PM allocation?

[Unbeatable]

If you invested now in precious metals with the following allocations

Gold: 40%
Silver: 10%
Palladium: 25%
Platinum: 25%

I know Platinum should probably be weighted higher vs. Palladium and silver weighted higher vs. gold but can you think of an economic situation where you would lose money with this?

I think they will all do well vs. constantly devaluing currencies.

I think Palladium and Platinum are a hedge for if the economy improves and by having them in an equal split you are immune to whether Platinum or Palladium is more favored in the auto industry.

The only problem is if interests rates rise?

 

[DCFusor]

There's a bit of risk with Pt and Pd, in that as highly expensive/effective catalysts, they are currently in great demand from the auto and oil industries.

The danger is simple - every nano-chemist on earth is working as hard as they can with as much government money as they can grab to come up with substitutes...and some of them are looking like they might get real not all that far into the future. I'm not willing (as a scientist but also a trader) to put a real hard time line on this, but it's like every 4th article in the nano-science news - it's a hot topic. FWIW, one of the "new" replacements is nano-gold-iron clusters (mostly the latter) as a possible replacement for cat converters and fuel cells.

If that happens...the market is hydrogen purifiers (Pd) and nice crucibles (Pt). Niche all the way. Value plunges overnight. I have a small personal stack of them, but then, I do run a physics experimental lab and for the moment, the tiny amounts required and the convenience outweigh anything having to do with price, but then -- total niche market. In other words, a few tens of grams will run my experiments for the next two-three decades (and I already bought it). That's not a huge demand-generator.

 

[pmbug]

...
The only problem is if interests rates rise?

The Fed won't let that happen.

 

[benjamen]

I buy what ever is cheap relative to other commodities.

http://www.pmbug.com/forum/f13/how-select-metal-buy-sell-703/

 

[silvercoinrn]

Why no silver

Why do you only put 10% in silver? silver has the best chance to increase with new technology whild platnium has the least and greatest chance to lose value. It is highly used in the auto industry but with different types of fules it may not be as needed. While silver will increase in value especially if solar power becomes main stream

 

[DoChenRollingBearing]

@ Unbeatable:

Here's my current PM allocation:

Au: 78%
Pt: 17%
Ag: 4%
Pd: 1%

(Above does not include products fabricated with "52100 bearing steel", our precious metal in Peru.)

Even though the silver amount looks small, I still have more OUNCES of silver than of gold.

Most of any future purchases will be GOLD, maybe a little more platinum.

DCFusor has a good point, lots of smart people are looking for cheaper catalysts vs. platinum and palladium.

 

[Unbeatable]

Hi Benjamen,

That's a dangerous strategy - that strategy is one of the reasons the world is in the financial mess it's in at the moment.

Mathematical traders 'Quants' made complex mathematical models which traded trillions of highly leveraged dollars based on a similar strategy to you - looking for products that were mathematically under/over-valued and trading accordingly, this works if the 'efficient market hypothesis' holds true and has a low risk profile but if there's a black swan event (Which actually happens a lot as the markets aren't actually efficient) then that strategy tells you to buy exactly the wrong things.

Like now your model is saying gold is overvalued vs. currencies and their computer model would have been investing in currencies for the last 8 years!

Again with the metals being under/over-valued in relation to one another it works assuming the market brings things back in line.

Example. In 2008 Volkswagen seemed incredibly over-valued ratio wise to the other car manufacturers so all the people using your model shorted it expecting it to fall back in line, meanwhile Porsche had been secretly buying up all the shares of Volkswagen & then all the guys shorting lost millions in a famous short squeeze.

So you have to ask why is gold over-valued right now? If there's not a good reason then it should fall back in line and using your strategy, waiting for a market correction is good - but there is a reason gold is over-valued now: currencies are f..... and in a race to debase & you have to ask the same question for platinum etc.

 

[Unbeatable]

@ DoChenRollingBearing

That looks like a great asset allocation, I might actually go for something like that myself.

What % of your total investments are in PM right now?

I was thinking more of an asset allocation you could go to sleep on for a few years, wake up and not have lost, while I think yours is optimal, if somehow the economy starts turning around it would have to lighten gold etc.

You guys make good points regarding Platinum.

