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Is Gold The Best Hedge Against Tail Risk, When Uber-Wealthy Bank Clients Buy Up Tons Of Physical Gold?
A question that has become very prevalent recently is whether in a world denominated in fiat ponzi equivalents, in which central banker intervention is hell-bent on devaluing this very system, whether gold (with a recent Sharpe ratio most portfolio managers can only dream of) is not currently the best hedge against tail risks. Conveniently, the World Gold Council has just released a paper, and, for those with a shorter attention span, a video clip, which provides an affirmative answer to that question. From the WGC: "In the analysis the WGC shows that during the period between October 2007 and March 2009—the height of the global financial meltdown—an investor with a portfolio of US$10 million experienced an additional US$500,000 financial loss simply by not maintaining a position in gold. The study used a composition similar to a benchmark portfolio, which included an 8.5% allocation to gold, to show that total losses incurred during the period reduced by 5% relative to an equivalent portfolio without gold." But before we get into the WGC paper's findings, we would like to point out a special report by Reuters which confirms what all the "goldbugs" have known all along: "The world's
wealthiest people have responded to economic worries by buying bars of
gold, sometimes by the ton, and moving assets out of the financial
system, bankers catering to the very rich said on Monday... A banker said, "We had a clear example of a couple buying over a ton of gold ... and carrying it to another place."" Guess why JPMorgan is doing all it can to preserve as much physical gold within its system before it all runs out, and all those demands for physical delivery skyrocket (even more).
From the Reuters report:
Fears of a double-dip downturn had boosted the appetite for physical bullion as well as mining company shares and exchange-traded funds, UBS executive Josef Stadler told the Reuters Global Private Banking Summit.
"They don't only buy ETFs or futures, they buy physical gold," said Stadler, who runs the Swiss bank's services for clients with assets of at least $50 million to invest.
UBS is recommending top-tier clients hold 7-10 percent of their assets in precious metals like gold, which is on course for its tenth consecutive yearly gain and traded at around $1,317 an ounce on Monday, near the record level reached last week.
In a sign of the uncertain times, some clients go further.
"We had a clear example of a couple buying over a ton of gold ... and carrying it to another place," Stadler said. At today's prices, that shipment would be worth about $42 million.
Julius Baer's chief investment officer for Asia is also recommending that wealthy investors park some of their assets in gold as a defensive stance following a string of lackluster U.S. data and amid concerns about currency weakness.
"I see gold as an insurance," Van Anantha-Nageswaran said. "I recommend 10 percent as minimum in portfolios and anything more than that to be used for trading purposes, to respond to short-term over-bought or over-sold signals."
And below are the summary finding from the WGC report, via report author Juan Carlos Artigas:
In previous studies, the WGC has shown gold to be a highly effective and consistent portfolio diversifier. We can now demonstrate that gold does not only help increase expected risk-adjusted returns, it can also considerably mitigate the potential for wealth to be eroded by extreme events.
“In the last decade we have seen two of the worst bear markets in the last hundred years. As one might expect, sensitivity to risk still runs high for investors around the world, and as assets are rebuilt an ability to protect capital irrespective of market conditions is paramount. Considering portfolio diversification is clearly important, but protecting against systemic risk can be an entirely separate matter. This research shows that gold protects against tail risk events, but equally in more positive times reduces the volatility of a portfolio without sacrificing expected returns.”
The analysis suggests that even relatively small allocations to gold, ranging from 2.3% to 9.0%, can have a positive impact. On average, such allocations can reduce the Value at Risk (VaR) while maintaining a similar return profile to equivalent portfolios which do not include gold. Conceptually, VaR is a way of measuring the maximum amount an investor could expect to lose in a given period of time, with a certain degree of confidence, in the case of an unlikely, yet possible, event occurring.
A 5-minute summary of the paper can be watched on the clip below:
The full WGC report is below (pdf):
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Whole world knows that Gold is precious. But there is a saying in the financial world:
"Never fight the men who make the rules".
Thats the rule that slaves live by.
As well as collaborators, traitors and Quislings.
Quislings...love it.
He who has the gold makes the rules.
