Gold vs. Real Estate vs. Paper

I hear this question a lot and I would like to share with you my opinion on the matter.

I decided to write about this topic today because I recently came across an article on Yahoo! Finance with the title “5 metals that may be brighter than gold”. I’ve included a short snippet of the opening statements here:

5 metals that may be brighter than gold

To give you proper context on this subject, let me start by helping you see where the author of that article, Tim Begany, is coming from. Tim is an experienced investor and financial journalist whose financial planning strategies seem to be grounded in paper investments (read about Tim here). As a result, the suggestions he makes for alternatives to gold do not surprise me because it seems to represent a large section of the financial advising and planning industry. He is a ‘paper’ guy – he talks about how most precious metals investors purchase exchange-traded funds (ETF’s). Why anyone would suggest an alternative to gold as a store of value in the first place boggles the mind, yet it continues.

“Gold tends to be all the rage in times of economic uncertainty.” While Tim begins with this statement, I feel it sums up my point of view completely. Let me put it this way – what do national governments use to back up the value of their currencies? Gold bullion. Not stocks, not ETF’s, not mutual funds. So, as an investor, why would you entertain anything less? Think about it. If a country like China (one of the largest economies on the planet) is selling its US dollar reserves to buy gold bullion, and has even started advising its citizens to buy gold bullion, why would you bother with the paper investment?

The reason why gold is so powerful during economic downturns is because it is a tangible asset. As of November 1st, 2010, an ounce of gold is worth US$ 1,352.80. That means you can carry around 1 ounce of gold in your pocket. As currencies around the world are devalued, the price for gold goes up. In fact, as stocks fall, the price for gold will explode because this is when everyone will be running to gold. And for the investor who has been buying gold all along, this is when you would consider selling because when EVERYONE is buying, you’re close to the peak. That’s where the bubble will be, not now, not yet.

It is important to remember however that gold, just like everything else, is cylical. Real estate, commodities, stock markets go up and down – the whole boom and bust syndrome. Hindsight being what it is, the best time to have bought gold in this cycle would have been between 2000 and 2001. You’re not too late however, even if you buy now, you can still make a tremendous profit. Relative to gold, the stock market has been either stagnant or falling – which means that stock prices are going up only because there is so much money being pumped into the economy – which also means that prices for consumer goods go up due to inflation.

Gold performance over the past 20 years

I had a significant holding in gold and silver before I traded it in for real estate. Read and understand history: Rome fell because it devalued its currency (the same thing the ‘civilized’ countries of the world are doing) and those with gold, silver, and real estate were the ones who survived the fall out.

Ever heard the line “History repeats itself”? Ever wonder why that line keeps repeating itself?

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