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House prices are rising again and so is gold. We look at which asset has done better over the last 20 years

Personal Finance
House prices are rising again and so is gold. We look at which asset has done better over the last 20 years

Low interest rates are juicing up property market activity. Prices are rising again.

The price of gold is also in the news a lot these days. It appears to be rising fast too.

But the gold price rise may only be because most of the activity is going on in US dollars.

The gold price is certainly climbing in US$ and overnight it spiked to almost US$1,800 per ounce before settling back to US$1,775 where it has been since mid-September.

One reason the gold price is rising is that it reflects the devaluation of the US currency as their central bank 'prints' vast amounts of currency in an effort to address high unemployment in the US economy.

They have growth, they have productivity, but they can't seem to get unemployment down.

The US also has vast amounts of public debt; US Federal debt is now more than one year's GDP - about US$16 trillion (a quarter of the world's GDP). US economic activity dominates the world and our news perspectives. Authorities there are trying to address their employment problem with a very loose credit policy.

But from a New Zealand perspective, the gold price is not moving up as sharply. It is still at a level it was a year ago. The current gold story is about US dollar devaluation.

However, from a much longer perspective - 20 years say - the story is quite different.

One thing that impresses is that the charts we produce on house prices over that longer term look remarkably like the charts we have on the gold price in NZ dollars.

That begs the question - which has shown better growth?

Almost the same amount of gold needed to buy a house today as 20 years ago

The best way to measure that may be to calculate how many ounces of gold you would need to buy a median New Zealand house.

And the result is perhaps surprising: You need essentially the same number of gold ounces today (185) to buy that house as you did 20 years ago (174).

The relationship has seesawed over the intervening two decades, but we are now essentially back to where we started.

The high point - the peak price in gold - was in late 2005 when you needed 472 ounces to buy the median priced house. It has been generally down from then, a seven year decline when the price of gold rose faster than the price of houses.

The low points have been at either end of the period - July 1993 and September 2011, or at the 160 ounces level.

'Ounces' used to measure gold are a special standard, the troy ounce. There are 32.15 troy ounces in one kilo. That means you need 5.75 kilos of gold to buy a NZ$370,000 house.

The median price in Auckland is NZ$505,500 and you will need 7.35 kilos of gold to buy it. In Wellington, you will need 5.6 kilos and in Christchurch you will need 5.0 kilos.

Your view? Will the cost of houses in gold-terms continue their fall? Or are we about to start another bull run (in gold terms) for house prices?

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47 Comments

i bought my house to provide shelter for my family from the weather and the vermin walking the street not for profit.

when gold can provide either of those two i will swap my house for a gold bar.

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Well said, I feel the same way.   For me the classic and best use for gold is to see your wealth protected through an extreme financial and usually inflationary event.  So buy before and sell shortly afterwards....not to hoard and certainly not to speculate with.

regards

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There is no leverage with Gold.

You cant get the bank to lend you to buy gold, unless you put some sort of family home or rental property as security.

So it's like comparing apples with oranges.

I put my money on property any day.

 

Also gold is easier to buy than it is to sell. You often have to sell at a discount to get your money back.

Gold market in NZ is not as robust as US or Europe countries.

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.. you have to sell property at a discount too if you intend on selling soon after you bought it... commonly called 'real estate commission'... so neither is great to buy if you are wanting to hold only for a few months....

 

rgds,

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You can leverage gold through ETFs, short and long positions available. Not an investment for me but horses for courses and all that.

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There is a fundamental difference behind the leverage though. When you leverage property - you 'possess' the property and the mortgage is a paper claim against an actual tangible asset held by you (land).

When you leverage gold through an ETF you don't 'possess' the gold... (and neither do many EFTs including the largest one GLD)... you own a paper claim against a 'derivative' - so in most cases all you are leveraging are paper claims on paper claims which have no tangible asset behind them, so in many cases can never be converted to actual gold...

A main point of holding gold, is not to be in paper claims at all...