+1. You beat me to it
I'm curious as to how he came up with $42 million for a ton.
If you figure a short ton of gold @ 1325 a troy oz, then I get $38,645,833.40
I know, I know "what's four or five million among friends", but still...
Well, first, it was "over" a ton, and second, most of the world uses the metric ton, which is 1000 kilos. At $1315/oz, which is $42,277 a kilo, you get $42,277,250 for a metric ton.
Ergo, gold b_____z?
2+2=5 if they say it does, eh?
You're like one of the beetle-like people from 1984.
May your chains sit lightly upon you, and may history forget that you were numbered among our countrymen.
who would trust criminals to guard their gold? they continue their activity and never get charged. read for yourself:
http://www.newsweek.com/2010/10/01/my-turn-bring-the-big-banks-to-justic...
Language Warning:
http://www.thesixtyone.com/artist/whiteyhouston/songs/#/artist/whiteyhouston/songs/popular/1/
Just take 'Liberty Mutual' out and insert your 'favourite' financial institution; you'll get the idea of how it feels after every fresh delivery of Au/Ag. "Now _____ can go f' themselves..."
James Brown can say it without so much cussin'
http://www.youtube.com/watch?v=vsOmvSlPuys
Regards
PS: For some reason the whole Guest Post: People Of The Lie: The Psychopathology Of The “Public Servant” And The Sociopathology Of The State comes up without the story and without the comments for me, anyone else?
sensorship
So it does not 'post' for you either?
No problems over here.
Hunh. Weird. Thanks for checking.
Still Nada, but only on that post, WTF?
Firearms and ammo, worth their weights in gold in an economic worst-case scenario. Ive been there, and in all these countries 1 common theme is always true the people who have guns are the ones who do all the eating, everyone else lives at the whim of the dictators.
None of those third world countries ever had any gold.
Gold is a claim on production. A gun is a claim on what already exists. Gold is useful in a productive society, a situation that prevails in 99% of the world 99% of the time. I'm not saying don't prepare for that 1%. I've got enough guns and ammo to run a fair sized street gang myself. That doesn't make gold worthless, however.
'Productive society reigns in 99% of the world'? What? Thats pure delusion, tyranny and poverty rules 99% of the world.
If people didn't produce 99% of the time, humanity would be extinct. Notice I said nothing about tyranny or poverty. All that means is that most of the time, people aren't cannibals, whether literally, or metaphorically (the metaphor being that seizure of productive capital for consumption is the same as cannibalism). Under any other circumstance, gold has more value. Guns are only worthwhile when you need them, which is rare even under the worst of circumstances.
Most people do prove to be cannibals, just need the right set of circumstances.
actually the banks "get the gold for free." needless to say "you have to pay for that storage." with institutions if not outright countries like GLD buying actual physical gold it has to be stored somewhere. a bank is a logical choice. now if they would stop crushing the American investor by dispersing client funds into worthless mutual funds that only make enough money to pay a commission i would feel this would be a safe place to store actual stocks in well run American companies.
Sister article from ZH:
JPMorgan Reopens New York Gold Vault, Concurrently Launches Vaulting Facility In Asia (In Desperate Bid For Physical?)Tyler Durden
Zero Hedge
Oct 4, 2010
You can not swing a dead cat with out hitting a "cash for gold" joint, I wonder who is running the shops?
The fed and bullion banks.
It's demand getting pulled up through the system. Joe Sixpack is having to hock / liquidate his valuables and is thus is getting the hose again; by the time this is done he won't even have a pair of gold-plated earrings to barter with.
My bet is on the Chinese.
"We had a clear example of a couple buying over a ton of gold ... and carrying it to another place," Stadler said. At today's prices, that shipment would be worth about $42 million.
It makes me mad that these Europeans seem to have a better handle on what is going on, and what to do about it. Meanwhile, Americans pile into T-bills. Ack!
Americans are about to wake up and find out just how dumb they really are.... have your guns ready.
truont,
the reason for this is that IMHO, most likely that couple,$42m, were likely old $.
Plus Europeans have seen this, heard about it, and had discussions w/Grandparents.
They are not gullible, because they as a society have been around over 250yrs, and they learned.
