GOLD in Mutual Funds, mainstream portfolios, asset-allocation, etc.

1) A few years ago, I carefully studied the asset allocation premises of Gold in investor portfolios - I looked to see what (if any) allocation to Au/PMs other professionals were advocating to clients. Our firm had already invited one of the GLD managers at State Street to speak to staff; that guy recomended just "3%" as appropriate to HNW individuals' portfolios. I came out of that meeting looking like a total Gold Bug, LOL

In 2007, the 'Gold allocation' was less than 0.2% of retail investors' portfolio assets in the USA - so how high is it now? Casey Research came to similar conclusions abit later (2010) maybe much the same rationale if not methodology.

I also insisted (and maintain) that we will NOT see a retail 'Gold Bubble' until Gold rises to at least ~10% of investor assets; Gold isn't popular nor even common in MOST portfolios, yet? What hard data contradicts this, please.

2) Beyond the Permanent Portfolio (25% Gold), one of the more interesting and Gold-positive funds was The Pimco Commodity Real Return Strategy (PCRIX). The fund’s benchmark is the Dow Jones-UBSCommodity Index Total Return, 13% PMs.

DowJones breathlessly announced it's scoop back in August - did anyone at DJ bother to fact check?
>>THE SCOOP: In an exclusive interview with Dow Jones Newswires on Aug. 22, Pimco's commodity portfolio manager Nic Johnson revealed that the world's biggest bond-fund manager had recently increased its gold-futures holdings. Pimco's bet...indicates growing concerns about inflation and the value of the dollar.<<

ZeroHedge was reporting the Gold stake of this fund was 11.5% back in August 2012, quoting Nic Johnson (co-manager?):
http://www.zerohedge.com/news/pimco-increases-gold-allocation-105-115-commodity-fund

There's plenty of pro-Gold commentary here (dated October 2012):
http://www.pimco.com/EN/Insights/Pages/GOLD-The-Simple-Facts.aspx

But as I look at the current fund page allocations AND 6/30/12 Holdings Report, Gold/PMs are neglible - much less than 0.1% of assets. Are Messrs. Worah & Johnson trading "in" and "out" and now back "in" Gold positions (that "-24%) maybe? What am I misreading? I don't mean to sound conspiratorial or cynical, but "Where's the Gold?" Or is this just a rope-a-dope Gold-plated marketing ploy, designed ensnare wannabe Gold-allocators & investors (institutional or retail) who aren't paying attention to what's under the hood?

p.s. this thread can also be broadly used to discuss so-called "Gold-based Mutual Fund investments" - flashy PR notwithstanding, PIMCO doesn't have one btw.

 

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Love your threads, Juan. Might not folks who want to diversify thataway simply buy into ETFs instead of complicating the fund holdings with commodities? Sorry I can't phrase that better...still learning!

 

I just think a lot of funds don't want the problems that go with gold. Stocks are easier. Also, many funds probably aren't allowed to own gold [just guessing] except through something like GLD, but that would involve two layers of fees to their clients. They might also be afraid to buy significant amounts of an asset so far into a bull market move. That's more for the traders.

 

i think the value of gold has shown itself in graphs pertaining to some coins and not just gold ones. take the 2.50 1911 d in ms 60 in 2004 you could buy it for around 3000 and now it's value is about 8600 or a 1914 d penny in 2002 was about 150 in fine 12 and now is about 400.i would buy bullion at about 3% over price,but depending on the coin i may pay up to 25% over dealer price.that is the way i see things.

 

ABSOLUTELY, Clint! But the thing is
1) Many 401k participants aren't spending an extra $100./year for a brokerage window which can be limited, restricted to mfs, etc.
2) Some investors are still ONLY choosing mfs (various reasons) or ONLY get that 'choice.'
3) There are a variety of investment products layered on the 'fund' - including variable annuities - which offer no access to GLD or such small niche asset classes.

I think the very name is misleading; 'PIMCO Commodity Real Return' is a tactical opportunity or 'bond plus' strategy fund that's more gimmick than commodities or Gold. The behemoth size ($23 Bln) of this "commodity fund" -which ISN'T, really- is especially problematic and indicative of numerous shortcomings in the fund industry. But that's why I call my industry "the fund racket."

I have the utmost respect for Bill Gross and Mohamed El-Erian (the Warren Buffett & Bill Miller of the Bond world) but this particular 'ploy for assets' disappoints me. I do suppose this signifies greater institutional interest in Gold, but why should investors be deceived thusly?

