“Who on earth still buys gold or silver” – this was the first reaction I got after I told a dozen people that I will shift a substantial amount of my cash assets into Gold in August 2018.
Historically, Gold (& Silver) has been seen as a “safe haven” asset which does not generate income. And storage fees are comparatively high. Now, there are Gold (mining) ETFs in the market that you can buy. But I consider these ETFs as stock/fund investments and not a hard asset such as Gold (or Silver).
Once a year, I re-balance my portfolio (you can read more about my general investment approach here: Diversification is Key: An Alternative Way of Investing). Typically around June/July every year. This year I realised that my asset allocation towards Gold & Silver was relatively low (below 2%) so I decided that I want to build up my Gold & Silver reserves.
Warren Buffet wrote several times that you cannot find the right timing for an investment. He also reiterates that you “should not touch a falling knife” meaning that once an asset class is moving for weeks or months with a negative trend line that you shouldn’t invest into it (yet). Thus, he suggests to do a form of “cost averaging”. This is to invest regularly a specific amount into an asset class. E.g. you put $500 aside and buy every quarter the same number of shares. Irrespective of their day/spot value. So when stocks (or the value) is high, you buy/get less. When stocks (or the value) is low you buy/get more. Simple as that. In theory. In practice it takes discipline to follow this rule. I have been notoriously bad in the past to follow this rule so what I started to do is to put 1x a quarter a full-day reminder “Buy Gold/Silver” or “Buy ETFs” or “Buy Crypto” in my calendar. I have put latter on hold for another reason which I will elaborate in a different post 😃
In addition, Gold is known to be anti-cyclic to the general public stock market. Meaning, if stocks are on an all-time high Gold is usually on an all-time low. And vice versa.
Coming back to my asset allocation: so I started to look at the prices of Gold & Silver in June/July 2018. I saw a negative trend line – so I waited. Historically, Gold & Silver prices had a yearly low end of November/beginning of December. So this was the (very) last time frame I wanted to wait for buying it.
So after following it for couple of weeks I felt that Gold & Silver were bottoming out. Yes, this was purely speculative at first.
But I received so many data points (tech stocks at all time highs, lowest % of unemployment rate, too much capital in the market etc) that I decided to slowly but continuously to invest (much) more in Gold.
So I started to buy Gold & Silver (in a ratio of 3 Gold to 1 Silver) from mid-August onwards.
To proof that I “walk the talk” you can find my Bullionstar transaction history below:
Back then, I was buying relatively heavily into Gold & Silver. It was not only an all-time year low but even on a 5-years timeframe it was a historically low value for Gold:
I wanted to wait until end of November/December to buy again into Gold & Silver. So I can follow the cost-averaging advice from Warren Buffet. Interestingly, I was also sharing this “insight” publicly on Instagram (and annoyed at least a dozen number of people about “look at Gold and Silver” in August 2018):
However, after looking at the performance end of November/beginning of December I saw that there was already a comparatively high price increase for both Gold & Silver. As I bought comparatively too much (for my asset allocation) in August I decided to skip the Nov/Dec purchase and put in my calendar to buy it again in March 2019.
Now looking at the chart for Gold I decided to part-sell Gold and hold on my Silver allocation:
Again to proof that I “walk the talk” you can find my first sell order at bullion star:
After the Tet/Chinese New Year holidays, I will sell another portion of Gold as the price increase is too substantial recently. Yes, I sell it when a price increase is too steep. Why? Because I am (very) happy if I have a return above my target return of 4%. In the case of Gold it is nearly 12% in 5 months. That is a staggering Compounded Annual Growth Rate (CAGR) of +30%. This is far above my target return of 4%. And I am happy to take a profit today than a potential loss tomorrow.
As any private investor I also have as many “bad” investments as “good” investments such as Gold in 2018. So one of my future articles will be about my worst investment in 2018 namely Cryptos 🙂