Gold is up...will RE follow?

Question

Gold broke the $1000 an ounce barrier last week and is zooming up over $1100 as I write this. It seems to me that the money that the Fed's loose monetary policy is going to come home to roost. If I recall the 1970's accurately we got high inflation in commodities first followed by real estate.

Anybody have any better recollections? Looks like another bubble and crash to come shortly after.

Account Closed · Answer

I suspect that the gold investment and real estate investment (as a hedge) are two different motivations at the current time.

The gold bugs are buying because they have no faith in the dollar, or in the US government's ability to controll the economy.

Real estate is a hedge against inflation, so real estate will follow when interest rates go way up. Medium interest rates move people out of real estate because it raises the monthly payment. But high interest rates moves people into real estate because it (should) hold its value with the rate of inflation, ie: loss of the value of the dollar.

With high inflation, you get a different motivation to buy gold. those buyers are looking for hard assets that will keep pace with inflation.

My opinion: it is a very good time to buy real estate for buy and hold. It's still on sale. Gold, on the other hand is NOT on  sale right now.

Michael Zuber · Answer

I suspect we just have a timing issue. The most popular trade has been to sell dollars and buy other currencies or assets tied to the dollar like gold or oil.  This is a very-very crowded trade and it could reverse in a hurry (See Dubai credit issue).  People could flood back to the dollar and US Treasury's driving down rates even lower (Crazy I know).

But to the question at hand I suspect Gold will have its time in the sun through 2010.  But then people will realize that Gold just stores wealth and doesn't create wealth and they will go looking for assets that produce returns like real estate and gold will loose 30% in the matter of weeks (Gold takes the stairs up and the elevator down).

Let the lemmings run gold up to $2,500 I will be buying real estate in 2010 and then when the lemmings come back in 2011 or 2012 I take the artificial pop in my net worth ... Should be fun

Jim Wineinger · Answer

Be careful here, Gigi. As a kid in a candy store is soon parted with his money, he turns around to leave and sees another better deal, but cant return what he has. Then consuming what he bought, he gets sick, because he could not get a return of his money.

Basically what eddie is referring to in that it does not matter how sweet a deal is if you can not rent it, it will just end up consuming other money while it just sits there and melts in your pocket.

The economy is moving into territory where six month from now may be the same as today.

We used to speculate on how home prices will affect the economy, and now we are speculating on how the economy will affect home prices.

Account Closed · Answer

I believe gold and silver will go up more. Real estate will drop more. 
                    
                    Gold is looking a bit parabolic for my taste over the last few weeks, but I also believe after some set backs, we have a long way up, before it crashes hard. I believe the days of 3 digit $USD gold are pretty much gone. I certainly could be wrong.
                    
                    During the Dubai scare over thanksgiving gold tanked and shot right back up in the same day. It was not the dollar people fled too. 
                            
                    I am with MikeOH. Gold/Dow ratio somewhere around 1:1, Maybe 1:3. Not sure where that happens. At that point it will be time for me to sell gold/silver (if it is not contraband), and exchange it for something else of value.

Jeff Tumbarello · Answer

the thing to also focus on with gold and silver. There is no belle curve, just a  right triangle

Jeff Tumbarello · Answer

Since history has a way just repeating itself. I thought I would share a little history.

HARD ASSETS - the best storage vault for an inflating faux currency. Most confuse hard assets with only precious metals and jewels, the truth simply couldn't be more distant from that belief. Buy FARM tools second, you never have to hide them, as they require WORK to turn them into useful products. Everybody knows what needs to be first.

there is history in similar times for the collecting of metals as assets.

Nobody gets ahead of the Big Pen:
http://en.wikipedia.org/wiki/Executive_Order_6102

If all said at the link were true, The great depression wouldn't have happened, right? Gold Standard was fully in force.

Just as its market-makers hit their crescendo, EO 6102 pulled the BIG punch bowl without a moment's notice.

The doubling of inflation in a heartbeat occurred only one six months later; TGD was ON and took full force and effect from that day forward. There was no notice for that little BIG PEN act, either.

The "sales techniques" of the gold marketersâ€™ were mirrors of today.

Fear's Currency is NOT acceptable on the streets of commerce even in the worst of times. It is forever the currency of the darker alleys and is forever sold as the "storage of real wealth" to the doomed that fall for the bait every time.

http://en.wikipedia.org/wiki/Nelson_Bunker_Hunt

Polaroid and Kodak got in the same game while the Hunt Brothers were the "Mystery Investors" in gold and silver.

The Hunt Brothers ended up as convicted felons who were "almost broke" with about $1MM left of their formerly-vast fortunes, the outcome at retail is why you can't find a Polaroid ANYTHING these days. Both Kodak and Polaroid filled warehouses with silver to "hedge" against the rising 
cost - @ $45-40/oz.

When it sank to $5, the hunt for those nasty speculators started, the devolution to starvation was already well under way in the "investor" world of Mo-Mo silliness gone again terribly "wrong", though it was actually EXACTLY right as it returned to its intrinsic value (that value as applied to an end use with value of its own.

please share any and all rants, thoughts, view points....
Illegitimis non Carborundum

Jim Wineinger · Answer

In trying to answer that question, without going into the political side of things that have been injected here, I would answer that all bubbles not matter how they are created (in this case by the government stimulus) will at some time burst and that the govt role is to protect us from external foe (thus the wars) but not to protect us from ourselves. That is a responsibility that we all must learn.

Jim Wineinger · Answer

Ah, such it used to be when values (dollars) were backed by gold, but then came inflation and recession at the same time. Now we are at a crossroads again and this time with gold rising and no confidence in this dollar, it will continue to plumit. Although this is inflationary, when compared to the pre-plummit period you will also find the RE values will still actually be down.

Therefore, we just may have rising gold and inflation and stable or lowering values, not the rising values that would traditionally occur.

Moshon Reuveni · Answer

Gold goes high indicates possibility of inflation  and in an inflation I when money lose its value real estate  should come up.

Gold is up...will RE follow?

Most Popular Reply