Posted: 7/2/2014 4:21:21 PM EDT
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My father purchased his first house in 1963. It cost him $25,000 dollars. It was a 3000 sq. ft. home, with four bedrooms and three bathrooms in a new suburb near a large city. Gold was $35/oz. in 1963, so this house cost about 700 ounces of gold. Today a similar home in a similar location in Texas would cost about 190 ounces of gold. If gold is undervalued, why the big difference in ounces?
Anyone ever thought like this – is gold undervalued or housing overvalued, or both? ETA: Let me phrase it a different way How could gold be undervalued based on this example? |
| I understand in the example I give gold would be overvalued. But everyone I listen to says gold is going up up up. 3,000 an ounce, 5,000 an ounce, 10,000 an ounce. I don't hear anyone saying it would be 35 an ounce. So my question is has anyone who is investing in gold thought about it this way? If so what made you buy? |
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PM's shouldn't be used as investments, they should be used as hedges and wealth diversification.
I can't afford gold, but I do buy silver when I can. I don't even want it really, I want to be able to give it to my daughter when she gets older and wants to buy her first house or something. Hopefully it does it's job and hedges against inflation of the dollar. |
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Quoted: PM's shouldn't be used as investments, they should be used as hedges and wealth diversification. I can't afford gold, but I do buy silver when I can. I don't even want it really, I want to be able to give it to my daughter when she gets older and wants to buy her first house or something. Hopefully it does it's job and hedges against inflation of the dollar. |
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Quoted:
My father purchased his first house in 1963. It cost him $25,000 dollars. It was a 3000 sq. ft. home, with four bedrooms and three bathrooms in a new suburb near a large city. Gold was $35/oz. in 1963, so this house cost about 700 ounces of gold. Today a similar home in a similar location in Texas would cost about 190 ounces of gold. If gold is undervalued, why the big difference in ounces? Anyone ever thought like this – is gold undervalued or housing overvalued, or both? ETA: Let me phrase it a different way How could gold be undervalued based on this example? To me that whole concept does not hold water and is simply used to sell gold. In the past gold has spent many years essentially stagnating and in recent years (decade) it has been on a tear. It's not because of inflation. After gold dropped in the Fall of 2008, it quickly ran up from around $800 to $1,900. It then dropped back to $1,300 even quicker. It's hard to explain that other than by supply and demand. I own a tiny bit because I like it; I would not buy it as an investment. |
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The dollar was backed by gold beginning in 1900. This means that the ratio of dollar to gold was essentially fixed during that time, (with a few exceptions- twice during world war I, during the great depression, etc).
http://en.wikipedia.org/wiki/History_of_the_United_States_dollar Beginning in 1968 the US began to move away from the gold standard, and therefore the ratio of dollar to gold began to float much more freely. This allowed the US to begin to print money without anything to back it, and began the process of inflation we have seen ever since. I believe that the law of supply and demand governs both gold and the dollar. Because we cannot make gold out of thin air, but we can make dollars out of thin air, ultimately gold can only go up if we continue to print dollars with abandon. There will be variations up and down depending on politics, or market conditions or manipulations, but ultimately, the number of dollars it takes to buy an ounce of gold will continue to climb as long as we continue to print dollars with nothing to back them. What your example tells us is that gold has not only hedged against inflation, but its value has increased over the time period you describe (at least in terms of the housing market). I would guess that this is because people understand the concept of supply and demand above, and gold has become a more desirable hedge as time has gone on. That would mean that gold has not only acted as a hedge, but has also been a good investment as well. It has not only preserved its value, but has increased that value in comparison to the housing market. There are many other possibilities: Gold was undervalued to begin with, gold is overvalued now, housing was overvalued to begin with, or is undervalued now, or perhaps because of modernization the cost of building a house has effectively gone down in comparison to the value of gold. I think the last option is very likely and probably accounts for the majority of the difference you see. |
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Quoted:ETA: Let me phrase it a different way How could gold be undervalued based on this example? Anything which is traded in a more or less free market is correctly valued, there is no over- or under-valuation. The price it sells for at any given moment is the "correct" price. Your example simply shows what PM bugs are afraid of, the devaluation of currency. The reason to put away some PMs is to preserve purchasing power in the event of currency crisis. In those situations it's better to have a stack of silver coins than a jar full of paper bills no one wants any more. These kind of crises have happened far more often in human history than the Mad Max total collapse that many preppers seem to be gearing up for. PMs don't make you rich, they preserve your wealth. Think of them as long term storage for money. |
