Gold is already overvalued. Gold is a relic, almost worthless to society apart from electronics (mostly non-recycled environmentally damaging small devices like cellphones) and in the production of shiny trinkets. There are plenty of substitute metals that can replace gold in those cases. Gold is unproductive and not income producing (no yield). Gold is highly speculative - the only reason to invest in gold is if you believe a greater fool will buy it off you later for a higher price. Gold production is very damaging to the environment too. I can't understand the attraction of digging up huge quantities of gold at great cost to the environment, and then locking it up in a vault. What's the point of that... who benefits? At least houses benefit society.
RPData Rismark and ASX introduce daily house price index
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Gold is already overvalued. Gold is a relic, almost worthless to society apart from electronics (mostly non-recycled environmentally damaging small devices like cellphones) and in the production of shiny trinkets. There are plenty of substitute metals that can replace gold in those cases. Gold is unproductive and not income producing (no yield). Gold is highly speculative - the only reason to invest in gold is if you believe a greater fool will buy it off you later for a higher price. Gold production is very damaging to the environment too. I can't understand the attraction of digging up huge quantities of gold at great cost to the environment, and then locking it up in a vault. What's the point of that... who benefits? At least houses benefit society.
I look forward to swapping 100 of my shiny trinkets for a house in the not too distant future
Nobody will accept gold for a house. You'll need to sell the gold to a greater fool first, in exchange for real money, and then use the real money to buy a house. Good luck.
hobo-jo keep up the excellent posts.
You provide some truely great thoughts for reflection (although i might not always agree with them)
You provide some truely great thoughts for reflection (although i might not always agree with them)
Compared to what Shadow? Do you mean priced in green plastic notes (or digitally recorded numbers) which have no intrinsic value?
Assuming we are talking physical and in Australia then you'll see no argument here (Gold deposits in Vietnam and some other countries do return a yield).
Most buyers of physical do so to protect their purchasing power or increase it if they feel that Gold is undervalued in fiat currency or priced against other assets. A term deposit might look like it has a reasonable return, but as recently shown on MacroBusiness they provide little to no return after inflation and tax:
http://www.macrobusiness.com.au/2011/12/chart-of-the-day-negative-rat-returns/
A recent quote from Warren Buffet:
"If you own one ounce of gold for an eternity, you will still own one ounce at its end."
In a world where currencies and now even government bonds are suspect I believe physical Gold will continue to be bought as one of the few assets which will preserve purchasing power and has no counterparty risk.
I would say the same of property investors who are purchasing negatively geared properties and using interest only loans.
As for whether Gold is speculative, it depends on how & why it's purchased and what percentage of your portfolio it makes up. I don't see a 5-10% allocation to physical metals as speculative (although they do make up a much larger % of my assets).
Does this really matter? Assuming that the spot price reflected the ratio described, what situation do you envisage where I won't be able to negotiate such a trade one way or another?
Thanks IV, likewise I find many of your posts an interesting read.
ibring up GLD and SVR because they are indexes created to trade illiquid products.
GLD and SVR movements also determine the the physical price now. movement on GLD affect the bullion price, to the point of manipulation which is the reverse of what was meant to happen. same with SVR.
an index for aussie housing could simulate a similar, historical precedent.
this is my concern.
GLD and SVR movements also determine the the physical price now. movement on GLD affect the bullion price, to the point of manipulation which is the reverse of what was meant to happen. same with SVR.
an index for aussie housing could simulate a similar, historical precedent.
this is my concern.
Compared to real money - i.e. the stuff you use to buy things.
That's only a small portion of home owners. All gold owners are speculating on the price rising. Anyway, you're comparing a leveraged asset with an unleveraged one. Someone who borrowed to buy gold would be speculating more than someone who borrowed to buy an investment property. At least the IP buyer has some rental income.
If you sold your gold now and bought back into the property market, would you break even in your sell to rent experiment (taking buying/selling/stamp duty/renting costs etc into the equation)? Was it worth it?
dont bet on it, shadow. when currencies collapse, people only accept gold and silver and stones.
