Following on from yesterday’s post, below is the chart of the best gold and silver percentage allocations for Australian investors by the year one starts investing.
This is not too much different to the chart for US investors, with a slight skew towards gold in the late 1970s. This is to be expected as we are affecting both USD gold and USD silver by the same AUD/USD exchange rate, which would only magnify the variability in gold and silver by a small amount. The chart comparing the “times increase” of the 100% gold, 100% silver and 50%/50% strategies can be found below.
I have left the scale the same as the one for US investors, so it can be compared directly. Note that Australian investors experience a much lower variability in returns, which is driven by the fact that often US precious metal prices are affected by US dollar strength/weakness, which also affects the value of the Australian dollar, helping to mute changes in AUD gold and silver prices. The advice for Australian investors is the same as that for US – the 50/50 strategy appears to be a good all weather approach to take.
The results above, and for yesterday’s post for US investors, were based on a constant rebalancing. For example, every month the investor would adjust their purchases (and sell one metal if necessary) to bring the portfolio back to 50% gold and 50% silver by value and not just spend their monthly $100 savings as $50 on gold and $50 on silver.
The chart below shows the percentage difference between the two total ending USD values of a rebalance versus a simpler no rebalance/buy in the same proportions each month. It is a busy chart but the key takeaway is that not rebalancing theoretically produces a lower overall return.
However, it is not a big difference considering that we are in most cases talking about increases on the cash invested of 100% to 300%. If we included transaction fees and the tax consequences of rebalancing (having to pay tax on any profits from selling whatever metal is overweight), then I think this negative difference would disappear. The difference could also be reduced by adjusting how much gold or silver one buys so as to move the overall portfolio split as close to 50/50 as possible, although this would only have an effect early on as later in ones savings the $100 a month is minor compared to the value of the portfolio.
While the analysis above and in the previous post is simplistic in that it does not consider one’s rising income, inflation, taxes and transaction fees, it does indicate that there is merit in buying 50% gold and 50% silver as a conservative precious metals investing strategy.