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A simple answer:
Houses are stacked full excess costs since then. Taxes, labor costs (insurance), fees, permits, and I will add taxes again. Because of the addition of these costs housing is way "overinflated" then 50 years ago. If you removed the taxes and the required by law added costs to doing business I believe you would start to see a truer picture of what that home is worth. Where as gold doesn't accrue additional costs to own and it is a raw material. The process to refine it and dig it out of the ground has actually become more efficient. Comparing the cost of raw gold to a finished house is like comparing a pile of lumber to a hand crafted piece of jewelry. You are not comparing apples to apples. Now find a custom made solid gold necklace with the same amount of gold as it would cost to purchase the raw materials for the home and you might see a very different picture. |
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If the dollar were still backed by gold, it would probably be 10,000 an ounce or we wouldn't have a 17 trillion debt. The only reason we are able to
print the money that we do is because it isn't backed by shit...good faith of the U.S. is it...and that is eroding quickly. |
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Quoted:
If the dollar were still backed by gold, it would probably be 10,000 an ounce or we wouldn't have a 17 trillion debt. The only reason we are able to print the money that we do is because it isn't backed by shit...good faith of the U.S. is it...and that is eroding quickly. Agree, this is the only reason why things have not gone the way of Greece or Argentina. |
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Anyone ever thought like this – is gold undervalued or housing overvalued, or both? It's both. Gold is undervalued and housing prices are severely inflated. If you compare the price of gold to other assets you can determine whether it's overvalued or undervalued. Historically gold is at equilibrium when the spot price is right around 25% of the Dow Industrial Average. Right now gold is sitting at roughly 7% of the Dow. The extreme inflation of most asset prices (stocks, housing, etc) has me thinking it's getting to be a good time to move more into gold. Do some google work on wealth cycles. You'll see how a lot of $ can be make by dumping stocks at their peak, moving into gold until it peaks, then moving back into stocks... and so on. Pretty interesting stuff, to me anyway |
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Asset inflation is out of control due to an unprecedented creation of fiat money.
We are in uncharted territory. I don't think anybody knows what is going to happen. I think it is safe to say there is no safe way out of this financial mess and anything of value that can not be produced by the stroke of a pen, will go up in price, that includes durable goods and PMs, and food, and anything else that is either required to live or is viewed as a store of wealth, and PMs are viewed as a store of wealth. I also think the view of investment is changing for some. Do the people that think the stock markets are in a huge bubble really consider those markets to be an investment? I don't. |
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The value of a particular currency has more to do with the interest rate attached to it than anything else. If we get to a point where the Fed starts raising interest rates and no other central bank is, the dollar will strengthen and asset values will deflate, especially gold. Go back and look at the gold chart during the late 70's. It got up to somewhere around $2,500 an ounce in 1981 on an inflation adjusted basis then got all the way down to $250 an ounce in 2001. I view gold as simply another currency.
BTW, we've had 2 different gold standards before this current fiat system we're under. Both collapsed. We also had a great depression while on the gold standard. There is nothing magical about gold. I see it as simply a hedge and would hold no more than 10% in a portfolio. Personally I'd rather own the house. You can at least live in a house. |
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All I can say is that, in 2008, when gold was around $600/oz., there was a loud GD voice screaming, "BUY GOLD NOW!" I kinda wish I'd listened. Yep, but that was when gold had dropped quite rapidly and substantially, together with the stock market. It goes against human nature to buy something that has been dropping like a rock, no matter how many times you hear "buy low, sell high." It's just easier said than done. Posted Via AR15.Com Mobile |
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Yep, but that was when gold had dropped quite rapidly and substantially, together with the stock market. It goes against human nature to buy something that has been dropping like a rock, no matter how many times you hear "buy low, sell high." It's just easier said than done. Posted Via AR15.Com Mobile Quoted:
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All I can say is that, in 2008, when gold was around $600/oz., there was a loud GD voice screaming, "BUY GOLD NOW!" I kinda wish I'd listened. Yep, but that was when gold had dropped quite rapidly and substantially, together with the stock market. It goes against human nature to buy something that has been dropping like a rock, no matter how many times you hear "buy low, sell high." It's just easier said than done. Posted Via AR15.Com Mobile Well, try to toughen up, because we'll likely have the opportunity again shortly after the next election cycle... 
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If the dollar were still backed by gold, it would probably be 10,000 an ounce or we wouldn't have a 17 trillion debt. The only reason we are able to print the money that we do is because it isn't backed by shit...good faith of the U.S. is it...and that is eroding quickly. Becuase the dollar isnt backed by gold, silver or anything else tangible, those that run the printers enslave you by forcing you to take as payment something that was not created by labour. FerFAL |
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Anything which is traded in a more or less free market is correctly valued, there is no over- or under-valuation. The price it sells for at any given moment is the "correct" price. Your example simply shows what PM bugs are afraid of, the devaluation of currency. The reason to put away some PMs is to preserve purchasing power in the event of currency crisis. In those situations it's better to have a stack of silver coins than a jar full of paper bills no one wants any more. These kind of crises have happened far more often in human history than the Mad Max total collapse that many preppers seem to be gearing up for. PMs don't make you rich, they preserve your wealth. Think of them as long term storage for money. Quoted:
Quoted:ETA: Let me phrase it a different way How could gold be undervalued based on this example? Anything which is traded in a more or less free market is correctly valued, there is no over- or under-valuation. The price it sells for at any given moment is the "correct" price. Your example simply shows what PM bugs are afraid of, the devaluation of currency. The reason to put away some PMs is to preserve purchasing power in the event of currency crisis. In those situations it's better to have a stack of silver coins than a jar full of paper bills no one wants any more. These kind of crises have happened far more often in human history than the Mad Max total collapse that many preppers seem to be gearing up for. PMs don't make you rich, they preserve your wealth. Think of them as long term storage for money. Gotta disagree here on pretty much every point. Now if we were talking almost anytime from the the mid-1900's on back...yup, storage of wealth that would preserve purchasing power. Back then an ounce of gold or silver would pretty much buy the same goods and services universally throughout time. For this reason, it was a great method of preserving wealth/purchasing power. But lets fast forward to the present. Our currency isn't backed by anything. Buying power of the dollar continues to plummet and PM's do almost nothing. They are largely stagnant and have been for over 3 years in a row now. In the grand scheme of thing 3yrs isn't much. But during that time the dollar is certainly moving...why not PM's? My theory, which when presented with $3 will get you a cup of coffee (my how THAT saying has changed over time!!), is that PM's no longer are seen as the storage of wealth/purchasing power on the massive scale they used to be. Sure, there's a percentage. But I'd be willing to bet the proportion of people today that store it vs. the proportion that stored it throughout history is drastically reduced. Instead of being seen for it's hedging powers I think we're down to almost entirely it's manufacturing/industrial uses. This would help to explain why it's staying constant despite the dollar buying less. Because it is now merely a consumable good instead of a storage of wealth. And as for the free market...everything is the right price. That's sort of like saying if I shoot the neighbor's dog...well...that's what you get in a free society. No, it's actually against the law we as a society have agreed on. Same thing applies to the intentional manipulation of PM's which we've seen time and time again. Price/value is getting to high?...no no no, let's change the margin or offload a ton of it or print paper silver/gold that's not backed by anything. But wait...you can't just print more gold/silver right?? The difference with PM's and such is that the issue is too complex for the majority of the population so we as a society just let it keep going. EDIT: Forgot to add about the debt. That keeps climbing in the trillions, the ceiling just keeps getting raised, and the global market/govts just accept it. They have to! This will never change so there's another reason to ditch PM's...just not needed as the dollar will be accepted forever. This is just my observation since losing a bunch and basically breaking even with PM's. No longer a fan and am now forced to wait until they shoot up again, if that ever happens while I still have a pulse. -Emt1581 |
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My $0.02 is that gold is simply a commodity that became very popular as a "safe haven" when the economy almost melted down. It has not acted at all as a hedge against the stock market -- instead it has frequently tracked the market. It has also not acted as a hedge on inflation -- the run from $300 to $1,900 does not reflect a similar increase in inflation, nor has the decrease from $1,900 to $1,300 reflected a deflation. It is really a question of supply and demand, and it could fall even further out of favor. According to Kitco charts, jewelry accounts for the vast majority of gold use.
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As with so many things the .gov has hosed over since the 2008 manufactured "crisis", the price of gold and silver don't actually represent the supply vs demand construct that it used to. Now, we have "paper" gold and silver markets that far exceed in volume what is actually physically available for delivery. The industrial uses of either are not driving the price of either. If it were only the industrial use driving the price, they both would be about a third of what they are now because there isn't any industrial demand - all the global economies suck. However, there is significant demand for people who have lost / are losing faith in fiat currencies. (Just look at the sales figures for gold/silver Eagles from the US Mint )
I've said this before: Buying physical gold (and holding it yourself!) is a method for the compact storage of wealth. Silver is less compact and is more useful as an everyday "currency" should the present one become problematic. Some consider holding gold as a hedge against inflation, I would say it is more like a hedge against rampant/hyperinflation. Garden variety 1-2% per year inflation probably isn't a good enough reason to hold gold. OTOH, 10-100% inflation is. If you decide to buy gold, buy it and hold it yourself. As the so-called expert future trends analyst Gerald Celente (who found out the hard way courtesy of MF Global) says, "If you can't hold it, you don't own it." (This also applies to cash you may have in a bank or investment fund, but that's another story.) |
