What Do Gold, Oil and Real Estate Have In Common?

By
Real Estate Technology with Realogy Holdings Co


Gold Barrels of OilThe price of Gold has skyrocketed. Anyone who hasn't been living under a rock knows that the price of Gold has increased ten fold over the past ten years.

The price of oil is no different. In 2008, the average price of a gallon of gasoline was $1.61. Now it's triple that in many cities.

What many people do not realize is that the prices of Oil and Gold are not going up.

How can that be?
It's simple. When the value of a product goes up in its natural cycle, it does so becuase of high demand and low supply. Conversely, when inflation happens, it simply takes more of your dollars to purchase the same product.

For instance if today milk is $3 per Gallon and Bread is $2 per loaf, and tommorow Milk is $6 and Bread is $4, folks usually say the price is going up. What's really happening is that the value of milk and bread stayed stagnant against each other. The thing that changed is that it took more of your dollars to purchase them.

That's what happens when the dollar's value goes down. It seems like prices are rising, but what's really happening is that it simply takes more of my dollars to purchase the same items.

So why does the value of a dollar go down?
It's because the government keeps printing more of it by lowering interest rates and bying bonds.

When governments start priting funny money, people who have lots of money in the bank get scared that the value of their moeny is going to shrink. To hedge against this concern, they convert their cash into assets that have intrinsic value like GOLD and OIL FUTURES.

When it comes down to it, United States money is just worthless paper that somebody somewhere says is valuable, so we all act like it is. When folks lose confidence, they start moving their money into assets other than cash.

Is gold and oil the only answer?
Besides Oil and Gold, Real Estate has real potential. Oil and gold are good in the short term, but Real property offers a hedge against a crumbling dollar, and it can be enjoyed in ways that neither of those things can be. Plus, when is the last time anyone ever got a huge tax break for owning gold?

This is just something to think about.

Posted by

Ray Garrett

Independent Real Estate Recruiting, Training, and Marketing Consultant
ZipRealty
cell:  804.615.4378
www.ZipRealtyCareers.com

Licensed in Virginia

Member: National Association of Realtors, Virginia association of Realtors, Richmond Association of Realtors.

 

Comments (2)

F U
nobody - Alamance, NT
Dead

Hum...Interesting perspective. I believe if we can get the price or value of Gas at the pump down below $2:00 most of our problem will solve themselves. A few minor other problem may be solved by putting all Politicians on Commission based on Performance and pay their own Benefits...Oh isn't that what we do?

Oct 05, 2011 09:14 AM
Ray Garrett, Jr.
Realogy Holdings Co - Richmond, VA
Director of Productivity and Innovation

Janine,

Unfortunately, the only way to get the price of oil to come down is to increase the value of the dollar.  Oil prices have not increased compared against other commodities.  What has happened is our dollar now just buys less of it.

Oct 05, 2011 09:21 AM