I have always liked assets that yield steady streams of cash because I can (more or less) grasp the value of such a stream of cash flows. That is the reason to explain why I avoided gold (or, for instance, Art) as an investment. I simply never really knew how to value it. The gold value yardsticks I have heard were always somewhat esoteric. I remember that in his excellent book “New Ideas From Dead Economists” the author, Todd Buchholdz, attributed to Keynes the phrase “History Shows Price of an Ounce of Gold Equals Price of a Decent Men’s Suit.” I do not know if Keynes ever pronounced such phrase but, even if the phrase would contain some statistical truth, it still doesn’t make any sense to me. That said, I need to admit that great investors such as George Soros have made heavy successful investments in gold during the years that preceded the 2008 banking crisis.
The easiest way to go long gold, and the way even Soros used, is through Gold’s ETF, SPDR Gold Trust (ETF) (NYSEARCA:GLD). This ETF is a highly liquid (as a result it always trades at par with its Net Asset Value (NAV)), simple and inexpensive (its gross expense ratio is 0.40%) way to buy gold. Of course as gold doesn’t yield you any cash, buying its ETF is an almost (because it does have some industrial use to it) purely speculative trade: You buy it because you think others will buy it. Soros and those who bought gold after 2008 thought other investors would find in this asset a good way to protect their current buying power. They were right. Let’s see what has happened since the crisis has begun to recede.
SPDR Gold Trust (ETF) (NYSEARCA:GLD) performance
Gold’s ETF has gone from $83 in January 2009 up to $152 nowadays. Yes, its 83% 5 year performance has been great. Not only many investors were right about gold’s popularity as a safe haven, but also as a hedge against the real depreciation of the US dollar. Gold’s recent performance though has been less exciting. Year-to-date (YTD) Gold’s ETF is down by almost 6% against the S&P’s 9% advance. Besides, most investors, like Soros himself, seem to be selling a share of their large positions. Naturally we don’t exactly know what they are doing as I write because hedge fund’s fillings reflect the actions taken in the past. The last filling by Soros’s fund does reflect that he only kept 0.6 million SPDR Gold Trust (ETF) (NYSEARCA:GLD) shares out of the 1.3 million that he used to hold. We will have to wait until the next filling comes out to see what he has been doing nowadays. I guess that Gold’s under-performance is here to stay. Now, let’s see some alternatives to gold if you are looking for protection from the real depreciation of the US dollar and, at the same time, a safe haven against risk.
Alternatives to gold
I don’t think there is better long term protection for your savings than a good and diversified portfolio made with great consumer staples companies and utilities. You will get a decent (and always growing) cash dividend yield from industries that will always survive and can increase the price of the products they sell at least at the same rate as inflation. Hence, one valid alternative to SPDR Gold Trust (ETF) (NYSEARCA:GLD) would be a portfolio made with two ETFs. One representing consumer staples and the other representing a portfolio of utilities. Below is my proposed alternative portfolio: