Aug 13, 2020
With the gold price reaching record highs, we revisit the
contentious issue of whether you should add gold to your portfolio.
Before mining that topic, we talk about Super Pumped: The
Battle for Uber and Am I Being Too Subtle? — our book
recommendations of the week. We then touch on key news stories
including how the recent Apple stock split has affected its
position in the Dow index. After fielding a listener question about
why central banks care about deflation, we share the reasons for
and against investing in gold. We discuss where gold derives its
value along with the concept of the ‘golden constant’ which states
that the value of gold will keep pace with inflation in the extreme
long-term. Host Benjamin Felix brings in research to show why gold
is a bad inflation hedge due to its short-term price volatility. He
also brings in data to look at how gold performs under
hyper-inflation and then speculates on how supply shock from
finding new sources of gold would impact its market value. Often
used as a reason to invest in gold, we provide our take on John
Bogle’s statement that you should invest 5% of your portfolio in
gold. Despite seeming to be a middling investment, we then talk
about why so many central banks own gold. Near the end of the
episode, we briefly explore the life insurance organization Assuris
and which account you should draw from when buying a home. Lastly,
we draw insights from this episode’s bad advice of the week. Tune
in to hear more rational reminders from the investment world.
Key Points From This Episode:
- Media recommendations ranging from Too Much and Never
Enough to Ray Donovan. [0:01:39]
- Updates on the model portfolios being written by Ben.
- This week’s book recommendations: Super Pumped and
Am I Being Too Subtle? [0:04:40]
- Dives into key stories of the week; Apple’s share split and
Vanguard Investor’s trading practices.
- Answering a listener question about why central banks care
about deflation. [0:11:13]
- Introducing this episode’s portfolio topic; should you invest
in gold? [0:13:52]
- An overview of the arguments for and against investing in gold.
- How gold’s value derives from its scarcity, malleability, and
- Gold’s value as an industrial and collectible commodity and
pricing in the ‘emotional dividend’.
- Where the demand for gold comes from — it increases with its
- The concept of the golden constant and how gold maintains its
value in real terms. [0:21:23]
- Drawing conclusions about the value and portfolio benefits of
gold from the 2013 paper, ‘The Golden Dilemma’.
- How gold has performed in periods of hyperinflation.
- Further unpacking the idea of a golden constant and the
expectation of receiving zero return.
- Summarising why investors are attracted to gold; it’s tangible
and scarce. [0:34:50]
- Speculation around asteroid and ocean mining in the far future
and how this might impact gold prices.
- How central banks off-loading their gold reserves will affect
the gold price. [0:38:30]
- Why gold returns look so good at the moment and why this can’t
be trusted. [0:40:03]
- The paper, ‘The Long-term Returns to Durable Assets’,
conclusions about the gold’s pricing.
- Why John C. Bogle invested 5% of his portfolio in gold and why
it’s not necessarily a good idea. [0:42:01]
- Answering why central banks hold gold in the first place.
- Exploring Assuris — an organization protecting Canadians when
their life insurance policies fail. [0:47:40]
- Which account to draw from when buying a home when you have
equal amounts in your TFSA and RSP accounts.
- Bad financial advice for the week; PWL Capital versus funds
chosen by a big bank. [0:55:02]
- The importance of understanding the decision-making behind
developing your portfolio. [1:04:35]