I have always known that gold is a store of wealth and was taught that, absent short term fluctuations, an ounce of gold was – throughout history – always about equal to a decent suit of clothes.
Now, Jeff Clark explains that gold can also be related to the cost of a home – although quite a few more ounces are required than a suit.
If you want to give each of your children the same value then gold or silver is a great way to denominate it.
Giving one child $10,000 for instance, then giving the next child $10,000 (at the same age of the child) 2 years later, makes little difference when the rate of inflation is low like now. CD’s pay almost nothing so the older child benefited little.
But go back to 1980, with inflation running at 10%+, and the child #2 gets screwed to the tune of about $2100. If the first child was able to buy a car with that $10,000 in 1980, child #2 probably would be about $2100 short of cash to buy that same new car in 1982.
With gold, though, that problem goes away. Yes, the price of gold fluctuates, but if both children keep the gold, 50 years later they both have the same gift.
And if you buy the gold for child #2 at the same time as buying it for child #1, but wait to give it to them, you can argue that you spent the same on both also.
Enough from me, take it away Jeff.
How Many Ounces Of Gold Does It Take To Buy A House?
Jeff Clark, Casey’s Gold & Resource Report
I don’t have a crystal ball, but I’ll 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 it’s quite revealing.
What’s interesting is that as much as house prices have fallen and as much as gold has risen, today’s ratio is still above the historical average. You can see we’re at the same number today as 1970, and yet look where it was 10 years later when gold peaked.
Here’s 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 gold’s too volatile to use as a savings vehicle? Better reconsider that assumption, because we’re convinced a third dynamic will be at work: a falling dollar. Ergo, you can sock away lots of cash for your offspring, but if it’s denominated in dollars, it won’t 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 today’s levels.
If we’re right about the direction of real estate – down – and Doug Casey is correct in his projection for the gold price, then I think I’ve got a solid plan to buy my kids a house.
And if you want to start on that home savings plan, I arranged for some seriously discounted bullion in the current issue of Casey’s Gold & Resource Report, which you can check out risk free here..