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Do you have any evidence the GLD ETF is not backed by phyiscal bullion holdings?

That is contrary to what I understand.

 

 

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The COMEX has been settling in cash behind the scenes for ages on gold and esp silver contracts, sometimes at large premiums (up to 30%) to spot. The gold and silver markets are manipulated by the big bullion bankers and its a scam. The CFTC and SEC look the other way as it's in the US governments interests to do so (ie the US government is behind the scam). GATA has long been tring to call them to account. Others (such as Harvey Organ - blog below - (there is too much documentation and strange discrepancies to go into detail here on this sight) have written extensively about it for years trying to bring it to light and making submissions to the CFTC and testifing at hearings, (but the COMEX gold and silver market is a silly little game compared to the LBMA though). They get away with it as the huge majority dont take actual delivery of the physical.

http://harveyorgan.blogspot.co.nz/

http://www.gata.org/

 

Also Ben Davies of Hind Capital (someone who has actuallyt taken delivery of gold) also has testified the COMEX has only a small fraction of the gold (like 3%). Thats why he took delivery of his... Sprott has also down a lot of work - and just common sense - the GLD takes a week or so to add many tonnes and Spott Physical ETF takes numberous weeks to find just a fraction of that to add to their ETF?

 

When it hits the fan and gold rockets up multiple times where it is now, most investors in gold will be left with nothing, that's called the modern gold confiscation. It happens time and time again though history - its the golden rule - he who has the gold makes the rules.

 

As in defense, some countries (like NZ) hold a much lesser army and depend on the western 'alliance' to defend them. Such it is with currencies. Many states hold USD as reserves for currency wars, and to give their currency 'backing'. They have sold off their gold 'nuclear weapons' and join the USD alliance. However this alliance is coming apart and other nations such as China are building up their 'nuclear' currency arsenal. This is the 'new game', but yet a very ancient one, and it is only just beginning to be played out for this round. The years have passed and this metal has not yet revealed the value it hides. Time proves all things and eventually that value will be revealed. 'The stars blink and fiat is no more.'

 

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All very well, but I still can't see how you base this claim

'.. (and neither do many EFTs including the largest one GLD)... you own a paper claim against a 'derivative' -'

 

NYSE:GLD , as far as i know, does not operate with derivatives.

 

As per

http://www.spdrgoldshares.com/sites/us/shares/

'The Gold Shares represent fractional, undivided interests in the Trust, the sole assets of which are physical gold bullion and, from time to time, cash.'

 

No mention of Futures, Options or any other derivatives.

 

NYSE:GLD,  trades on the NYSE, not Comex.

That is why it is called an Exchange Traded Fund, and is not a futures contract, no physical delivery is offered, implied or expected.

 

 

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Yes the sprott fund is a fully backed physical fund at present. Not all are in reality (like GLD), thats all I am saying. They still add a layer of counter party risk because you don't have it in your possession/direct control. The same is true holding gold accounts at a Swiss bank.

 

But as Harvey says, who has followed this for many years -

The two ETF's that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment. There is now evidence that the GLD and SLV are paper settling on the comex.Thus a default at either of the LBMA, or Comex will trigger a catastrophic event.
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http://buying-gold.goldprice.org/2006/01/gold-etf.html

from half way down, and there are others who dont believe GLD has the actual physical gold backing its claims.

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Futures contracts on regulated exchanges like NYMEX or CME allow for delivery of the physical upon expiration, EG: gold, crude, cotton, etc. Very few traders go this far though, even if they're hedgers.

 

Only exception is where the contract basis is a financial instrument, EG: S&P, 10-Yr T-Notes, Eurodollar Time Deposits, etc. In those instances settlement if you're still long or short on expiration is cash debit or credit against your account.

 

Between '04 and '08 I was licensed by Uncle Sam as commodities broker.

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I came on interest.co as part of a self education process and technical analysis has been a part of that.