Americans have never seen anything like this,(nothing close since GD1), and many,I would venture most here, never heard the stories from their grand parents, nor cared to listen. Plus, globally there has never been anything like this either.
We were fools to allow Globalization, absolute fools.Even as a young man, with NO IDEA about fiscal things,I knew we were screwing ourselves, and was pissed about it in my early 20's.
I could see then,where it would ultimately lead.
As a smart ass punk, I saw our country being destroyed incrementally, and knew it was a matter of time before we lost our rights, and riches,and place of standing in the World.
So what we are really talkingabout here is a run on the bank.
I'm dead serious about this. It's one thing when fait currency runs into a brick wall. It's another altogether when the only real currently becomes short in people's hands.
If you keep your physical metal in your private hands, why would anyone be stupit enought to keep their FRNs in the bank? Bank of Sealy! Bank of Maytag!
Ever go into the bank and take out a couple of Gs? Tellers always askin' where it is going? You would think they were running out of cash?
Frequently and they only want to know what denomination. Anything else is none of their f'ing business.
"Anything else is none of their f'ing business."
Wanna BET?Bet what and on what?
I've never been asked. Even changed 5 $100s for a pack of $5s the other day and nary a quizzical look. I keep packs of notes under $100 for quick purchases on my emergency buy list for Sam's when the day comes. No credit card use on that buying spree.
FYI for diehard fans of CNBS powerlunch
Bloomberg TV has new show at Noon - with Tom Keene - today's guests will include Gross, Rosenberg and el Erian
mms://a627.l2479952251.c24799.g.lm.akamaistream.net/D/627/24799/v0001/reflector:52251
or
http://www.bloomberg.com/tv/
"...the WGC has shown gold to be a highly effective and consistent portfolio diversifier."
See? Told you so...take two ounces and call me in the morning.
Gold, silver, food, lead and high speed lead delivery devices. These things will probably assure that you survive the coming economic conflagration.
Do yourself a favor, go get some.
Or this: http://www.powerlabs.org/railgun.htm
and one of the nuclear powered backpacks from ghostbusters and you just need little hunks of aluminum
Fear not the hungry hordes,fear the men in Black.
Fear not the night, fear what hunts at night.
Fear not the hungry hordes,fear the men in Black.
Fear not the night, fear what hunts at night.
GOLD?!?
HELL NO! You need to put your hedge in REITS! Just look at that hold up even in a down market today! IYR, SPG, VNO...hell, you can't lose!
I know what you're thinking...but Boilermaker, what about the depressionary state of CRE. Look DAMN IT! The shit NEVER goes down...GOT IT? NEVER! SPG needs to get to a minimum of 500X earning before it even decelerates!
Barkeep, I'll have what he is having. Can I run a tab?
Oh... so NOW..JPM is going help the 'Tin Foil Hat crowd'. Nothing new ever under the sun.
And the judicial branch of government...but "tin foil hat" is much better hyperbole.
News Flash, American Dairy Association says everyone should drink milk.
World Gold Council says everyone should have gold in their portfolio.
Equally yawn inducing.
My sources also report that poop still smells bad.
You sir, are obviously a POOP shill, paid for by the scatology institute!
(joking, of course)
and flatulence is nothing more than fiat
Hey, that makes me want to coin a new term for what Bermonkey & Co. are doing to our money: Fiatulence!
akak ,
"Fiatulence!"
Has destroyed many civilizations.
The chunky kind destroys underwear.
Agreed. "It's created out of thin air". LOL.
So, I have a bank building down the street that is up for lease/sale for a recently belly up'd Tier One bank. I wonder how hard it would be to become a vault for the state of Iowa? Maybe open a gold / silver store at the same location? Not much crime in this little town yet. Hmmmmmmmm.
Fed would probably pay you to open it up.
Fed will probably videotape everything walking in and out of your new store.... The Fed wants to be "your partner." Lucky you!
Lnd,
Insurance would eat your ass alive.
Plus,just one more EASY location for the MIB's to come and clean out.
