In response to Coert Coetzee: Gold and property

Came across this article by Coert Coetzee recently.  The title piqued my interest as it was by a South Africa author.  It is not often a South African author touches on the subject and it is exciting to see the message of a free market currency gaining ground.   HA commentary is interwoven into the original article in the italicised text boxes.

Is there a connection between gold and property?

Many people recently asked my opinion on gold. To me it is as important as property to have in a portfolio, but let me begin at the beginning. I will talk about “property gold” first and then about refined gold and how they belong together.

You’ve probably heard the saying that land is like gold. I’m sure many of you know that it’s true; and although I agree wholeheartedly, I think land is actually worth more than gold. The simple reason that I think so is because we already know exactly how much land there is on this earth. The planet is not getting any bigger. In fact, I was reading that the planet is now a few centimetres smaller after the massive earthquake in Japan. One tectonic plate apparently shifted in under another one and still hasn’t moved out again!

These definitions are extremely unclear, and lead you to conflate economic concepts.  The more accurate definition of what you call “property” is “real estate.”  Gold is also “property” when it is owned by someone.  Real estate priced in gold has been falling sharply over the past decade.  If I am interpreting your term “value” correctly, being an outward monetary expression of a person’s subjective valuation of marginal utility, the value of gold has therefore increased faster than that of real estate.

Gold, on the other hand, is still being mined and the mining will probably still continue for many centuries. There is also plenty of gold hidden away in safes and so on. We know exactly how much land there is on the planet, but we don’t know how much gold there is. So we don’t know what the gold stock or supply is – and if we don’t know that, then we can’t know whether the demand is greater than the supply or not. With houses, it’s easy to compare supply and demand.

“Land” is another term that needs to be decribed clearly, as it is different than “real estate.”   “Land” is the standing space or plot where a dwelling or home or building can be erected (which then becomes “real estate” as per your definition “property”).  This supply of “land”, you correctly point out, is fixed.

You proceed to compare the fixed supply of “land” to the increasing supply of gold as a reason for why “land” is more valuable than gold.  However, “land” that yields no productivity or income (or more specifically, zero marginal value product) also does not have a value that can be capitalised.  Stated differently, the capitalised value of “land” can and does drop to levels near zero when the value it can produce falls, or when the people who produce using this land as a factor of production, either moves or stop producing.

Due to growing demand, fixed property is the only commodity in the world that has steadily increased in value century after century – and that’s the reason that property is my first choice when it comes to long-term investment. As far as I am concerned, houses are the best type of fixed property you can invest in, because they are one of man’s basic needs and will always be in demand.

There are literally millions of homes in the US that are presently NOT in demand.  The concern for long-term investing in “real estate” or “fixed property” today is not that there will not be demand for them per se, but rather whether there will be demand for them at current market prices, that will keep buying momentum strong and keep real estate prices rising.

Now here, when you refer to “fixed property,” I assume you are referring to a building erected on land, i.e “real estate”.  “Fixed property” or “real estate” when not maintained declines in value over time.

Here, in our analysis the massive leveraged debt scheme that has built up over the past 4/5 decades have pushed house prices way above where they would be otherwise.  Based on the view we have crossed the tipping point for this massive debt binge in the western world economy, and that it will deflate from here, house prices will struggle to rise in real terms, i.e. when priced in gold.

The simple point is that the average marginal buyer (demander) of real estate cannot afford to buy real estate from their personal savings.  When credit is no longer available to purchase real estate, the price of real estate must fall drastically in order for the market to clear. The momentum of credit creation is therefore crucial as it papers over the fact that house prices are significantly overvalued.

Of course, gold is not one of man’s basic needs, but it is the best basic currency that has ever existed on earth. In the days when our money was still linked to gold, it was still worth something. For many years now it’s been linked to paper – and sometimes it’s not even worth the paper it’s printed on. Zimbabwe is a typical example of what inflation does to paper money. The Zimbabweans prefer to use US dollars as currency now, but guess what? The US dollar is also just paper. When the Americans need more money, they simply print more dollars. The same goes for all currencies, even the ZAR too. How long can it continue like this? I think it’s just a matter of time before the house of cards comes tumbling down.

Great stuff, love your angle here! You should spread this message far and wide. However, in response to your first line, gold is one of our basic needs.  We eat gold, out here in the HA offices!  We live breathe and bath in gold.  Without it, our monetary world would be turned upside down, as we would lose our single best benchmark to price real economic values in.  Furthermore, gold is a basic need in a free market and prospering economy, wherever there are people who want to trade value for value, and productivity for productivity.

Also just to touch on the paper you correctly describe as worthless as an economic good outside of legal tender laws:  Ironically, it is the unwinding of the gigantic debt bubble mentioned above that is ripping the paper monetary system apart at the seams, which is why demand for gold is set to skyrocket and rise faster than most productive assets priced in it.

I would like it if my money was linked to gold. If our government doesn’t want to do it, then I’ll do it myself. Money in a savings account …………………….

Awesome stuff! Gold in the basement, in the safe, in a private safety deposit box, buried in the back yard, or otherwise GoldMoney or BullionVault.  If everyone did this, it would be the single fastest way to starve the banking system of deposits and ultimately rob the government of its inflationary income.