I have posted twice over the last year that Gold was still in a bullish flag pattern on a monthly chart and said a break above with would constitute a good buying opportunity. Well it broke above that channel on the 23rd of August so a good buying opportunity still exists, I wish I could partake of that opportunity :-) According to the pattern the price should rise $1100 USD, time frame less certain but perhaps over the next two years. 

  There has been a suggestion that I have read of a cup and handle candlestick pattern forming, so a break above $1802 could see another sharp leg up with little to stop it before the next resistance point at the previous high.

  Another tip I picked up from a book I recently read is that gold traders(paper) look to a crossover of the 50&200 day moving averages for a change in trend. This is done on a daily chart and you can see this has now occurred confirming the bull flag break out.

  Not much negative in the technicals either.

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Maybe a bit off topic, but trading based on technicals... For believers the implication is that the market cares about what its charts will look like at a later date, so that statements like this ring true "According to the pattern the price should rise $1100 USD, time frame less certain but perhaps over the next two years."

 

I am sorry but I just can't get my head around how it can be possible.

 

Not entirely certain trading based on fundamentals much better. 

 

Markets are driven by irrational humans, so it comes down to fear and greed, refreshed countless times a second, 24 hours/day, on an infinite basis.

 

Like gambling, a lot of it is trading only with $ you can afford to lose and a blessed helping of lady luck.

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Look you are right in the grand scheme of things. I am no expert but the idea with technicals is it is a study in psychology, or how people have responded in the past. So the $1100 is the height of the flagpole to the flag, which traditionally is the target for the next leg up. Greed and fear of loss are all built into the patterns. I always like the tempering posts from Count Christov on greed in relation to gold, they should be kept in mind.

 

Behaviour can be predicted to a degree and I do like the Myers Briggs personality profiling as a way to assess how people with behave. Combine this with the Kiersey temperaments and there is a basis for further prediction. Carl Jung was the one that started down this track, and sharing his personality type means I am also driven to attempt to understand this stuff. But I appreciate that others have no interest, or more importantly in some cases, no ability to reach the point of understanding. Of course this can be predictably assinged to certain personality types as well :-P

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As for housing or gold. Value always requires a counterparty, which both gold and housing share. But residential housing is further constrained because boundaries are a man made construct. I think Exter had it right.

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Gold is money, property is investment. Gold is only beginning its bull run for this decade as its revalued, or more to the point valued in ever increasing debased currencies. Both property and gold are a hedge against paper inflation, but property isn't portable, has to be sold at a big discount to get your wealth out fast (within 24 hours), incurs holding costs (rates, r&m, etc...). Property is not so great hedge against deflation.

 

Charles Evans, Chicago Fed president, chief architect of QE3, just strongly hinted at unsterilised QE4 starting January to buy US treasuries.

All economies today are equal in production as the exchange rates are the real manufacturers of profit.

All paper currencies will debase, and gold will always be traded and demoninated in the currency that settles oil sales.Today the USD is overvalued and they will devalue it, so gold esp in USD will continue to trend up.

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Re-hashing what I have previously posted, the only way to invest in gold is by buying gold mining companies with dividends. Buying gold and/or silver and holding it is speculation because they don't produce any income, they cost you in storage. In saying that, its worth having a lazy $10K in gold and silver. A lot more divisable than property and more easily liquidated, especially in a crash environment, although, the talk of a crash has gone on for so long now that I don't even believe it will happen now, I do believe the fundamentals, in Auckland at least stack up. That being said, the country/rural property is very well priced, I would rather buy that than an Auckland shack.

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David thanx for a very good piece of work. What i particularly like is that you have data to back up what you are saying, that's great. Much better than those Journalists that make all sorts of claims whithout explaining how they arrived at their opinion.

Looking at Bernards project at journalism.org.nz is that when you pay for a publication you are paying for all the bad journalists as well as the good ones. So the bad ones can ride on the coat tails of the good ones. Perhaps what Bernard should look at is people paying for journalists rather than the publication then the bad journo's will have to get their act together or find another job.

Anyway, well done David.

