Regular Update From Bay Area Bear

[BayAreaBear]

As long time browsers will know the BayAreaBear tracks the price of houses in real global money (gold). This painstaking endeavour is periodically made available to readers of this site.

Now is the time for a new update. perhaps only because today is a holiday in the US and the BayAreaBear is relieved momentarily from the toil of adding to his large pile of the beautiful dense yellow metal.

Many have expressed frustration that a house price crash has not occurred or seems too mild. A balti rather that a vindaloo one might say.

But for those who had ears to listen and a mind open to historic truth the price of houses in gold has been crashing for some time.

Take a look at the following chart.

Perhaps it is repetitive to go over old ground but for new browsers I will do it anyway. We are well on the way to seeing the price of houses in both the US and the UK return to a more appealing 200 oz of gold or so. One might also expect that the price of a UK house will once again be less than a US house at some point in the not too distant future - now that the new trends are nicely established.

So readers -if you want to distance yourself from the efforts of Her Majesties' criminal gang of thieves and murderers it is still not too late to join the ranks of freedom lovers - place a portion of your hard won savings into gold.

Oh - and before I go - one other thought. Those hoping for reduced interest rates may be temporarily given hope. But know what all bankers know - The price of gold goes UP before interest rates go UP (by perhaps 12 months). Not withstanding the efforts of Her Majesties's thieves and murderers. The current trend in the gold price should send a cold wind of fear over those who might depend on a lower IR.

[BayAreaBear]

Many thanks for the graph update. Definitely one of the most useful graphs I've got from this site

The crash is fully underway in real terms. When I see it near the bottom of the range, or even after it's come off the bottom (why rush) maybe time to start switching back into non-cash assets like property and shares, at the rate my CGT allowance sets.

Thanks again.

You are indeed most welcome Durch.

[Guest muttley]

Can someone explain why there is a relationship between house prices and the price of gold?

Are you suggesting people switch their money between houses and gold? Where is the cause and effect?

[assetpriceinflation]

Bay Area Bear

Thanks for the best post i've seen for several months.

I propose that you're entitled to more national holidays if you keep coming up with the goods like that.

The current peaks are clearly far higher than anything in recent history - do you think of all time ?

Jeepers, thats worrying.

[urban_hymn]

Thank you for posting this B.A.B.

It is a fascinating and compelling graph. I only wish our best contrarians would line up to begin pulling it to pieces. I would like to see it "battle tested".

I have a relatively large part of my modest portfolio invested in gold stocks because I am convinced that what BAB's graph is telling us is very significant.

I devour all the opinions I can find on gold at the moment but the worst thing people are saying currently is that it might "pull back" or "correct" somewhat. Is that it?

I will keep adding!

[Guest Riser]

Gold is REAL MONEY,

and it is worthwhile to look at assets priced in real money.

Dollar and `Pound are fiat currencies

The British public generally measure the strength of Sterling against the Dollar while the MPC use a measure based on a basket of currencies, do you have a link to that measure.

Gold is now acting more like a currency in its own right rather than a Dollar hedge so it would be interesting to see how gold compares to the basket of currencies used by the MPC.

Dr Bubb I know its slightly OT but could you provide a link or suggest a book where I can find more about trading using covered warrants, I seem to recall you prefer the US market as it offered lower costs and closer spreads, please feel free to PM

TIA

Edited November 25, 2005 by Riser

[Michael]

http://patrick.net/housing/crash.html

check out this page on the Bay Area........Daily updates at bottom of page on the general US market

[okonu]

Except gold isn't money. It is a commodity. You might as well price houses in barrels of oil, or number of entry level cars, or potatoes, and it would show pretty much the same thing (that housing is overvalued at the moment, d'oh)

Funny story, when I started my present job one of our customers had given us gold rather than a bank guarantee... the staff all thought this was fine, until I pointed out he was getting the gold stored for free...! Hit him with the standard storage charge, and lo and behold, the gold left to be replaced with money.

[OnlyMe]

BAB,

Fancy doing a chart of housing against the CRB index?

It's not just gold, money washes between equities, real estate, fixed interest and commodites.

[Guest muttley]

So if the price of gold doubles and house prices stay the same we've had a crash?

Sorry,I just don't see the link between gold price and house prices.It's pictures in the clouds.(IMHO)

[urban_hymn]

So if the price of gold doubles and house prices stay the same we've had a crash?

