The Difference between Gold and Real Estate

The Difference between Gold and Real Estate
by Alex Merced

 Is there a gold bubble? This seems to be the questions that media pundits are pushing more and more now, so I thought I'd like to discuss some of the fundamental differences between Real Estate and Gold as far  as it's bubbliness (I'm making up words). Many people critique gold proponents saying that saying that gold will continue to go up is like the real estate proponents pre-bust saying real estate will always go up so here are somethings to think about.

Asset Mobility

Gold is a very mobile assets, I can have it stored and I can carry it around with me no matter where economic activity is moving people geographically. Homes on the other hand are not easily mobile, I just can't pack up my house and take it with me wherever I go. In this case if economic activity moves somewhere else geographically it's hard for me to sell it so I can pursue where growth and jobs are because others are doing the same driving down demand for my particular house. This is a problem that's non-existent with gold.


Supply

During the height of the housing bubble there was a lot of housing construction going on which increases the supply which lowers the price of any good, and despite all the inflation from the central banks these last few years the supply is still repricing itself versus the money supply. You can't manufacture gold, it can only be mined and the amount that can be mined is essentially fixed so this kind of inflation of the gold supply is not possible as it was in housing so it's relationship versus the money supply is a one sided relationship mainly changing when money supply changes since the gold supply grows slowly and stable.

Liquidity

Gold is fungible (one ounce of gold is generally no different than the next), which makes Gold much easier to trade in markets and base futures, Funds, and other investment vehicles on. This creates a liquidity in the gold market when combined with it's other features makes it a very appealing store of value. Houses on the other hand is a heterogeneous good, meaning every house is a unique product which must find a particular buyer which can be difficult depending on several geographical factors outside of the house itself (neighbors, local schools, local economy).

Growing Demand

More and more of countries we thought were part of the third world are becoming industrialized so the access to medical professionals like dentists are increasing and so is the demand for luxuries like jewelry both which use large amounts of gold. Not only is there a growing consumer demand, but also many central banks are beginning to purchase gold and strengthen their reserves as the US Dollar undermines it's reserve currency status which central banks will most likely hold indefinetly reducing the supply of gold effectively for other uses. Houses on the other hand have shrinking demand since there is a glut in the supply from the excessive construction during the boom, and many people rather rent or share living space till economic prospects allow people to expect the ability to maintain a bigger home.


Overall, in the future some of these factors may change, this the current state of things and as long as this is the case I'll continue hold and purchase gold and other natural resources.

The Real Immigration Issue

Being a first generation American I have an appreciation for the immigration issue and it's complexities. Although at the end of the day I feel that many of problems in immigration isn't immigration but the struggle over remaining resource in a economy that is getting weaker and weaker everyday from a growing government. So in a debate at RonPaulForums.com about immigration I had this to say:

Correlation is not causation, there are two main problems economically with
the current state of immigration.

1) The Welfare State - due to having a welfare state
citizens and non-citizens are becoming more and more a drain on taxpaying
citizens and non-citizens... you have to dismantle the welfare system. The
solution to this issue is a supply response, not a demand response. As long as
there is a supply of government services, there will be a demand for it whether
it's domestic or foreign. We must dismantle the supply of government services
which taxpayers must pay for. Volunteered from private sources are encouraged
and a not a drain on those who choose not to volunteer their limited resources.
Also as far as immigration goes, these types of programs attract probably the
wrong people. If you have no welfare system there is no incentive for anyone to
immigrate unless it's to be productive and to have the opportunity to be
productive.

2) Growing Public Sector, Shrinking Private Sector - Due
to unions and a growing state the amount of public sector jobs have increased
which have very rigid wages, they don't go down, and they always go up. This
growing sector has consumed the amount of private sector jobs who have more
elastic wages that can adjust to changes in the supply of labor and demand for
the goods produced. Shrink the public sector, the private sector will grow
enough and be vibrant enough to handle immigration. With the growth in labor
there is a growth in demand for goods to offset it in a healthy free market
economy.

In countries where open borders have had problematic effects have had large
governments and small private sectors. Prosperous countries like Switzerland
have multiple languages spoken. As far as assimilation, culture is constantly
changing on a daily basis, so to argue that there is some constant standard of
values, traditions that hasn't changed in perception or execution is an
idealistic delusion. The beauty of humanity is how it's culture changes one
generation to the next.

None of us talk with a 1920's accent or vocabulary or wear 60's attire
(without a sense of novelty). The world is constantly changing faster and
faster, you either diversify your outlook, knowledge and skills to adapt or get
lost in the changes. It's in this diversity of culture, ideas, and values where
innovation is conjured.