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How about doing the same graph for Gold v's Farm Values?

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... and the same for oil, food, other commodities, etc... and you will discover that gold is the nearest proxy that exists in the real world for non-interest bearing 'money' over the longer term...

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'.. all economies are equal in production as the exchange rates are the manufactures of profit.'

 

That is why everyone wants a strong USD. They buy much of the worlds stuff. Currencies dont trade on imports and exports (and haven't for years) they trade for 'useage'.

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How much income does gold pay?

 

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but its gambling....I can go to TAB and win a fantastic amount or lose a shed load.

ie its not a productive enterprise.

regards

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TAB is better - no tax on winnings!

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...in that case crossing the road is gambling, putting money with a finance company is gambling, having money in the bank is gambling, holding cash is gambling...

 

:-)

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Ignoring the road, of course all investment is gambling.....you put your capital at risk in order to get a return.  However there are two types of return, interest/dividend and capital gain....gold is purely a capital gain, no?  so you are betting gold will go up in value, however at times it has lost.

Deposits ie in the bank is really as close to a risk free rate of return that there is...hence I would use that as my bench mark....

Actual cash is like gold, to be held for a specific event, deflation. After the deflation, then yes its likely there will be inflation, hence hard assets...sure then gold.

regards

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.. driving on the road is putting your life at risk... one has to assume that a drunk fool is not coming around the corner on the wrong side...

Yes - gold itself is capital gain (the mining shares are income). You dont have to necessarily bet gold will go up in real value - just that paper will go down. At times cash has lost, as often inflation has been higher that the net interest rate.

 

Gold, unlike actual cash, is held for wealth preservation over long mutli-year time frames. Yes - cash is probably better to hold for short term time frames.

 

The battle concerning gold is not being fort out on the street. Thats not where its true value is recognised. The largest pro gold (and growing) group are those who want a world reserve currency independant of the performance of the US economy. Currency reserves held by non-Americans are a debt of the US government and by extention a debt based on the US economy promise to grow/prosper/perform (something many are starting to think twice about). The fact that a debt reserve asset pays interest is a little joke in these banking circles, any local paper currency can move much more against the USD than the interest gained. Golds real value is in terms of its reserve currency status to replace the USD as its the only real alternative.

 

I own gold mining shares paying regular dividend, gold exploration spec stock, physical bullion and an investment property (and yes - I keep a small amount of cash) - all for different reasons. It is more likely at some point that markets will just shut down and gold will be revalued at a point much much higher. I think the system has to collaspe first though, and I think we may have a few years to go yet... Like I have said before and I agree with John Williams - the US is likely to see hyperinflation before deflation, as to the other currencies - it depends on how closely they are tied to the USD... even today there are comments on interest.co.nz that the NZD is overvalued - by the time the NZD gets to near par with the USD RBNZ will be into their own QE version as there are calls already for that.... currency debasement is a zero sum game...

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Your gold paid you 10% of its value in cash did it?

No, of course it didnt.

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Property is as good as gold before considering the property's rental income!

 

Yet a property's rental income produces as much wealth as capital gains.

 

Say the original yield in 1992 was 6% net of expenses.  Assume rental inflation of 4%pa (cf 5.5%pa capital price inflation).

 

Then just summing the rents you get 180% of the original price.

 

If they had been used to pay off an average mortgage at 7%pa (and the house was owner occupied) then the additional benefit to the homeowner would be 335% of the original price (ie substantially more than the capital gain).  Total tax free gain 535% over 20 years = 9.7%pa post tax.

 

If it was a rental investment purchased without mortgage and the profit from rents invested in TDs and any subsequent income taxed it would still be a 215% return over 20 years just from the invested rental income plus the 200% tax free capital gain, ie 415% return after tax over 20 years.

 

So in reality gold would need to be well north of NZ$3200 for it to be better than property.