Regard silver silvercoin - this is only my view, but the increase in industrial demand less photographic demand means demand for silver has actually been flat for the last 10 years

http://www.silverinstitute.org/site/supply-demand/

so besides devaluation of $ most of silvers increase in price is due to increased investor demand and coins, but they think silver will be 'money' in a crash but all countries will be on gold standard so GOLD is money in the future, (US and China sold silver reserves long ago) silver is a store of value like any commodity maybe with a slight premium because people remember when it used to be money & they still print low denomination coins but over-valued now esp. as will be very little industrial demand in a crash.

If the economy picks up, people investing it at as money or store of value (most individual investors) will sell, then there'll be a big surplus, price go down and then you buy & watch it increase for solar panels & loads of industrial demand.

 

[bushi]

I like your reasoning, Unbeatable - and welcome aboard!

There's couple of "buts" I have to add - you say gold will be the money, which I tend to agree (the process has clearly started for "big boys", in both international trade agreements, and central banks buying physical, while leasing out paper) - but in such case, it will take silver for a ride up with it, and the potential for silver, being more volatile, affordable, and in general, mom's & pop's choice in a sheep race, will most probably outperform gold, when we finally get to a real "bubble" phase.

Secondly, in the (not at all impossible) "mid-to-full SHTF" scenario, you'd rather have silver for everyday trading (amongst others, more important necessities). In EVERY monetary collapse, people reject local currency, and turn to some external currency, that is not controlled by their government. What happens when world reserve currency collapses, or indeed, all worlds' major currencies, is anyone's guess, what people choose to turn to, but I think we here have a pretty strong opinion on what it is going to be - and it is not going to be sea shells, feathers or wampums

EDIT:

Lastly, I think that industrial demand is pretty much negligible, longer term, comparing to eventual investment demand, that WILL unfold at some stage - maybe not as quickly as we think, but most certainly, in our life timeframe. Just think about the ginormous mountain of paper "assets", that at some stage would get dumped, and some (if not significant) part of it, would try to make it's way into something tangible. As far as I know, today's global investment allocation into PMs is below 1%. What happens, if that negligible allocation jumps ONLY to, say, 5%? can you say "five times ++ increased demand, flat supply"?

 

[benjamen]

Hi Benjamen,

That's a dangerous strategy - that strategy is one of the reasons the world is in the financial mess it's in at the moment.

Mathematical traders 'Quants' made complex mathematical models which traded trillions of highly leveraged dollars based on a similar strategy to you - looking for products that were mathematically under/over-valued and trading accordingly, this works if the 'efficient market hypothesis' holds true and has a low risk profile but if there's a black swan event (Which actually happens a lot as the markets aren't actually efficient) then that strategy tells you to buy exactly the wrong things.

Like now your model is saying gold is overvalued vs. currencies and their computer model would have been investing in currencies for the last 8 years!

Again with the metals being under/over-valued in relation to one another it works assuming the market brings things back in line.

Example. In 2008 Volkswagen seemed incredibly over-valued ratio wise to the other car manufacturers so all the people using your model shorted it expecting it to fall back in line, meanwhile Porsche had been secretly buying up all the shares of Volkswagen & then all the guys shorting lost millions in a famous short squeeze.

So you have to ask why is gold over-valued right now? If there's not a good reason then it should fall back in line and using your strategy, waiting for a market correction is good - but there is a reason gold is over-valued now: currencies are f..... and in a race to debase & you have to ask the same question for platinum etc.

Yes, following any model blindly is foolish. I do not exclusively use those ratios to make any purchases. I also do things such as personal percentage constraints on my holdings.

The FED can print mass quantities of USD and cause the nominal price of all commodities to increase, but you do not gain in real terms. I prefer to price commodities in terms of gold as opposed to USD. If a commodity is changing value in terms of ounces of gold, it is much more interesting to find out why.

For example, platinum is much rarer and in the long term trades well above the price of gold 99% of the time. In terms of dollars, platinum may have been increasing, but it is still below gold. This may not automatically cause me to buy platinum, but it does cause me to look deeper into the matter.

$.02

 

[Unbeatable]

@ Benjamen

You makes some good points there.

@ Bushi

Good points too, I just can't get my head around a fair valuation for silver at the moment.

 

[Jay]

for me, all silver. LOTS of silver.
Bing has all the gold. Don't know how much, but as far as I know, no silver, except for silver one buffalo round I found by accident yesterday with a bunch of gold while looking for something else.

we are very diversified!

(wood, cast iron, wood stove, Berkeys, food, antibiotics, clothing, guns and ammo, etc.)