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Gold or house?

Posted by Richard on October 6, 2010

Gold hit another new record today. Richard E. Band recently noted (in a subscriber-only journal entry) that the price of gold has been rising as if a "tsunami of inflation" were about to hit, but in the here and now, quite the opposite is the case (emphasis added):

Recently, Enid and I spent a night at the brand-new Country Inn & Suites just south of Toledo, Ohio. Beautiful room, freshly decorated, better-quality furniture. Breakfast included. Cost of our stay: $59. That's less than I would have paid 10 years ago in the same region, when we were visiting our girls in college. (And there was no free Wi-Fi then, either.)

Sure, prices continue to rise for some products and services (notably, healthcare and education). However, broad swaths of the economy are locked in a vicious deflationary undertow.

Meanwhile, gold goes its merry way. Today, it costs 138 ounces of gold to purchase a typical existing home in the United States. Ten years ago, the same house cost 498 ounces of gold.

In other words, home prices have dropped 72% in terms of gold. Is gold the better buy now, or a house? To anyone who focuses on long-term value, the answer should be obvious.

That's a compelling factoid, and one worth thinking about before placing that order for Gold Eagles, Maple Leafs, or Krugerrands.

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