Excellent, if OT:
“Balance-sheet policy can still lower longer-term borrowing costs for many households and businesses, and it adds to household wealth by keeping asset prices higher than they otherwise would be,” Sack said
In other words, a blatant admission from the Fed that its keeping the market up. They aren't even pretending anymore...
"A banker said, "We had a clear example of a couple buying over a ton of gold ... and carrying it to another place."
The couple must have been both rich and strong.
And well known. They are likely in every governmental/bank database as a good source of cash.
A ton is only 2000 pounds. You could load as much in the back of a pickup.
That's about $38 million worth of gold. Pretty rich, but not outrageously so.
It's just 80 bars at 400 oz. each
it's a modest sized stack
Clearly I'm hangin' with a crowd much more physically and financially fit than I am.
Not a big fan of Israel? Is their miniscule city-state depriving you of your god-given right to occupy the entire world?
Besides a few Isreal symps scattered here and there, and you, is there anyone that is a big fan of Isreal?
as a 6" cube of gold weighs like 150lbs, this is a mere 13 or so of them.
Would have to distribute that load, lol
Well,
Depends if that was their 10% minimum.
I'll keep an eye out for an otherwise empty vehicle with the springs sitting on the overloads that isn't a 64 chevy
Moonshine running techniques revisited for the new world order - bullion running.
Golly Bob howdy.
Say Earl, ever notice how the batt'ries in them fancy electric cars weigh so much? Got me ta thinkin' 'bout how ta move some bullion...
Necessity, Mothers of Invention, etc., etc.
How about they could afford a couple of strong guys to carry it around?
Speaking of having physical gold, can anyone recommend an IRA custodian who works with physical gold? (Please don't respond that it may be seized. Yes, we might see another Exec Order 6102. However, the gubmit is already seizing the wealth held in the form of dollars by deliberate inflation which is theft by dilution.
We have an act of Congress now which permits gold ownership. Be difficult to issue such an Order.
Nobody was ever prosecuted on account of 6102 anyhow
The last time I posted this request, the only answers I got were from people warning of EO 6102.
The all-knowing Wiki reports: "There was only one prosecution under the order, and in that case the order was ruled invalid by federal judge John M. Woolsey, on the technical grounds that the order was signed by the President, not the Secretary of the Treasury as required."
http://en.wikipedia.org/wiki/Executive_Order_6102
GoldStar Trust does precious metal IRAs. I can't guarantee they are 100% safe, but I'm using them.
http://www.goldstartrust.com/PreciousMetals.aspx
Last I heard the gov is planning on snatching all IRAs and 401ks no matter what is in them. Might want to look into that. I cashed out a small one, gave Uncle Scam his cut and bought au coins with what was left.....
Yeah, it was a real bitch when my girlfriend and I hauled that ton back to the crib, damn near broke the real axle on my hummer!
that gold should keep you in hummers for a while
"General Jim" Update:
There are 68 trading days left until January 11, 2011.
Gold has to rise $4.94/day to reach $1,650 by then.
Or spike like a mofo.
With the Precious Metals so strong in recent weeks, it is hardly surprising to observe on our 6-month for the US dollar index that it has been in ragged retreat. The US has always had a reputation for doing things in style, and when it comes to currency debasement no one is going to steal a march on them - while other countries are frantically trying to keep up with their own competitive devaluations and can be expected to increasingly follow the US example and indulge in a little QE (Quantitative Easing) of their own, compared to what the US is doing this is "lemonade stand" stuff - for as we can see on the US dollar index chart, the dollar is definitely winning the "race to the bottom" at this time. The US has every incentive to win this race, as it has racked up astronomic debts and obligations that are best dealt with by devaluing the currency. An outright headline grabbing Sovereign Default by the US would certainly not be what one associates with Triple A ratings and might result in the country being "put in the doghouse" economically, not to mention getting the Tea Party mob stirred up, so it's far better to engage in a creeping default by simply creating more and more money. With most other countries aiming to follow suit it's small wonder that the outlook for gold and silver is now so rosy. It's kind of sad really for the naive, trusting overseas holders of US Treasuries. The deflation dragon, which had been lurking menacingly in the background earlier this year, is being suffocated in a sea of newly created cash. Hyperinflation? - "We'll deal with that problem when we come to it". When the United States is completely bankrupted the surplus holding Asian Tiger economies will ride to the rescue, buying up corporations and vast tracts of Real Estate at pennies on the dollar - and put America to work again - for new masters OUTSIDE the country, albeit at decidedly competitive rates of pay. See? - no big military required.
