Gold versus Real Estate, a 40yr Perspective

[Patrick Bateman]

[Patrick Bateman]

I thought it would be interesting to compare the value of gold against the value of housing, using Case Shiller data. It's interesting to note that it may be possible to predict the peak and the trough by using the price of gold.

For instance, when we look at the Case Shiller data, we see a peak in housing prices in 1979, 1989, and 2006. But the peak in home prices when denominated in gold is much earlier. Note the peaks are in 1975, 1986, and 2001 My hypothesis is that 'smart money' liquidated their real estate prior to the real estate peaks, and then put the assets into something safe, which was gold. Therefore, a peak in asset prices when denominated in gold may predict a peak when denominated in dollars.

[Scotsman]

A fun exercise, but very dangerous in terms of yielding usable investment data. Any group of variables, divided by an increasing divisor will show a downward trend. But what have you shown in terms of relationships or causality? How many variables have you really captured? As an example, what if you substituted the inverse cost of a gig of computer storage for the price of gold? And what would it really mean?

Going back to your example, how do you know whether it is housing that may be under valued, or gold that is over valued?