What do you guys think? GLD over or under valued for the short term (3-5 years)?

 

I have been buying GLD since gold was $750. I think we will see Gold go to $2000-$2500 over the next 3 years. If so, GLD will follow. Look for pullbacks in gold and add a little at a time. Nothing goes straight up, so we should see some pullbacks.

I also like SLV to follow as GLD's little brother.

 

Over the last 4 years, 5 months (the length of time SLV's been around), GLD and SLV have a correlation of returns of +0.80. Couple that with SLV's lower return (9.1% vs. 16.8%) and higher volatility (36.7% vs. 22.1% σ of returns) and you find that having a portfolio with both GLD and SLV is silly: SLV gives lower return with higher risk and offers no diversification benefit.

 

While yes gold and silver are obviously very similar assets (both hard metals), I wouldn't say gold offers "no" diversification benefit. Silver is primarily an industrial metal like copper, whereas gold is largely just an inflation hedge. There are different fundamental arguments to own gold vs. silver long term.

To answer the OP.. As long as printing money and large deficits are in, expect gold/silver to do quite well. I'm getting a deja vu kind of feeling these days similar to late '07 early '08. Someone needs to wake up oil though.

 

The purpose of diversification is to reduce risk (for a given level of return). If a portfolio of 100% GLD has a higher return and lower risk than a portfolio containing both GLD and SLV, then SLV offers no diversification benefit. The uses for gold and silver may be quite different (although gold does have industrial applications, and both, obviously, are used in jewelry), but their returns - the only reason to choose them as an investment - have an extremely high positive correlation. Adding SLV to a portfolio with GLD either reduces the portfolio's risk for a given level of return, or else it doesn't. So far, it never has.

 

There is no mechanism to determine absolutely going forward if what Magician cites will necessarily be the case in the future (SLV has more volatility with less upside gains versus GLD). That being said, a four and a half year analysis with double digit % variances is fairly convincing. I'd certainly take that into account.

 

Yup, the standard "past performance does not imply future performance" sort of disclaimer. I merely had issue with the "owning both gold and silver is silly" remark. One could've made the argument that certain commodities were underperforming a month or so ago, and they'd have been correct. I understand the concept of risk adjusted returns, and yes gold has outperformed silver in the long haul, but again, I'm not sure I'd call it "silly."

As I said before, silver is an industrial commodity (which results in more volatility), and also leads to a price that is more tied to supply/demand (when the economy goes to shit, people aren't making "stuff," and thus there's a lower demand for silver). This is very common for many industrial commodities. Gold however, is not tied to making "stuff," and is a big inflation/EOW hedge/investment. Yes, looking at strictly numbers over a few years, clearly the returns for gold are better, but it's hardly a clear cut case imo to not owning something else. To each his own. I guess that's what makes a market.