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... but looking to the future... if you think capital gains will continue at the same rate on investment property (tax free) that would be a big call. I have an investment property in Auckland (the only place where fundamentals are in place for long term real capital growth), but I wouldn't be taking that bet accross the board. Was up in the Bay of Islands for a break last weekend, properties are still selling there below GV in many cases...

Most property investors are well into their 50s+ and are in essence saving for retirement. The thing is - will gen x (which I am a part of) be willing to pay what the the BBers expect when the baby boomers retire? Will property prices keep accelerating away from incomes to the same degree as last decade?

 

For the risk and hassle I think gold as an asset will outperform property gains as the underlying fundamentals are more in place for gold. Rent just basically is a heavy subsidy for the mortgage and other holding expenses....

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You sound like Warren Buffet.  His stock has halved while gold has multiplied 6 fold.  "gold produces nothing, etc, etc."  The whole while he and his buddy, Charlie, say that gold is "only for 1939 Jews.

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Iron ore prices soon to be half- you think an Aussie crash will do nothing to the property market, here?  http://www.cnbc.com/id/48923482/Bear_Case_Iron_Ore_to_Hit_50_in_2013

 

Huge ripple effect as China shuts down steel production- who will buy Aussie mined goods?  Give it a year, we'll find out- nobody http://www.reuters.com/article/2012/09/27/us-china-baosteel-idUSBRE88Q03720120927

Meanwhile property still is a hedge against inflation, like gold.  However, the huge bubble creasted since 2001 will offset significant future capital gains in porperty. 

The same cannot be said ofr gold, which offsets money printing.  The trend of # of ounces to buy a house will continue.  In 1980, what was it?  50 ounces? 

 

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and the hedge against deflation is?

regards

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gold.  It actually performs better in deflation, relatively speaking, for purchasing power.  If gold drops 20%, houses drop 40%, etc. 

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My Q was whats the best in deflation....not which loses the least out of the two you choose.

So in buying power while actually deflating cash is king....it gains buying power and if you define a Depression as 10% deflation per year while gold is losing 20%, cash is gaining 10%, a 30% difference.

Of course this time around we dont know how ppl will re-act...there maybe a ready market for gold even with distressed sellers.......(which is why I'll assume gold lost value in the past.....forced sales).

As for housing if we accept 40% for housing also consider that if that initial house price isnt in bubble territory then the loss is 40%...if it is in bubble territory of x1.5 to x2 then a real 60~75% loss is suggested....

kind of severe...

regards

 

 

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I dont know where you get your info that gold will drop in deflation? Deflation kills banks and people will look for other means of storing wealth - not subject to the banking mess, that means gold will probably go up not down, esp if the paper gold market collapses...

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I didn't realise that we had people on this site with psychic powers.  They are going to buy gold just before "an extreme financial and usually inflationary event" and then sell it just afterwards.  This means that they will front run all the other millions of people who are also hoping to do the exact same trick.  I sincerely hope that they give everyone else on interest.co.nz the heads up so we can piggy back with them on these wealth protecting trades.   

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And such an extreme event will see gold just cease to trade at all (you need sellers to trade), Central banks will close down the market anyway, as we live in NZ, we will probably not know until we wake up in the morning and all our banks are shut. The central bank gold leases (and other paper gold claims) will all be cancelled 'for the greater good' as much of that gold never actually left CB vaults... and with gold possession actually is 90% of the law at the end of the day.

 

As a last resort gold will save the day. The new reserve currency may well be a gold backed USD as the US Treasury holds the US gold stock (not the US CB - the Fed). If the Treasury placed the gold with the Fed the BIS would then claim it.

 

FYI Swiss banks pushed though a law that they didnt have to return customers phyiscal gold - just pay them cash for it... so the plans are already mostly in place...

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Do you not think that ppl such as us who watch wont be looking at the same numbers and drawing similar conclusions as the RB?  Personally I think the collective think here is one of the huge strong points of Interest.co.nz....better than the RBNZ etc IMHO.  The RBNZ strikes me as one huge collective same think, a monoculture, not good. Interest.co.nz on the other hand has lots of conflicting thoughts and opinions that I for one test to see if they are valid.

