Monday, March 22, 2010

Will Gold Signal the Bottom in Housing?

Many who follow housing prices have a keen sense that we're not at the bottom yet. Unemployment/incomes, government spending/stimulus, foreclosures/short sales/REOs, Federal Reserve QE/MBS purchases/printing, interest rates, and the value of a US dollar all play a part in the nominal price of a house. Real vs nominal home prices pose an interesting discussion.

Prices are a funny thing, depending on the currency one uses. Regardless of whether you're a gold bug, or you think of gold as a barbarous relic, it can provide an interesting barometer with respect to history. Gold has been a measure of value, a store of wealth, and a liquid portable asset for several thousand years of human history.

Granted you cannot pay your taxes in gold anymore, nor can you buy a house or groceries directly with gold in America today. However, you can trade physical gold for the local paper currency on any continent and in any country. That's been the case for thousands of years planet wide, so from a historical perspective it may be worth while paying attention to the price of houses per ounce of gold.

I stumbled across a great chart recently that I thought some readers may find interesting. Keep in mind that this chart has three key tenants: The price of homes in dollars, the price of gold in dollars, and the price of homes per ounce of gold. The Y-axis on the chart represents how many ounces of gold one would need to buy an average/median range house per historic Case-Shiller numbers.

When studying the chart, it may be relevant to know that the Federal Reserve Bank was granted control of our currency in 1913, FDR confiscated gold from all US citizens by executive order 6102 in 1933, and the US dollar left the gold standard (internationally) under Nixon in the early 1970s. US citizens were prohibited from owning or hoarding gold bullion and coins from 1933 until the early 1970s. Currently, central banks around the world hold the vast majority of all the gold ever mined. All of those historical facts influence the chart. The source and related commentary can be found here:

More Ugly Housing Data