Although our firm recommened other PIMCO offerings as far back as the early 1990s, I became aware of Bob Greer's fund through our competitor's study for him. Though slightly dated, it's still must-read analysis and justification for commodity exposure in asset allocated portfolio.
http://media.pimco-global.com/pdfs/...et Allocation and Commodities 2006 Global.pdf

The take-away here? I'm preaching to the choir, but holding your own bullion guarantees you actually have a real asset and hedge against paper asset classes in your IRA/401k/pension fund. Although the PM ETFs (Like GLD) might be an acceptable alternative for now, do watch out for any 'commodities-focused' fund that's just a gold-plated excercise in marketing. Or worse... potentially duplicating your exposure to TIPs. I'm not sure that investors want to double down there, but owning this PIMCO fund DOES raise that risk. Please, look under that hood!

Another point (positive correlation?): watch these major 'commodity' fund managers jump in and out of Gold if you want a sense 'what direction POG the experts think.' THAT, against inventory at APMEX, might be more telling.

 

The biggest advantage of holding your own physical bullion. --- Nobody else knows that you have it or what you did with it.

 

Very true, but also that physical asset CAN be stolen from you by force. Its greatest advantage is also its greatest disadvantage.

Maybe I am just chicken, but I sleep better at night knowing I own basically all asset classes, (stocks, bonds, land, PM, collectibles), and anything that can negatively affect one asset class cannot make me wake up in the morning without the ability to feed my family.

 

And the biggest disadvantage is the threat of theft, flood and fire as some NY and NJ victims of Sandy probably found out.

 

Although PIMCO's fund is probably the most exposed to retail investors ($23 Bln) there are other 'Gold mfs' to watch out for, quick sample here:

1) Tocqueville Gold (TGLDX) $2.4 Bln: >70% Foreign Equity Fund = Miner Stock; No Load and 1.25% Expense Ratio
2) Gabelli Gold AAA (GOLDX) $0.466 Bln: >85% Foreign Equity Fund = Miner Stock; No Load and 1.46% Expense Ratio
3) Oppenheimer Gold & Special Minerals N (OGMNX) $3.3Bln: >80% Foreign Equity Fund = Miner Stock; 1% Load & 1.47% Expense Ratio
4) Van Eck Intl Investors Gold C (IIGCX) $1.4Bln: >85% Foreign Equity Fund = Miner Stock; 1% Load & 1.96% Expense Ratio
5) First Eagle Gold A (SGGDX) $3.0Bln: >63% Foreign Equity Fund = Miner Stock; 5% Load & 1.20% Expense Ratio
6) Midas Fund (MIDSX) - $0.054Bln ... Pass! Too small, weak return, poor fund style explication

Others to compare/examine : VGPMX, FSAGX, FGLDX, FRGOX, BGEIX, USAGX

Performance-wise, NONE of the Gold (equity) mutual funds come anywhere close to the stellar performance of the Gold Miners' Index ETF, GDX except Toqueville.
The ETF is much much cheaper to own than Gold mutual funds, if you can. Stick to No-Load, low expense ETFs and MFs generally.

I also like the riskier Junior Gold Miners ETF= GDXJ.

 

Right you are, medoraman, and FEAR OF THEFT is probably one of the biggest excuses for those 'hedging' retail investors who WILL buy & hold the Gold ETF but not bullion.

I recall reading years ago - something like half GLD's assets were small retail accounts? There must have been tens of thousands of US investors who wouldn't yet buy Gold bullion, and that hasn't changed. The value proposition needs to be refined. IF/WHEN those investors (ever) enter the coin & bullion mkt, we will BEGIN to see the Gold Bubble forming ... but we're nowhere near that point, yet. It will come, I believe. I may be wrong but imagine the PIMCO statement as a curious harbinger, like the very first leaves turning in Autumn perhaps?

I will look for some stats, to elaborate this potential or future bullionist mkt alluded to, here.

 

I like and own CEF, which works better in a tax deferred account because it is a PFIC.

 

What percentage of retail do these investment portfolios hold in commodities in general? Energy, Ag's, base metals, PMs, etc? And of the retail value of all commodities held in these investment portfolios - what percent of that value is represented by PMs?

 

justafarmer-
Do you mean 'what %age of retail investors hold any commodities, and what %age of that sector is PMs?' I looked at ICI stats a few years ago; again, I calc'd GLD (assumed assets "50% retail") @ less than 0.1% of total US investor assets (excl institutional, as I think you mean.) That's the updated stat I'd like to know, too.

fwiw, since 11/07 POG has abit more than doubled but GLD is 5-fold greater. I used Nov 07 as a baseline (rather than Nov 04); 'from inception' isn't meaningful whereas by late 2007 this fund was very well-known.

For GLD, the biggest reallocation appears from Thanksgiving 2008 through 2Q 2010, with other sharp upspikes in Summer 2011 and Summer 2012. Whether that's more institutional money or retail I don't know. Regards.

