House of Gold

A look at real estate... as measured in real money.

(Source: Getty Images)

Joel Bowman, checking in today from Armação dos Búzios, Brazil...

Welcome to another Sunday Session, dear reader, that time of the week when we gather around the virtual watering hole to thresh out the concerns of the day and solve the world’s problems... one casual caipirinha at a time. 

Before we get into today’s special “Group Research” issue... a quick shout out to Dan Denning, who covered this spot last week with a fascinating, in depth look at Halford Mackinder’s World Island... and the historical, even ongoing, battle for its Heartland. (If you missed Dan’s column, check it out here.)

As Bonner Private Research’s macro analyst, Dan looks at the “Big Picture” events that shape our world and, ultimately, impact your financial freedom. 

From his Trade of the Decade work... to the BPR Strategy Report... and even his thousands of miles, boots-on-ground research for the Bolthole Report... Dan’s job is to help us all connect the dots and make sure you stay ahead of the trends. 

If you’d like to receive Dan’s research notes every Friday – as well as Tom Dyson’s market notes on Wednesdays, plus monthly investment reports, private Zoom invites to Bill’s personal network and all the rest... you can do so by becoming a member right here. (If you’re already a member, no worries. Keep calm and carry on.)

As for those who wish to remain on our mailing list “gratis,” fear not! Your regular Sunday Sessions will remain free... and your regular weekend correspondent will do everything he can to ensure they are worth every penny.

Speaking of “boots-on-ground” research, let us turn to this weekend’s feature column... penned by a special line up of guest editors... which is to say, by you (or at least, your fellow readers). 

As you may recall, in last Saturday’s issue, Higher for Longer, we looked at the year-to-date returns of both the Greenback and Gold. Typically, the latter is measured in the former, in the form of “dollars per ounce.” 

Of course, this is simply a matter of convenient expression. You might price the Midas Metal in any number of currencies... or you might measure it vis-à-vis the bridesmaid metal (the gold/silver ratio, or GSR) or stocks (Tom Dyson has written extensively about the Dow/Gold ratio... members can review his Gold Report for details).

What we’re really doing when we “price” something is comparing it to something else. Gas might be measured in dollars per gallon... or miles per gallon. If you’re a smoker, you might measure cartons of cigarettes in dollars. If you’re an inmate, you might measure protection in packs of cigarettes. It depends on what it is you’re trying to figure out. 

For most Americans, the largest investment they’ll make during their life will be their primary place of residence. Their home. Typically, we measure real estate in dollars (or yen, euros, loonies, aussies, what-have-you). But the value of fleeting fiat may well ebb and flow dramatically over the course of one’s lifetime. Why not measure man’s biggest investment in history’s longest serving money?

We wondered as much aloud last weekend... 

What about [real estate] prices in your neighborhood? Do you recall what you paid for your first home (in oz) compared to what it’s worth today? It would be interesting to compare real estate across the country – and the world! – ounce to ounce.

Dear readers responded from sea to shining sea... and from abroad, too! A small sample of their thoughtful anecdotes we thought we’d share with you today. Please enjoy...

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House of Gold

By the Bonner Private Research Readership

“The desire of gold is not for gold. It is for the means of freedom and benefit”

– Ralph Waldo Emerson (not a Bonner Private Research reader per se… but nonetheless a good quote to kick things off.)

Reader Lowell L. writes...

I just want to add my 2 cents (2 ounces) to the discussion of the number of ounces of gold to buy a house years ago to the number of ounces to buy the same house today.  My own experience is somewhat different than the two examples that were cited in the email.  I think my experience really illustrates the long term value of holding gold. 

When I bought my house in 1977, interest rates for the typical 30-year mortgage of the time were at 8% to 9% and on a rocket ride up to 14 to 17%.  I was lucky to lock in at the time to an 8% mortgage.  Incidentally, when the opportunity presented itself in the coming years to get an introductory rate of 4%, I quickly paid off the loan and rolled over to a 4% loan.  Eventually, I paid off the mortgage in less than 15 years, so not too bad.  Back to the issue at hand of gold versus value of house cost.  In 1977, my house was worth 365 ounces of gold.  At today's prices, my cost would be (drum roll) 365 ounces of gold.  My house has appreciated at the same rate as the price of gold.  

To me, this illustrates exactly what gold should do.  It holds its value across the long term regardless of the ups and downs in the value of the dollar.  Over the long term, whether the dollar is strong or weak, you can count on gold to hold its value.  At least, it did in my case. 

Thanks for all of your great insights.  Love the various newsletters I get from Bonner and company.

Reader Raymond S. writes...

If I have the math right: I bought a house in 1998 for $380,000 and gold was about $279/oz. That's 1,362 oz.

Today Zillow says that house goes for $939,300 (I moved out of state and sold it in 2010 for about $470,000 - Yikes!). KITCO says the spot price for gold is $1676/oz. That's 560 oz.

Again, yikes!

Reader Frank Gaines writes...

I bought my first house in 1960 at a cost of $18,000, a small 3-bedroom ranch with a one-car garage.  I don't know what it is worth today, probably about $200,000.  I built my second house in 1963 at a cost of $12.50 per square foot, or $34,000.  That house sold recently for $550,000.

