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?