Permanent Portfolio is a self-directed long-term passive investment strategy, introduced in 1981 by Harry Browne and Terry Coxon and simplified into 4 asset class in 1987. It aims to provide consistent market returns and protections in different economic cycles of growth, inflation, recession and deflation. The strategy does not rely on market timing, and requires yearly management and minimal monitoring. This site is to provides educational information for learning about my research and implementation of Singapore version of Permanent Portfolio. Readers can also use the Permanent Portfolio knowledge to diversify their stock heavy portfolio into long term government bonds and gold for better portfolio protections in recession, deflation and inflation. Disclaimer: Use of information on this site represents acceptance of the disclaimer at bottom of this page and Disclaimer page.

Thursday, 18 April 2013

Gold's Bottom Price

This bloomberg article on gold mining cost is interesting (click link).
Summary of article: gold production has all-in cost of US$1300 in north America. Some gold mining companies like Barricks have US$1100 all-in gold mining cost.

Means it seems difficult for gold to drop significantly below US$1100. below which gold production will be cut significantly and maybe causing supply to drop and price to stabilise or go up eventually. At this moment of rapid gold drop, it is a test in investor's faith in PP strategy. So gold has dropped about -17% since start of this year. Since gold is only about 25% of portfolio, the -17% drop in gold this year will reduce total portfolio by (-17%/4) = -4.25% only, hardly a very big drop to worry about. In comparison, stocks have had typical drops of -40% to -60% during recessions, in which case investor will also have to face the same test in their faith in PP. So as of now, if the rebalancing bands has not been reached for gold, I suppossed investor should not be too worried for PP strategy for now, especially given there may be a logical bottom price for gold. If one is due for rebalancing now, it seems a good time to rebalance into gold, especially if the investor is investing for the long term. As for myself, I have rebalanced into gold last month, so now I will sit on my hand according to strategy and ride through this drop in gold price.

According to A. Gary Shilling's latest book: "The Age of Deleveraging", this decade for U.S. may see U.S. consumers save more and spend less, reducing U.S. imports from emerging countries, and reduce demands for goods from these countries, which is not so good news for emerging countries economy which are mainly export dependent. Therefore Gary forsees continuing weak price pressure, meaning, inflations are not very likely due to increasing U.S. consumer increasing savings, paying back loans and reducing spending, and for other reasons he also mentioned, some U.S. deflations might be more possible in this decade of possible slow growth and deleveraging, despite the massive Quantitative Easing by the U.S. government.

Given the prospect for the strengthening Singapore dollar which is slight negative for gold in SGD, and the prospect of US deflations which is negative for gold, and the prospect for low global growth in this decade, I am not so optimistic for gold price in SGD in near term if there is no major global financial crisis. However, gold is still necessary to hold in portfolio as insurance against inflations or monetary devaluations. Also, I do not know how the future will unfold, therefore i am not in a position to market time with gold or other assets right now, hence sticking with the PP strategy seems the better choice now, especially given PP's past track records.

In the future, when people start to take action against inflations, such as stocking much more inventories than they currently need, in order to save money in expectation of higher future prices and inflations, then that is a sign and I will look at gold more closely because such excessive stocking activities are one of the main cause of the past high inflations in US in 1970s, which had caused gold price to soar.

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