What's Better - Short Sales & REO vs. Gold?
Historically gold has served as a store of value throughout most of history so it should come as no surprise it is a favorite among contrarian investors and those seeking a safety "hedge" against both inflation and deflationary pressures...but does gold really measure up to its reputation? Before putting their hard earned money into the hands of an ETF or placing big orders for bullion, short sale investors and others seeking real returns on their money would do well to evaluate the actual numbers - not just the hype. Let's begin by examining a few facts:
During the last bout of major inflation, the average price of gold went from $41 per ounce in 1971 to over $610 in 1980 before reaching a high of $875 per ounce. Today, gold is selling for approximately $900 per ounce...a mere 50 percent increase in 29 years. Adjusted for inflation gold would need to be selling for $2,000 to $2,500 per ounce in order to reach its former high's...clearly, not a solid investment for those seeking "safe" returns. On the other hand, in 1971 the average home sold for roughly $28,000. By 1980 the average selling price increased to roughly $75,000 and by 2006 the average American home was selling for over $240,000. Despite the recent downturn in the real estate market, homes are still selling (on average) for over $180,000.
To provide some perspective, in 1980 it required approximately 85 to 122 ounces of gold to purchase the average home in the United States whereas today you would need 200+ ounces of gold to purchase the average discounted home. Additionally, gold provides zero tax advantages when holding and depending upon the form, may be lost, stolen or require additional storage fees. On the other hand, real estate provides favorable tax advantages and may generate additional cash flow through rentals, leasing or sales of raw materials and assets included in the purchase price of the property.
Further complicating the issue is the advent of ETF's or other paper-backed gold proxies. Unlike taking physical possessions of gold, the use of ETF's, gold stock and other substitutes may allow investors to take advantage of leveraging to increase profits while eliminating much of the storage issues surrounding gold however, the resulting "I.O.U." negates much of the "safety" surrounding gold as an investment hedge. Real estate provides investors and opportunity to use leverage while taking physical possession of actual tangible assets - not merely some type of I.O.U. Even experts agree the amount of physical gold is nowhere near the sums required to fulfill even a fraction of the obligations currently outstanding; hence, the disparate trading between physical sales of gold versus paper gold sales in the recent months.
In summation, investors searching for tangible assets with real rates of return would do well to turn to short sales above gold especially during uncertain economic times.
See you on the other side!
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