Paper gold claims are crap....not worth toilet paper, IMHO.  Anyone who doesnt  pay cash and keep it off the radar, is at risk and you dont need millions of it anyway.  On top of the RB taking it I also think we'll find that a lot of these exchanges are leveraged with multiple ppl all thinking they own the same gold bar....cant see it ending well.

I dont think gold will ever back a National currency...if it goes to that stage there will be no National currency. We'll trade is gold and silver....but thats pretty extreme end game, Mad Max type stuff in which case lead will also be worth a lot.......

regards

 

 

 

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This guy was correct about the gold bull 20 years ago, and has been proven correct so far, for the last 11 years- next stop gold $3500.  This guy is as close to a crystal ball as you can get.  He predicted gold would raise to $1764 an ounce by 2011...in 2001, when gold was $250 an ounce. 

http://www.jsmineset.com/

His latest recommendations include taking possession of your stock certificates, if you own stock, in case your broker, or bank holding your stock, goes bust.  See MFG global and recently Peregrine financial. 

And yes, this whole thing will probably blow-up, and will pave the way for a new currency.  Plans are being made in China, with Russia.  Methinks that's where it will arise.  See "Jim Willie" for details.  He's been watching it unfold for a few years now.  In fact, how many of you know that Australia, just a few months ago, made a deal to cut the USD out of transactions, and deal directly with the Chinese yuan?  If this does not signal a future event, then I don't know what else could make it more clear.  

The USD being supplanted as the world's reserve and trade currency will pave the way for a collapse, that paves the way for a new currency.  This is not my prediction.  See "Jim Willie" 

 

 

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How do you take possession of your stock certificates?

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Just scroll back on his blog, he's been urging everyone for some weeks now to "get ready" and the steps to take to demand "in hand" ownership of stock, rather than "street" ownership, where the broker holds it for you (until they go into receivership, and they lose it for you, too). 

There are some Aussies on the blog, and the answers should be there.  NZ equivalent must exist.  You do not want your stock held for you in "street name," and the broker will discourage you at every step from taking delivery of your stock, because they make money by holding it for you.  The problem is when their bets don't work out as planned. 

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Hi steven,

I think the RBNZ will be too slow to act and it is a drop in the ocean. There will be no private gold confiscation - unlike the 30s its just impractical as hardly anybody actually holds it outside of ETF and big vaults etc.... (most who have 'gold paper investments' will never profit from gold's coming historic rise).

Yes paper gold claims are probably the next big fraud waiting to happen. 'I think we will find a lot of exchanges are leveraged multiple times' - you don't need to just think that - thats what has happened and evidence points to that - see links above for examples of the GLD scam - its holding comex unbacked paper, counting bars twice, then there are the naked shorts.... it's been a mess in the making for years...

The first National currency to back with gold will be the new reserve currency. China understands this very well. It doesnt need a full gold backing ... just like the Euro when it was introduced didnt need a full backing - (just 15% of reserves held by the ECB) but the worse things get the higher the backing it will need.

Remonetising gold will be the way out of the GFC and some will wonder why they didnt see such a simple answer earlier? But things will need to get a lot worse before they get pushed into that corner yet - after all they can still print trillions more debt obligations yet, so gold lies silent and still... well now it starts to awaken... Gold will be too valuable to practically trade for day to day necessities and gold is already trading as a currency in itself... you dont need to trade the gold - only the ownership of it.... nor does it need to be mad max stuff we can transition to a new currency system whenever people are ready for it and there are smart minds working on this very issue - not to go back to the old form of 'gold standard' but to a new better version...

 

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LOL, take it literally why dont you.  Inflation never happens over-night, ie in a matter of many months and more, unlike deflation / depression which when you look at 1929 as a classic happened very fast.   I expect that so Im in cash and deposits...

