The Connection Between Gold and Real Estate

Gold and Real Estate
by: Ben Tseytlin - on Gold & Bullion

A lot has been written on the gold/silver ratio, and what it entails, but what about the ratio between gold and real estate? With recent price increases, it is important to provide a brief historical analysis so that investors can know what to look for and how to profit.

Real Estate Versus Gold Prices

Today, the price for real estate, especially on the eastern and western seaboard of the USA, is sky high. To be sure, part of this is due to inflation, which results from quantitative easing, but it is also caused by the Fed reducing rates. Lower rates make it attractive for people to take out mortgages since the interest payments will be affordable.

Many experts believe that the USA will soon enter a recession which will push both the gold/silver ratio and gold/real estate ratio to incredible lows. This means that anyone who has a decent collection of bullion or numismatic coins might be presented with the opportunity to purchase a piece of property outright, without having to go into debt.  Why is this this case?

In 1980, when gold prices spiked it took about 85 ounces to purchase a standard house in the United States. Today, you’d need approximately 272 ounces. However, the difference between the 1980s and the 2010s is that today practically everything is in a bubble (except precious metals). Rarely before has this been seen in history. Additionally, a growing number of investors are recognizing the precarious state of the global financial system.

How Bad Is The Global Financial System?

Banks and governments around the world are implementing negative interest rates and the printing of money. Even worse, debt loads around the world are unbelievably high. In the USA alone, it is estimated that college graduates owe at least $1 trillion in student loans. This doesn’t include derivatives, auto loans, credit card debt, public debt and unfunded liabilities such as Social Security. The European Union is deeply indebted as well.

You can be certain that both bankers and governments are doing everything they can to keep the global economic ship afloat for as long as possible. They paint a rosy picture in the news and boast of favorable stock market gains and job numbers (without bothering to mention that many of those jobs are unskilled low paying positions). The stock market gains go largely to fabulously wealthy Wall Street investors and firms and have little impact on the American middle and working class.

If the global economy worsens, we could see a scenario where homeowners (many of whom took out mortgages that they couldn’t afford), lose their properties at a time when silver and gold is spiking. The real estate market would crash similar to 2008 but it would be much worse this time around for those who are unprepared. Those who are prepared, who were wise enough to invest in physical precious metals (and perhaps mining shares) would see once in a lifetime profits, and would be able to acquire properties for a fraction of what they were selling for just a few years ago.