Finance and Stuff

Thoughts on finance and other stuff by Johan Lindén

Tag: hedge

Platinum and Silver vs. Gold

Balancing your portfolio for stability by adding platinum and silver to your investments of precious metals.

Both platinum and silver have a lot of industrial use. Much more so than gold and thus they are more sensitive to the growth of the economy. According to Adrian Ash, head of research at BullionVault.com, industrial use accounted for 11% of total gold demand, but accounted for more than 60% of silver demand worldwide. The whole article can be read on marketwatch.com.

But even if you buy gold as an insurance (read my previous article) you might also add a part of platinum and silver, both which have been lagging gold for the last weeks.

Platinum has almost always been a much more expensive metal than gold, but today it is priced at parity with gold.

Silver had a few extremely strong years and has even been outperforming gold the last years.

gold platinum silver

80% Gold, 10% Silver, 10% Platinum, seems like a reasonable balanced mix of precious metal if are aiming at portfolio stability, rather than risk-taking. So if you want a portfolio total of 20% precious metals you buy a 16% gold, 2% silver, and 2% platinum.

Benefits of adding platinum and silver:

  • Might be better for a long-term investment since it contains metals that are more sensitive to a growing economy. So if gold is underperforming other investments, silver might do better in times of higher economic growth.
  • There is less chance that you buy at the wrong time, since these three commodities vary a lot both from other financial instruments and from each other.
  • The more expensive gold gets the more chance of other precious metals to compete to take a share of its place to store value and for its industrial use.

Drawbacks of adding platinum and silver:

  • Silver has much higher volatility than gold,
  • Silver has a higher correlation (higher beta) to the stock market, which is negative when trying to balance your portfolio to get less risk.
  • Gold has historically been the number one asset to own in the worst financial crises.

Good luck with your investments and trading!
Johan Lindén

Shortage of Physical Gold

How to handle the shortage of physical gold? 

I got my first reader questions yesterday.

gold shortage

I would like to own 25% gold in the next months, since I believe that a real market crash will occur that will ruin most of our financial markets. But first I think there will be a rebound so I only want to own 10% gold now. But as I already can see today, there are bottlenecks in how to get physical gold where I live. Do you have any suggestions?

A very good question! In fact there is a way to get around this problem, so the answer is yes!

With all the financial turbulence and buy recommendations we now get on gold from everywhere, the Swedish gold retailer, Tavex, as of yesterday, announced that they, were out of gold.

However, these alarming signs usually means that we are coming to a temporary plateau for the gold price, and that you will most likely have plenty of days to buy your physical gold. But I want to stress the word usually. But do not panic and see what I would have done in the example below:For example let us say:

  • You want 1000 oz. of physical gold as a maximum.
  • Today you think that the gold market has overreacted, but just to be sure you want to own 500 oz.
  • So you buy that 500 oz. today electronically.
  • When you get hold of your 1000 oz. of physical gold you will have a total of 1500 oz. of gold, which is 1000 oz. more than you want today so you go short/sell 1000 oz. of gold electronically.
  • Now you are 1000 oz. invested in physical and minus 500 oz. in electronic gold for a net of +500 oz.
  • Finally when you think that you want to be fully invested you buy back those 500 oz. that you shorted in the market.
  • Then you own 1000 oz. of physical gold, but zero oz. of electronic gold. You are safe!

 

If there is to be a real panic. Let say the stock market crashes 10% three days in a row. At that time there may be a real shortage of physical gold for some time and you may even have to buy it significantly above market price to get it.

The only downside to this strategy is that this will add a slight transaction cost, but it guarantees me that I will own the right amount when the time comes without having to think about where and how to get it. And at the same time it will let me have some room to ease my position when I think that the market has overreacted.

 

By hedging my physical gold with electronic gold I will:

  1. Easily always have the amount of gold that I want at any time by regulating it in my trading account. 
  2. Be fully secure in case of that my bank or brokerage firm goes down.
  3. Have instant access to my gold at all times.

Keep those questions coming.

See my previous article about investing in gold in general

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