10 years ago, ZBW was thriving. now you need 0.3g of gold to buy a loaf of bread.
food for thought.
At what price do you consider Gold undervalued at, overvalued at and just right? And what are the reasons for these valuations?
Because generally speaking these are how the assets are purchased. A majority of IP buyers do so with a mortgage. A majority of physical Gold buyers do so with cash.
I am well ahead. I didn't quite catch the peak of the Adelaide market (and the suburb which I sold in), sold late 2009, prices peaked mid 2010, however prices are now lower than when I sold + saved a bundle by renting instead of paying a mortgage + my net worth has appreciated significantly through PM investments + IMO the Gold rally is far from over as is the decrease in Adelaide property prices.
shadow,
if you were leveraged 400:1 on a physical house, and not getting rent, would you care?
The one to short is either Genworth or QBE, not this index or the banks. Look at what happened to Genworth shares during GFC1, and they have far greater exposure to Australian market than to US market. They will be toast!
http://au.finance.yahoo.com/echarts...n;ohlcvalues=0;logscale=off;source=undefined;
yep, if QBE goes much lower, say consolidates under 1070, ill short it for sure.
Genworth can see it coming too, so reducing their Australian exposure and freeing up cash. http://www.smh.com.au/business/genworth-to-sell-part-of-australian-stake-20111106-1n1v9.html
This 1 unit of measurement by itself is insufficient to call bubble or no bubble in either asset. However it's pretty obvious that we are around middle ground for this ratio (with neither overvalued/undervalued against the other), but yes I do think Gold will head into an overvalued state against Australian property. There is a good chance we could see the ratio return to around 100:1 (GOLD:SYDNEY HOUSE) as we saw in 1980, which would require the price of Gold to quadruple from here or a combination of falling house prices and rising Gold price.
Here is a longer term chart:
The previous highs for gold in 1930's and 1980 corresponded to a DOW/ Gold ration of 1:1, it's currently at 7.6. ..... History has a way of repeating its self..
i suggest you read the fine print before actioning this strategy.
but i guess thats what makes a market.
For myself i am increasing my positions on QBE.
What is Real money??? Because the stuff you are talking about is an IOU and does not exist without debt. And for the record l have an investment property that l would be happy to sell for gold.
People buy gold to protect there purchasing power, why do you buy Investment properties?...Do you realise how much purchasing power you have lost in property in the last 10 years, it's even more in the last 5 yrs.
Governments around the world have been eroding the purchasing power of money, by borrowing and printing trillions of dollars, gold and silver cannot be printed, so are some of the few protections that the average investor can take, think of it as insurance...
I don't understand the context of the question. Why 400:1? Why no rent?
Money is a medium of exchange.
Gold was a medium of exchange in the past, as were shells and salt, but not any more.
If it's unleveraged you might be able to work out some sort of private swap, but if it has a mortgage, the bank will want real money.
I haven't lost any purchasing power in property during the past 6-7 years that I have been invested in property.
If the gold speculators lose faith in gold's value as a store of wealth, lose faith in their belief that they can always sell for a higher price to a greater fool (that faith is all that keeps the price high), then gold could become almost as worthless as other historical forms of money, like shells and salt.
Doesn't matter. Comparing unleveraged returns on one asset with leveraged returns on another asset is an apples vs oranges comparison.
OK, well good luck. Just don't do a 'Hired Goon 2008' and celebrate the beginning of the crash only to watch prices jump 20% over the next couple of years.
And don't forget the stamp duty you'll have to pay to get back on the ladder.
And gold doesn't seem to have been rallying for the past six months...
Feel free to rub it in my face when that happens
You didn't answer my question. For Gold to be overvalued you must have some valuation method you've used, so at what price do you consider Gold undervalued, overvalued and just right (right now in the current environment)?
Buy and hold leveraged Gold would have far outperformed property over the past 7 years regardless of property receiving an abysmal yield.
My base case scenario is not a crash, never has been although I think there is the potential for one given the right conditions/events playing out. Prices already a few percent down from my sell price and I expect at least another 10-15% from here. The price reductions along with rising Gold price will easily cover the stamp duty, thanks for your concern though
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