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Home Price versus Gold Price

One of the best investments over the past decade has been buying gold. In 2001, gold was selling for $270 per troy ounce. Today, it is at around $1,600. There could be several reasons for the increased demand for gold:

  • Rising wealth in emerging economies (Russia, China, India, Brazil, for example) and the desire for conspicuous consumption.
  • China’s desire to buy commodities and something real rather than buy the shaky Euro-denominated financial paper assets or the U.S. dollar-denominated IOUs.
  • Safe haven in light of economic uncertainties.
  • Inflation hedge in light of massive printing of money in many countries.

Irrespective of the reason, one ratio worth a careful look is the median price of existing homes versus the price of gold, since people have historically also looked to tangible real estate as a hedge against inflation. This ratio is at one of the lowest points in modern U.S. history. To get us back to the 35-year average of 299, will the home prices finally recover or will the gold price tumble in the upcoming years?

Lawrence Yun, PhD., Chief Economist and Senior Vice President

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

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Comments
  1. Buck

    They are inversely proportionate. In a weak economy, home prices are likely to fall and gold is likely to rise. For this ratio to increase soon we would have to see a recovery of biblical proportions in a short period of time.