In my last couple of newsletters I made comparisons to the size of the economy and the markets in 1980, when gold reached its all time high of $850 an ounce. I also compared the amount of debt and deficits and the amount of money that was traded in the market-place in 1980 versus the debt and deficits of today. I made those comparisons because I believe they provide some insight as to how high gold may go in the future. As I have pointed out in past newsletters, the size of the economy’s debt and deficits today are monstrous compared to what they were in 1980, when gold reached its last bull market peak. And the amount of money that is available to
purchase gold today, which is becoming the talk of the investment world, absolutely dwarfs what was floating around in 1980!

Yes, I believe these factors alone will conjoin to send gold to levels that no one thinks is possible at this time!

The variety of choices in the investment community is abundant today. Most people do not know how to read the language of the markets and make the wisest choices that support their goals. We all face those same challenges and this can be very confusing. My advice is to keep it simple and think logically. The markets are always competing for money that is available and traded in the marketplace. Some of that money is short term and can be traded within minutes, hours, days, or weeks. Other money is for the long term and should be viewed for its growth potential over months and years down the road. Personally, I believe the best investment philosophy is an approach for the long term; however, I also know that investing in the wrong segment at the wrong time can result in a real loser over the long term.

So, when considering where to put your money for the future, it would be wise to consider the possibilities of what is cheap in relationship to its historic value. For example, what are the odds that the vehicle you chose to put your money into is going to return to you 5% or 6% a year? Or which assets have the greatest potential to double, triple, or make investment history over the next 5, 10, or 15 years? You can bet that over the long haul that is what big money is doing, and big money knows the benefits of investing in gold at this time!

While the overall real estate market has been cooling, in some areas of the country you might say it has been cracking. The Dow has risen to a new high; and gold, although stabilized at the moment, appears poised to continue its bull market (upward) climb.

In relationship to everything else, gold appears to be cheap. Let’s look back for a moment to 27-years ago, when gold hit its last bull market peak of $850 an ounce. As of this writing, the current price for gold is hovering around $625 an ounce. This figure – $625 an ounce – equates to approximately $225 an ounce cheaper than its 1980 high.

REAL ESTATE

When we compare real estate today with gold in 1980, gold seems to be undervalued. I was in real estate for many years, and I understand it very well.

During the spring of 2005, an attractive young woman, whom I had gotten to know at a social function, waved at me as I entered the room and signaled me over to her table. I sat down, and we began to chat. After a few minutes the young lady said, “Craig, we are putting on a real estate investment seminar tomorrow morning, and you should come.” (Her fiancée owns a real estate company in Phoenix.) I responded, “Kimberly, I believe the big gains have already been taken out of the real estate market!” I then began to expound as if I were doing a radio interview. After I finished explaining my reasoning, she looked at me and said, “Craig, you are the first person that has ever said that to me!”

Although we were only a few months away from the top of the real estate market, nobody else had told this lady that the best the real estate market had to offer was behind us. My God, it was a feeding frenzy! But that has all changed now.

Let’s step back in time to 1980 and compare gold to real estate. In 1980, the median price for a home was $64,600. In 2005, the median price for a home was $238,100. The median price of a home in 2005 was 3.68 times higher than it was in 1980; whereas, gold right now is $225 an ounce cheaper. If gold were to rise 3.68 times its 1980 high, gold would be trading around $3,128 an ounce. So, do you see why gold in relationship to real estate certainly seems cheap today?

I have to ask: What are the odds that real estate will double, much less increase by 3.68 times its current value, over the next 5, 10, or 15 years?

At best all information points to a long leveling out of prices in the real estate market and at worst a significant decline. This is supported by history, and it is the normal process when the real estate market tops out. Plus, you have to consider that the real estate market just went through the hottest, most speculative period in history! So, again, history tells us that the chances of big money being made in the real estate market at this point are not very good, not very good at all! Of course, there are always exceptions, but the odds are currently stacked against your success in real estate for the foreseeable future!

Consider for a moment that gold would have to rise to $2,250 (approximately) an ounce to equal its 1980 price in inflation-adjusted terms. In other words, if we took the price of gold in 1980 and adjusted it for inflation, gold would be selling for $2,250 an ounce. Viewed from this perspective, gold in relationship to real estate clearly seems to be dirt cheap (no pun intended).