Investing in gold and real estate is a common strategy among those seeking security and asset growth. Both assets have shown significant increases in the last 60 years, but they do so in different ways. Discover how the golden metal and real estate respond to economic factors such as inflation, interest rates and financial stability.
Economic Changes and Inflation
In 1971, the end of the Gold Standard triggered a historic increase in the price of the golden metal, going from $35 dollars an ounce in 1971, to $417 dollars in 1981; an increase of 1,100% in only ten years. The inflation and the economic instability of the time fueled this rise, establishing gold as a refuge in times of uncertainty.
Although the price of real estate increased, the high interest rates limited the access to credit, constraining their growth. Despite this, real estate showed stability and solidity as tangible assets.
Behavioral Divergence
After the boom of the 1980s, the price of an ounce of gold stabilized around $300 and $400 dollars in the nineties, due to a more controlled economy and low inflation. This showed that gold usually has a better performance in times of economic uncertainty than under conditions of stability.
With inflation under control, the real estate market experienced a boom. Houses steadily gained value, benefiting from the declining interest rates and a strong credit market.
Financial Crisis
During the 2008 crisis, the price of gold skyrocketed, exceeding $800 per ounce, proving once again its role as a safe haven in times of recession and financial uncertainty.
In contrast, the mortgage crisis in the United States that year severely affected the real estate sector, with dramatic falls in property prices and a slow subsequent recovery. The vulnerability of real estate in times of financial crisis became evident.
Pandemic and Inflation
The uncertainty caused by the COVID-19 pandemic in 2020 and the inflation resulting from the increase in the money supply, mainly in the United States and Europe (due to the economic stimuli for their populations), brought the price of gold to record-high levels since 2020, at $1,700 dollars an ounce; continuing its gradual rise during this decade, reaching $2,000 dollars for the first time in its history in November 2023; and later reaching historical highs that surpassed $2,700 dollars in October 2024.
As a result of the COVID-19 pandemic, real estate experienced a boom fueled by the low interest rates and the high demand. However, in 2023, the rising interest rates slowed the price growth, showing the sensitivity of the real estate market to the financing conditions.
Three Key Factors Influencing the Price of Gold and Real Estate
Inflation: The price of gold usually increases when the inflation is elevated, thus protecting the purchasing power of its owner. Real estate offers coverage too, although its value is affected by the access to mortgage loans.
Interest rates: The rise in interest rates makes mortgages more expensive, slowing down the real estate market as a result of a lower supply that typically negatively impacts the prices of real estate. Likewise, when real interest rates (above inflation) increase steadily, gold tends to lose attractiveness compared to bonds and other debt instruments.
Economic situation: Gold shines like a safe haven during economic crises; whereas real estate, although stable in the long-term, is more vulnerable to recessions due to the lack of liquidity and to unfavorable credit conditions.
Resilience and Profitability in the Long Term
Between gold and real estate, investors can opt for the golden metal in situations of uncertainty or high inflation, in which immunity from the economic situation of the country or region is sought, whereas real estate can work better for those looking to protect their assets in the long-term in countries where the economic situation and a possible lack of liquidity are not issues of concern. In both cases, these assets must complement each other in a diversified portfolio to balance security and profitability, mitigating future economic risks.
Protect Your Money
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Contact us and learn more about how to protect your wealth by saving in gold.