This is what I had forseen happening several months ago.
W/2T in T's, and tons of good cash, we will be bought lock ,stock and barrel,for near ZERO, as Clive said.
Or, we will have another massive Civil War first, and then they get what is left.I do not see American Patriots going into this goodnight without a battle royale.
Credits & Props to Mr.Maund.
Clive Maund
clivemaund@gmail.com
My impression of Robo's disillusionment over the past year regarding Gold:
http://vimeo.com/425529
What, no plagarised cartoons today? The USD is up by almost a third of a percent against gold... what gives?
$1850 by December 21st.
MSN's teaser-of-the-day is "Myths about investing in gold" - linked to an article by By Brett Arends, The Wall Street Journal.
The myths are:
1. Gold is overvalued
2. The smart money got out of gold long ago
3. Gold is a haven
4. Gold is real money, while money created by the government is just paper
5. Gold stocks are a more profitable way to invest in gold than metal
6. Small gold-mining stocks are risky
7. Gold is a much better investment than other precious metals
8. Gold has kept its purchasing power over thousands of years
9. Gold mutual funds are pretty much the same
10. You should always have 7% of your portfolio in gold for security
The tone of the article is one your teenager would take explaining Lady Gaga to Homer Simpson.
First part:
http://articles.moneycentral.msn.com/learn-how-to-invest/the-10-biggest-myths-about-gold.aspx
Second part:
http://articles.moneycentral.msn.com/learn-how-to-invest/the-10-biggest-myths-about-gold.aspx?page=2
Enjoy!
Read that. What a mish-mash of fables and bogeymen. How did an editor let that slip thru the cracks?
"Benchmark portfolio" my ass. If you had an IQ above zero (something missing in 99% of the American population today, I might add), you would do 100% allocation to Gold, not "8.5%".
I'd throw in some fiat at home for 'last minute' purchases. Silver for when the fiat stops working and a supllies to last a few months. Just in case it gets messy before you can deploy your gold in a sane way.
You deserve a box of Havana's finest hand rolls or a case of fine beverage of your choice, GG.
We all know a few things:
US Gov/Fed is going to print or default.
Dollar is toast or nearly so
All paper denominated in dollars is toast
Gold/Silver have been used as money throughout history.
Every purely fiat currency experiment has failed
Commodities are real, and the only safe place to park excess fiat currencies. Voila! Gold/Silver are the easiest commodities to store and transport.
Mr Market is now deciding what is a safe store of value. Mr Market has been talking for the past ten years...Mr Market is saying gold/silver are winners.
Mr Market always has the last word.
Yes, Gordon, reminiscent of the tepid and stale advice of one Jon Nadler of Kitco, who suggests that one have up to 5-10% of their assets in gold ---- but NEVER, ever, any more than that! Even contemplating doing such a thing will automatically turn one into a "Radical Goldbug Extremist", and inevitably lead to one sitting on piles of cans of Spam and baked beans, guns in one hand and gold coins in the other, in one's basement bunker waiting for the Apocalypse. Yes, indeed, excellent advice from the same man who still denies that gold is in a decade-long bull market, even while simultaneously warning that its price is in "bubble territory"! (By the way, according to Nadler gold was in "bubble territory" at $700 three short years ago as well). And THIS is the man whom the media routinely turns to for comments, quotes and interviews on the gold market!
Akak, I personally think Nadler spends 95% of his time thinking up witty/catchy/timely titles for his daily articles, and the other 5% researching the actual material, that is why he is always so far behind the curve. The titles are are good, too bad about the rest of the articles.
Our buddy JB actually got to post first, and that was the best he could come up with? Fail!
Nadler states:
The very embodiment of condescension.
http://www.kitco.com/ind/nadler/oct042010.html
I'd rather be a "Goldbug" than a shit-rolling dung beetle any day.
ooh look some shiney stuff came in the mail today...