Serious inflation and even hyper-inflation will take time to build, show me several examples of that not being the case, I havnt fond one.  I expect it to happen if it does after the huge deflationary shock...so plenty of time yet, 3 to 6 years out.

NB timing is always very hard....just about everyone says that and I certainly have found that.  I sold out my shares 2.5 years ago and its still not happened...but im 15%+ up on the current prices, so Ive lost nothing in waiting and in fact gained.

Front running ppl, you dont have to front run the masses most are obviously blissfully un-aware.  Just look at the banks economists for the last 3 or 4 years telling us to fix, fix! FIX!!! just look at how that turned out, and  by the "bright" ones no less.

If I go into gold then I certianly wont be telling anyone, though as long as its not hyper-inflation I'd go property personally, hard to figure that one out though.

Tis simple, make your plan, mark your inflection points and stick to them, I have.

regards

 

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It occurs to me that there are upper limits on housing prices, based on peoples income.  No such liit exists for gold.

 

That is to say I think that Hugh's metric of median house price to median income is a good indication of where house prices can go in the future.  The "median multiple" has gone from from around three (affordable) in many places in the western world to much higher, but very few places are above ten or so.  Places that have approached such a high ratio (parts of California and Florida for example, from memory) have since taken a dive.

 

Then again, if credit becomes cheaper the median multiple can increase, potentially without limit, but fewer and fewer people will be able to pay off their loans.  Essentially the majority would never own their properties unencumbered.  Maybe that's where we are going!  Lots of people can afford to borrow a billion dollars to buy a shack if the interest is low enough and the credit is there; just they will never have a hope of paying off the loan.

 

Gold?  Well nobody knows for sure; it does have great qualities as money, as a store of wealth, but it's actual direct desirability it limited - as many point out you cannot eat it; though if you had a bar made from it you could hit someone else over the head and take their food. :-)   That is assuming they have food to take...

 

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In deflation, rents flatten or go down, taking property values down with it.  Not good if you have a mortgage.  Can you survive the downturn and make it to the rebound? 

In inflation, property values, and rents go up as a percentage of income- to a point.  Then, a disconnect happens once inflation really takes off- where property values, and rents, flatten, as the price of everything else goes up, like food. 

So if you don't like gold, then storing food is actually a great hedge, because, in any event, you can eat it.  Fortunately for our little country, we have an abundance of food walking around on 4 legs, and a not so dense populace. 

Some good thinking point from the book about the Wiemar inflation/depression "When Money Dies."  

"when it happened, it took longer to arrive than people thought, and when it did arrive, it happened faster than people thought it would." 

You make a good point that it is hard to time this market.  I agree.  At this point, I would rather be a year, or 2 years early, than to be a day late, once the shift happens.  While our banker masters try to get that "perfect balance" of inflation vs deflation, history says that it will never work, or it only works until it does not anymore, at which point things get rather messy. 

If you go and look at the charts, imagine we are having this conversation in September of 1921.  Did the average Wiemarian know what was about to happen to their country?  Much less their investments? 

As a percentage, some of the other notable charts in that book were the percentage allocation to various outlays.  And, interestingly enough, food became the #1 expenditure.  Rent went from 30% to 2%.  I posted the chart in the past here.  I'm just too lazy to go find it again.  Wait, here it is...let me correct that- rent was .2%  while food was over 90%!!!! 

The purchasing power of money collapsed, and the value of real goods adjusted.  Those who had real goods could name their price, like food.  Some real goods, on the other hand, adjust better than others.  Like gold.  And food. 

"better to have a prostitute in the house than the corpse of a dead baby in the crib" http://www.amazon.com/When-Money-Dies-Devaluation-Hyperinflation/dp/1586489941"

Imagine trying to plan your buying, as a grocery store owner, if the food you sell does not raise enough money to replace it.  The shelves would be empty as quickly as people could leave work on Friday and drive to the grocery store, money in hand.  The grocery store, itself, could not afford to re-stock with what they just took-in, a real nightmare.  That's why inflation, ultimately, is worse than deflation. 

 

 

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