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Gotta disagree here on pretty much every point. Now if we were talking almost anytime from the the mid-1900's on back...yup, storage of wealth that would preserve purchasing power. Back then an ounce of gold or silver would pretty much buy the same goods and services universally throughout time. For this reason, it was a great method of preserving wealth/purchasing power. But lets fast forward to the present. Our currency isn't backed by anything. Buying power of the dollar continues to plummet and PM's do almost nothing. They are largely stagnant and have been for over 3 years in a row now. In the grand scheme of thing 3yrs isn't much. But during that time the dollar is certainly moving...why not PM's? My theory, which when presented with $3 will get you a cup of coffee (my how THAT saying has changed over time!!), is that PM's no longer are seen as the storage of wealth/purchasing power on the massive scale they used to be. Sure, there's a percentage. But I'd be willing to bet the proportion of people today that store it vs. the proportion that stored it throughout history is drastically reduced. Instead of being seen for it's hedging powers I think we're down to almost entirely it's manufacturing/industrial uses. This would help to explain why it's staying constant despite the dollar buying less. Because it is now merely a consumable good instead of a storage of wealth. And as for the free market...everything is the right price. That's sort of like saying if I shoot the neighbor's dog...well...that's what you get in a free society. No, it's actually against the law we as a society have agreed on. Same thing applies to the intentional manipulation of PM's which we've seen time and time again. Price/value is getting to high?...no no no, let's change the margin or offload a ton of it or print paper silver/gold that's not backed by anything. But wait...you can't just print more gold/silver right?? The difference with PM's and such is that the issue is too complex for the majority of the population so we as a society just let it keep going. EDIT: Forgot to add about the debt. That keeps climbing in the trillions, the ceiling just keeps getting raised, and the global market/govts just accept it. They have to! This will never change so there's another reason to ditch PM's...just not needed as the dollar will be accepted forever. This is just my observation since losing a bunch and basically breaking even with PM's. No longer a fan and am now forced to wait until they shoot up again, if that ever happens while I still have a pulse. -Emt1581 Quoted:
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Quoted:ETA: Let me phrase it a different way How could gold be undervalued based on this example? Anything which is traded in a more or less free market is correctly valued, there is no over- or under-valuation. The price it sells for at any given moment is the "correct" price. Your example simply shows what PM bugs are afraid of, the devaluation of currency. The reason to put away some PMs is to preserve purchasing power in the event of currency crisis. In those situations it's better to have a stack of silver coins than a jar full of paper bills no one wants any more. These kind of crises have happened far more often in human history than the Mad Max total collapse that many preppers seem to be gearing up for. PMs don't make you rich, they preserve your wealth. Think of them as long term storage for money. Gotta disagree here on pretty much every point. Now if we were talking almost anytime from the the mid-1900's on back...yup, storage of wealth that would preserve purchasing power. Back then an ounce of gold or silver would pretty much buy the same goods and services universally throughout time. For this reason, it was a great method of preserving wealth/purchasing power. But lets fast forward to the present. Our currency isn't backed by anything. Buying power of the dollar continues to plummet and PM's do almost nothing. They are largely stagnant and have been for over 3 years in a row now. In the grand scheme of thing 3yrs isn't much. But during that time the dollar is certainly moving...why not PM's? My theory, which when presented with $3 will get you a cup of coffee (my how THAT saying has changed over time!!), is that PM's no longer are seen as the storage of wealth/purchasing power on the massive scale they used to be. Sure, there's a percentage. But I'd be willing to bet the proportion of people today that store it vs. the proportion that stored it throughout history is drastically reduced. Instead of being seen for it's hedging powers I think we're down to almost entirely it's manufacturing/industrial uses. This would help to explain why it's staying constant despite the dollar buying less. Because it is now merely a consumable good instead of a storage of wealth. And as for the free market...everything is the right price. That's sort of like saying if I shoot the neighbor's dog...well...that's what you get in a free society. No, it's actually against the law we as a society have agreed on. Same thing applies to the intentional manipulation of PM's which we've seen time and time again. Price/value is getting to high?...no no no, let's change the margin or offload a ton of it or print paper silver/gold that's not backed by anything. But wait...you can't just print more gold/silver right?? The difference with PM's and such is that the issue is too complex for the majority of the population so we as a society just let it keep going. EDIT: Forgot to add about the debt. That keeps climbing in the trillions, the ceiling just keeps getting raised, and the global market/govts just accept it. They have to! This will never change so there's another reason to ditch PM's...just not needed as the dollar will be accepted forever. This is just my observation since losing a bunch and basically breaking even with PM's. No longer a fan and am now forced to wait until they shoot up again, if that ever happens while I still have a pulse. -Emt1581 Actually the reason for the PMs being what they are and especially gold is because they too are fiat currencies. Physical gold has been oversold...Only god knows how many times. The paper market for gold is what has kept the price down. This is the vehicle in which the treasury and bank of England manipulate the market. Easy to dump worthless paper on the market in order to keep the price down. The day of reckoning will come however. Good luck cashing in that paper gold after the fact. Buy physical...nothing else. |