Uber-Wealthy Bank Clients
ACH--TUNG!!
Please write Über-Wealthy. Thank you very much.
Umlaut Polizei.
http://www.youtube.com/watch?v=WdcrjTMNuCI
Germans liked Frank, and Frank liked them back.
http://www.youtube.com/watch?v=-BppOWoK2Fc
http://www.youtube.com/watch?v=VcnBE9kfRTU&feature=related
LMAO
Other than cut/paste what is the easy way to put the umlaut over a letter?
Under Windows hold down ALT while typing the appropriate number code on your numeric keypad to create characters with umlaut accent marks.
For Windows, the number codes for the upper case letters are:
Ä 0196
Ë 0203
Ï 0207
Ö 0214
Ü 0220
Ÿ 0159
For Windows, the number codes for the lower case letters are:
ä 0228
ë 0235
Is there any chance that a new currency could be created that is completely electronic? No paper, no coin, just smart/ID cards and electronic balances? If so, would gold then be the only way to operate underground? I know nobody would accept a paperless money, but the tech is there, is it not? It almost seems like a logical progression -> Gold changes to worthless paper then changes to nothing at all.
10% of your wealth in Gold, protects 10% of your wealth.
I tired of being called a 'Bug', as bugs are something that requires extermination. So, in retaliation I have taken to referring to my stock investing acquaintances as 'Stocksuckers'. They find that term offensive, which gives me great joy.
Related:
It would appear that rumors posted by some PM Blogers regarding a silver shortage at the US Mint are a bit overblown, as today the Mint announced the availability of a 2010 Silver Eagle Proof.
Because US Law mandates that American Eagle Silver Bullion Coins production take precedence over the numismatic version of the coin, the "proof" version of the famous coin was not available in 2009, due to silver blank material(planchet) shortages.
According to US. Mint Director Ed Moy:
Although the demand for precious metal coins remains high, the increase in supply of planchets-coupled with lower demand for bullion orders in August and September-allowed the United States Mint to come off allocation and shift some capacity to produce numismatic versions of the one ounce American Eagle Silver Proof Coin.
According to the Mint today, they confirmed having issued a memo informing the eight Mint Authorized American Eagle dealers in the U.S. that the premium price on Silver Eagles was increasing from 1.50 to 2.00 per ounce. Many in the market viewed this as an indication that there was a supply chain issue that would lead to shortages. The fact that the Mint announced the Silver Eagle Proof today, proves there is not currently a shortage.
American Eagle Silver Proof Coins will be made available for sale on November 19, 2010. Orders for the popular numismatic coin can be placed starting at noon Eastern Time (ET) on that date. Order fulfillment will begin by December 1st. The price of the coin will be $45.95 +4.95 shipping. Orders will be accepted on the United States Mint's secure Website - http://www.usmint.gov.
AuCanary.blogspot
Shit, that is a high premium even for a proof coin! Still, might have to get a few.
I believe the premium is on all (BU) uncirculated Silver Eagles (not the new proof) -- I don't know if the proof premium is more or not.
Proofs are sold by the mint to retail buyers. The bullion coins only are restricted to authorized dealer sales. So, the $2 premium would be for the bullion coins to dealers. The proof premium is high due to the strike methods used. More labor intensive and it comes in a neat little felt lined box with COA (Certificate of Authentication). Not nearly worth the extra unless you are a collector, or dealer hoping to unload before the premium disappears in the secondary market.
Setting aside the strong performance of gold for a moment, wouldn't the "best" hedge of exposure to an asset in a "tail" event, be long the inverse of that asset?
.
... A banker said, "We had a clear example of a couple buying over a ton of gold ... and carrying it to another place."
One of the couple was heard to comment:
"I have utterly no doubt that the country will come back and that you will come back a more diversified economy, less vulnerable to what has happened to you,” he said.
But this was interrupted by the intermittent grunting of his female companion, the clink of her stacking gold bars into a waiting Humvee and her gutteral coo,
“My precious will make me Queen of ALL Mordor...”
http://www.irishtimes.com/newspaper/ireland/2010/1002/1224280191671.html