Is Gold losing its lustre?
On Monday, the day of Akshaya Tritiya to be precise, one is sure to find crowds clamouring to buy a piece of the yellow metal that indisputably has been in vogue for 5000 years. But fans of gold have diminished and are now looking at other investments (except on days when they buy the yellow metal to appease their superstitions).
It is true that even a few decades back people used to buy gold, especially during economically uncertain times. But then there was no other choice in terms of investment. In recent years Real Estate investments is giving gold a run for its money, literally!
The biggest common factor because of which they are comparable to each other is the investment of black money. There are very few options available in the market for keeping black money safe, and earning a return on such investment.
Gold advocates proclaim that the metal is immune to inflation, economic or political crises. And Realtors argue that investing in property is secure. They consider gold or any other metal to be money and are vulnerable like other currencies. They can be considered a part of savings but not as an investment as such.
In the Gold Vs Real Estate scenario, real estate definitely has the upper edge as a potential of yielding higher returns consistently. A few reasons are-
- Gold can be confiscated easily
- Gold liquidity doesn’t work in terms of profitability as one needs to consider handling expenses, deductions for ‘melting’ and other expenditures
- Lack of liquidity of Real Estate makes it less volatile and this is beneficial
- Rise in Gold value coincides with paper currency devaluation and hence the appreciation of gold is actually nominal and not an increase in the buying power as we often think
- Gold like other precious metals, is prone to manipulation by those who wish suppress its value to boost paper currency in a bid to benefit
- Real estate has further income potential in terms of rent/lease which gold doesn’t have
Ever since there was recession of 2008, Real Estate prices went south and Gold prices went north. Looking at the disparity the layman started investing more in Gold which further jacked up the prices. In fact most of the investment done in Gold is because of the reason of lack of avenues of investing. One major thing which Real Estate provides and gold doesn’t is “yield”. Gold is the single biggest non yielding investment in the global economy. This makes gold the most speculated investment: as there is no discounted cash flow!
Also if the capital appreciation is not present then the investors have no interest in investing in Gold. In the chart below you can see that gold has crashed for 5 years in 1963. And hence a crash was evident and which is exactly what we are experiencing now.
So how to use this information to convince investors to invest in Real Estate?
* Investors have to be explained that Gold is a speculative asset which cannot be consumed. Real Estate on the other hand is consumed and there is a demand of real estate due to demographics.
* Gold is a movable asset which can be stolen
* Non yielding asset, so no rent you can earn on this.
* Can’t be used for own jewellery beyond a point.
The main argument for buying gold as an investment was the capital price but now even that is as uncertain as real estate escalations.
So go out and sell more real estate!