My current townhome I purchased in 2010 for $135,000, now worth $315,000.

All because of the fed's unrelenting nonsense of printing money we don't have.  Before the fed's existence in 1913, there was very little inflation.  Since then, nothing but inflation.

Two professors from the University of Chicago --Fisher and Price -- did a study in the 1960s using 100-10 year figures.  They found that if inflation was zero percent then short-term interest rates would be 1%, AAA corporate bonds 2-3%, and return on stocks would be 8%.

If that is the case currently with inflation at 8% (we know it is more) then short-term rates should be 9-10%.  They are at 2%.  Something has to give, and I don't think it is inflation going back to 2% anytime soon.

Reader Jeff writes...

Purchased our house in June 2002 for $260,000 equal to 825 oz’s of gold at that date. Gold was $315.

Today’s date Sept 2022, the medium home value on Maui is 1.2 mil, one down the street sold for that and this is much better. Gold price today is $1679 so you could buy this shack for a mere 714 oz’s of gold.

A savings of 111 oz’s or $186,369. Wow!

Dennis DesLauriers writes...

This was an interesting exercise in determining the value change in terms of oz. of gold between the purchase price of my home in 1989 and the real market today.

Bought my house in June 1989 for $595,000 or approx. 1630 ozs. of gold.

Today's approximate house value is $725,000 or approx 430 oz of gold.

Thanks for the fun.

Reader Jerry V. writes...

Hi. A house I purchased in Colorado Springs in Nov of 1992 has appreciated 356% in dollar terms today. I could have purchased it in 1992 with about 354 ounces of gold. Today, (using $1675/oz) it would only cost 318 ounces, a 10% decline.

From Hong Kong, Reader Peter C. writes...

Although I am a big gold bull, and have approximately 15% of my liquid investment capital in gold, where I live, residential property has done way better than gold. 

I happen to live in probably the most volatile property market in the world.  One where the market is rigged by the government to ensure that land and property prices remain high and trend higher over time.

That place is Hong Kong, where the government owns and controls all land and also gets as much as 30% of its revenue from land sales and land/property related sources (stamp duties, transfer fees, change of use premiums etc).  Not only that but the currency is pegged to the US$.

Fiscal reliance on land means that other taxes can be kept low. Volatility here is the watchword. 

Since the onset of the GFC in 2007, Hong Kong residential property has experienced seven “corrections” of between six or seven percent and twenty five percent.  In my time in Hong Kong since 1980 we have experienced two downturns of between 60% and 70%.

Despite this the first apartment I bought in 1982, and where I still live, has moved from US$100,000 to US$6.4 million in value.

In 1984 it would have cost 224 ounces of gold to buy that property. Today it would be around 3823 ounces.  Yes, about 17 times more gold today.

One of the few examples of having been a big winner in a market rigged by a government.

Reader Tom Sanders writes...

Very interesting. I bought my first home in California in 1970 for $30k when gold was $35/oz. That equals 857 oz. of gold. 

At today’s price of gold the value of that home is $1.542 million. 

That house has just sold for $1.5 million a month ago!!

I’m a firm believer in Tom’s investment position! Long term fan of Bill and Tom.

Reader David M. writes...

Purchased May 2002: $279,000
Gold apprx: $320 (lowest price over the past fifty years)
House/Gold: 1184.38

House today (Zillow): $760,300 
Gold apprx: $1675 (within 8% of the all time high)
House/Gold: 453.91

I'll still take the house. As much as I'd like to live in a house made of gold, it wouldn't be as efficient... plus I think it would draw lightening strikes.

And finally today, Reader Wayne H. writes...

Hey Joel,

Interesting way to look at the insanity of 2022 (decades of Fed lost-mindedness on display).

My home in Washington State would have taken 474.36 ounces of Gold at that time in 1995. Today, that much gold would value said home at over $800K. While real saleable value today (down 20%+ in 6 weeks) is around $400K.

Thanks for your fun, insightful thoughts. I missed you Sunday, but look forward to your addendums during the week.

Joel’s Note: Thanks to the many dear readers who wrote in with intel from their neck of the woods. Of course, real estate is always about “location, location, location,” but it’s interesting (and fun!) to hear from readers all over the map just the same. 

Perhaps we’ll conduct a few more of these little Group Research Projects in the future...

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And now for some more Fatal Conceits...

In this week’s Fatal Conceits podcast we caught up with the reliably, politically incorrect speculator, Doug Casey. 

As always, the original International Man was not short on controversial opinions on everything from Central banking…

“An idiotic institution which should be abolished…”

...to college education…

“Worthless degrees of indoctrination…”

... to the fate of the US Dollar as the world’s reserve currency…

“I think that half or three-quarters of the world’s countries are going to find alternatives to the dollar and the Swift payment system. And this is going to devastate America.”

If you missed the podcast, you can listen in here. As always, feel free to like, comment and share our work with friend and foe alike...

Doug Casey on America's Rude Awakening

And that will do it for another Sunday Session. Bill will return with his regular daily missives tomorrow. In the meantime, we’re off to suffer some more of Brazil’s horrendous coastline.

Whatever you’re up to this weekend, be good... or be good at it. 

¡Saúde!

Joel Bowman