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How Many Ounces of Gold Does it Take to Buy a House?

Commodities / Gold and Silver 2010 Jul 27, 2010 - 03:07 AM GMT

By: Jeff_Clark

Commodities

Jeff Clark, Casey’s Gold & Resource Report Writes: 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...

© 2010 Copyright Casey Research - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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