Sorry,I just don't see the link between gold price and house prices.It's pictures in the clouds.(IMHO)

If the price of gold doubled that would mean there had been some serious inflation going on - so perhaps there would have been crash in house prices if they remained nominally the same.

[London Landlady]

Houses v oil would be interesting.

[okonu]

"Except gold isn't money. It is a commodity. "

WRONG

Gold is tha oldest form of currency.

You can exhange it for goods, or sell it easily to get local currency for goods in most countries.

It is likely to hold its value better than the pieces of paper that pass for money

Not true. Chinese used cowrie shells and base metal coins (spade money) before gold, and ISTR that the first Western coins were silver, not gold.

And it is likely that livestock was currency before shells or metals, (and still is in some nomadic societies, e.g dowries expressed in terms of x numbers of cows)

Weve had this conversation before - the fact that you say that you have to sell it for local currency to buy goods by definition means that it isn't a currency.

As for "holding its value" true, but you could say that about any real good. Nickel is just as likely to hold its value.

I agree that gold (as a commodity) may be a good investment, but it has no quasi-mystical status

[BayAreaBear]

It is true that gold is a commodity.

BUT it is the commodity that has always been chosen by the FREE market as money.

At first it is valued for its beauty. Then, as a barter economy progresses to a money economy, people exchanging goods must sometimes exchange not for what they want but for something other people want - and then for what they want.

An example. I make hats but want shoes. I go to market but I cannot find a person who makes shoes and want a hat. Therefore I exchange my hats for something I know that lots of people want AND VALUE - and then I exchange that for the shoes. As more people do this then one commodity becomes the prefered one for this purpose AND THAT IS MONEY. Notice that society but NOT government is involved and all the choices are voluntary. Once a commodity is chosen by the market as money it becomes more valuable because it is money. Before it has x uses - now it has x+1 use. Once this happens the process is unstoppable. In societies of more than modest size the commodity "chosen" has been gold in recent millenia. GOld has just two uses. Decoration and money. We know it is still money becaues its value as a decoration is much much greater than its market price compared with other decorations. This extra value is because it is money.

Once a commodity is money it cannot be shifted from that role except by egregious laws and violent coercion. Governments IMPOSE their money with egregious laws. STEALING the name but not the nature of the free market money. Thus the name of the magnificent gold money "Pound Sterling" was stolen from gold and given to a worthless piece of paper. But it is a tenuous hold AND the laws are not global. Expect to see attempts to impose global paper money. Doomed to ignominious failure like all government projects.

Thus gold is a commodity and it is also global money. We see the process of its remonetization now as the world globalises. This is the unstoppable process. It can only be stopped by contracting world trade which would make us all much worse off.

I could go on and on about the where the cycles come from in the graph but I wont. I will just say that it is logically inferable from the statement "valuation is subjective". No maths involved.

Signing off for now. The BayAreaBear must visit his money managers. His pile of the wonderful metal is getting too big for the house. His spouse needs more room for her shoe collection

BAB

Edited November 25, 2005 by BayAreaBear

[29929BlackTuesday]

Yeah but - if you explain this to say, a person in the street, wouldn't they say "but houses are really expensive compared to earnings so in what way has this gold thing got to do with anything?"

Do we buy houses with gold? Erm, no. So I don't get your point!

Ooh, gold is now doing this or that or whatever but houses are STILL EXPENSIVE TO PEOPLE WHO ARE PAID IN POUNDS!!!

I don't understand. Is this an academic point you're making?

[paradox]

Mate, it is far from academic.

I bought some Gold and Gold Shares two months ago.

I am pleased I did !

[gazwheat]

Mate, it is far from academic.

I bought some Gold and Gold Shares two months ago.

I am pleased I did !

I'm still in 2 minds wether or not to buy gold using my STR capital. Basically I'm too scared to lose any money but to greedy to just leave it festering in a building society.

[Realistbear]

If the price of gold doubled that would mean there had been some serious inflation going on - so perhaps there would have been crash in house prices if they remained nominally the same.

Gold prices are driven by sentiment--usually fear of war or other cataclysmic events when gold seems to be a safe haven. House prices are also driven by sentiment as Mervyn King of the BoE put it: house prices are a matter of opinion whereas debt is real.

Everything is based on someone else's opinion as to its value. One man's rubbish is another's treasure and so forth.

The one thing that will turn the property market sharply downward is when there is enough opinion to the effect that it should do so. HPC.com is just a small voice that can sway a few people but then look at forest fires, they begin with a small spark.

[goldmercury]

If IR's are going to rocket why not leave it as paper in a bank ?