Gold
The big bad yellow metal. For many investors gold is like the devil. An instrument that only evil speculators use. I must admit, that's kind of my opinion too.
Gold produces nothing. It is inert. It does not pay any dividends or coupons. It just sits there and does nothing except watch a multitude of hotheads buy and sell it over and over again. When you think about it, you might as well be trading rocks or peanuts. Except it doesn't shine as much. Frankly, it sucks. Plus, its long-term performance is mediocre.
Yet gold is included in Browne's Permanent Portfolio and that of Mr. Faber. It is in fact decorrelated from all other assets and reacts positively when things go wrong. In a portfolio, gold thus helps to get through major crises a little more serenely.
To be honest, I can still see myself in August 2000 standing up to a fervent gold supporter on a stock market forum... and I think that if I had been a little more open-minded, and had listened to him just a little bit, my subsequent investment years would have been a little more peaceful.
I don't like gold any more today, but since I'm pragmatic I'm putting a little water in my wine. Especially since the price of gold has weakened since 2013.
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Hello Jerome,
Rather than investing directly in the yellow metal or in an ETF like GLD, if you want your gold to "work", you can always opt for a mining company. You will then be able to benefit from the possible appreciation of gold and also from the dividend if the company distributes one.
But it is also possible to put your gold to work using options.
Let's take the example of the GLD ETF which yields nothing as you define it in your article. Well, if you own GLD in your portfolio, you can sell a September maturity Call. You can then receive a premium which corresponds to a yield of 0.70% for only 26 days (~9% annualized).
And if you sell a Put (still on September) you can even have a yield of 3% in 26 days (39% annualized! ). All you risk is having to buy gold at a lower price than it currently is.
Who said gold doesn't bring in money? 😉
The two strategies presented briefly here are explained in detail in my book: http://amzn.to/2jlgkhx
And if my book was not enough, I remind you that with the purchase of my new book, you benefit from an hour of training where I can teach you how to "work" your gold.
Thanks for the comment. Yes, mining is a possible alternative, but risky (leverage on the price of gold which is already very volatile). I had planned to touch on it a little more in the next posts.
It is true that gold is rather strange: on the one hand it is a raw material used in crafts and industry, and on the other hand it is considered a safe haven, especially in the event of a hard blow. It is this second parameter - the safe haven - which mainly determines the price of gold. However, since the abandonment of the gold standard, it is rather artificial, psychological. It is the effect of a mass consensus, unofficial. In theory, this consensus could have applied to any other material, more or less rare. But, for historical reasons, it is gold which fulfills this role.
If gold is a safe haven, it is because its physical properties are the best for hoarding (notably unalterable, ductile, stainless). And it is yellow, it is cool, it reminds us of the sun. Besides, gold is created with the explosion of a supernova, it is classy but off topic.