Recently by Jeff Clark: Time to Board the Gold Stocks Train?
I dont have a crystal ball, but Ill bet I can tell you how much a house will cost in five years.
UBS released some interesting research last month on how much gold it takes to buy the average-priced home in the U.S. I put the data to a chart, and its quite revealing.
Whats interesting is that as much as house prices have fallen and as much as gold has risen, todays ratio is still above the historical average. You can see were at the same number today as 1970, and yet look where it was 10 years later when gold peaked.
Heres another interesting observation: the ratio was 100 during both high inflation (1980) and high deflation (1930). The connection between house prices and gold prices during economic extremes seems awfully compelling.
So, if gold peaks and real estate bottoms in about five years, then a house will cost you about 100 ounces of gold in 2015. Maybe it will take ten years, but the point is, I think we can count on the ratio moving lower this decade, and probably significantly so. Even for the modest budget, 100 ounces almost sounds manageable.
Think golds too volatile to use as a savings vehicle? Better reconsider that assumption, because were convinced a third dynamic will be at work: a falling dollar. Ergo, you can sock away lots of cash for your offspring, but if its denominated in dollars, it wont buy them as much as gold will. Think about it: if gold doubles, that means your dollars will have lost a significant amount of purchasing power.
The fine print here, of course, is that you sell when the gold price is high, and that you pay the tax on the sale. But I would counter that argument by saying that gold is probably not stopping when it doubles from todays levels.
If were right about the direction of real estate down and Doug Casey is correct in his projection for the gold price, then I think Ive got a solid plan to buy my kids a house.
July 28, 2010
Jeff Clark is editor of Casey's Gold & Resource Report in Casey’s Daily Dispatch.