1969, with a maximum 1-yr loss of 11.6%."

In my view, gold is a useful ballast against stock, bond, and currency risks, and easier and cheaper to buy than hedges linked to currency or volatility. Country ETFs spend heavily to remove currency movement risks. Adrian's outfit advertises on our Global Investing website but we accept its ad because we believe in what he is peddling. It is all legal and taxable of course.

• Thursday was purchasing manager index data day for April. The PMI is a measure to determine the future demand for goods, and ultimately gross national product. Europe, led by Germany, beat forecasts with a level of 53, meaning the level was nicely up from March. China's PMI index fell short. The Caixin PMI, which Beijing is known to manipulate, failed to do as well, up only to 51.8, vs 52.2 in March, showing contraction over the month despite measures taken to boost the economy. It targets small and medium companies.

• The Rossio railway station in Lisbon is a world heritage site, built in the 19th century to celebrate technology in a kind of art nouveau-Byzantine style. Between the open arches at its entrance there used to be a tiny platform bearing a tiny statue of Don Sebastião, who was killed in North Africa fighting the Moors in 1578. Because his body was never found, the Portuguese myth is that Don Sebastião is not dead and will return to save the country one day. This week a man taking a selfie climbed onto the Don Sebastião platform and knocked the statue to the ground, shattering it. He was arrested. Luckily our late friend, the Portuguese artist Lima de Freitas, created several ceramic tile panels in the Rossio station which survive, also featuring Don Sebastião.

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