 

I'm still digesting the ICI 2012 Factbook (May 2011 data) you may examine it here:
http://www.ici.org/pdf/2012_factbook.pdf

Some interesting factoids:
1) Retail: 52.3 million US households (44% of all US) owned MFs ; "an estimated 3.5 million U.S. households held ETFs in 2011." (p.54)
2) Retail: "Of households that owned mutual funds, an estimated 6 percent also owned ETFs." (p.54)
3) Retail: 39% of all US households have an IRA; 10% of households w/IRAs used ETFs and 1-3% of their assets were in 'Other Investments' (CIDs, etc and/or alternative asset classes)
4) Total US ETF Mkt: Commodity ETFs are 25% of all Commodity AND Sector ETFs (by # of fds) but account for 50% of net assets for both groups. (p.52)
5) Total US ETF Mkt: Commodity ETFs make up ~10% of ALL ETF Assets (Table, p. 146) and 80% of Commodity ETFs tracked the Price of Gold or Silver (so, not 'miner stock.') (p.52)
6) Retail: "ETF-owning households tended to have higher incomes, greater household financial assets, and were {~20%} more likely to be headed by college-educated individuals." (p.55)

I can't find the ICI discussion page on Gold, LOL I really don't think they want to talk about it either.
However you dice & slice it, probably far less than 0.3% of US Households held a PM ETF (1% of 10% = 0.1%) still quite neglible/insignificant for US retail investors

 

By comparison to the 90.4 million US individuals (=52.3 Households) actually owning a mutual fund and my lowball estimate of just (6,050 > 18,200 ~ 12k) individuals owning a PM ETF in 2011:

A 2012 Epcot/Disney poll for the US Mint suggests there might be ~75.5 million self-described adult 'coin collectors' in the USA.
Same poll: 27.5 million adult 'coin collectors' claim they do this "as an investment." WHOA.

Now it's a poll of 12,000 ppl - and maybe Disneyites answering were lured in, by something coin-y? o.k., call it a self-selecting 'coin-crowd' FROM the larger population of Disney-goers. We'd need to know how many people ignored or declined the poll because 'No I don't collect coins, thanks!' etc. I can only guess 3/4 to 7/8 the Disney crowd sailed right on by: so total 'true' US coin collecting adults ~25 mln? Is that guess far too low, too high?

From other sources, Coin World editor Beth Deisher extrapolates 1.3 - 1.8 million US residents spend "serious time & money on coins." (no idea IF bullionists are in toto?)
"Serious collectors" ($s ?) would be 6.6% of so-called "investing coin-collectors" and 2.3% of all self-described "coin-collectors," but probably ~10% of the true collector population.

Still, those collector/bullionist numbers dwarf the retail ETF crowd holding GLD, SLV etc.

This tells me the real PM ETF assets are likely my old friends' the endowments, pensions and hedge funds. That's where the honey-pot is!

 

I would say that even 1.3 to 1.8 million Americans are "serious" coin collectors is too high a figure. Be careful with what numbers those in the media through around, frequently they estimate high to help promote their industry. Maybe 1.3 to 1.8 million people know what a red book IS, but I seriously doubt active collectors who read the publications and actively buy coins other than pick a state quarter out of spare change is that high. I would be seriously surprised at half that figure. I have no way of proving it, though, (but don't think she does either).

Regarding ETF funds, I think most people who prefer PM also prefer making sure they physically have it. Many do not trust financial institutions, so why would they trust a ETF fund? Also, holding PM in such a fund is much more expensive for long term holdling of the asset than simply buying bullion and keeping it. I guess I do not see the explosive growth of PM ETF's from existing PM owners for this reason. I believe ETF's would be more attractive to non-coin collectors and bullion stackers.

 

Greatest Value Per Cubic Inch?

I'm sorry but I'm missing something here. I believe that if you do the arithmetic you'll find a $1000000 billet of Gold can be carried in one hand, and is very easy to store in a small commercial Bank safe deposit box, or so many other inconspicuous places. Easily carried/stored as a 2" x 4" x ~6"? Unlike Gold, I believe you wouldn't want to carry $1000000 in $100 bills. :thumb:

 

Just over 36 pounds is a millium bucks? Sounds cumbersome. I'd prefer a paper certificate saying I own that much

...just kidding! :hail:

 

A Small Valuable Package!!

People don't realize how convenient the relatively small 30 caliber airtight ammunition boxes are for storing and handling precious metals. I believe you'll find that more than a 5 million dollar Gold billet could be stored in one of these boxes.

I believe you'd find it very easy to carry a 1 million dollar billet in one of these boxes. I often handle these boxes filled with silver coins, which I think has a weight ~3 times the $1,000,000 Gold billet.

I suggest that although you can store >$5,000,000 Gold in one of these relatively small boxes, you wouldn't want to carry the box which would require at least both hands.

 

30 cal boxes are also good for storing rolls of nickels, if you stack them on end.

Never know when cupro-nickle will go through the roof!