Bleyer is often approached by potential clients who have come into some money, usually through bereavement or a financial settlement of some kind. A common question on such a client’s mind is ‘Where do I invest this money? I don’t need it yet for any particular reason for a number of years, so I’ve been thinking of Gold but also Property.’
Please allow us to be clear – as a Bullion dealer – Bleyer cannot legally advise anyone. That’s kind of obvious when we stop and think about it. But there is another layer of financial professionalism and accountability, even ignoring the personal ethics of such a situation. And that is the Financial Services Act. I used to work in the legal field, working with trainee lawyers and in fact having been a young solicitor myself, then going on to produce best practise materials for training barristers and solicitors across the U.K. Personal integrity means a great deal to me and I’ve walked away from a few situations in life precisely to keep it upheld to my personal standard.
Be careful to conduct your own thorough research and listen – either face to face or through your own online research – to a myriad of quality voices on the strengths (and weaknesses) of owning your own physical Gold, Silver and other precious metals.
Having highlighted this caveat for all our readers, both new and long-standing, let’s look back at the question: Which is more profitable – Gold or Housing Development?
Cleary, the answer will depend on which period of time we examine. Both Gold and the Property Market fluctuate and, interestingly, in an almost opposite pendulum swing. So, gauging where we are in the cycle is paramount.
One of clearest methods with which to ascertain this, would be to work out how much Gold in ounces, one would need to purchase an average house in the UK. If the amount in ounces is high, it means the price of Gold is low in the cycle and the price of property is high, so not necessarily a good time to enter the property market. High property prices verses gold means the housing market is approaching or is in a bubble, and bubbles burst. But, if the amount in ounces is low compared to the cost of an average house, it means the price of gold has swung high in the cycle and property has swung low, meaning the price of gold may have reached a peak and the price of property maybe about to rise. Can you see? It’s all about which market is moving in which direction. That, after all, is what makes our investments profitable, not the item itself but where the price is likely to move, up or down.
How Much Gold Would I Need to Buy an Average House in the UK?
Money Week, the UK’s best selling financial magazine, produced a truly excellent article on this comparison because, as Dominic Frisby wrote: “Of all the subjects I cover in Money Morning, there are two which attract more hits and comments than any others. The first is house prices. No surprise there. Love them or loathe them, everybody’s interested in house prices. The second is gold. Again, no surprise there. It’s a sexy metal, it’s a political metal, it fires people up.”
Why it makes sense to measure property prices in gold terms?
Until 1914, and then between 1925 and 1931, Britain was on a gold standard. You could buy a house with gold. Now, of course, you can’t. But that doesn’t invalidate the practice of comparing the ratio between the two to determine relative value. As gold is so constant, it makes an extremely effective unit of account.
- The average price of a house in the UK is currently quoted from the Office of National Statistics’ as £234,794.
- As of writing, the price of an ounce of Gold is £935.
- That means it takes 251 ounces of Gold to buy an average house.
How does that compare to the last few decades? Here are some insightful figures:
- In 1980 it took just 70 ounces of gold to buy an average house. This means house prices were low, gold was high, so a good time to switch out of gold into property.
- By 2004 it then took 720 ounces of gold to buy an average house! Meaning this would have then been a great signal to get out of property and back into gold.
- 720 that was the highest ratio recorded since the UK got out of the Gold standard in 1931. Meaning the price of property was about to fall in comparison to gold.
Dominic Frisby of Money Week also wrote back in 2015 that “When gold was in its bull market, I was targeting 100 ounces to buy the average UK house. We got to about 150 in September 2011, and again in late 2013. If you were out of property and in gold, 2011-2013 was the time to switch. It’s so obvious now in hindsight.”
It is precisely this perspective that can give our clients, and ourselves, the head’s up on which investment would be – in fact, not opinion – the most profitable for the season ahead.
If the highest ratio is 720 and the lowest is 70, and we are currently at 251, we are just at resistance of the bottom third. Meaning, gold has a 60% swing ahead of itself against property, at some point. Now, that is assuming the highest ratio would be reached again and assuming the swing travels consistently, which in the markets it never does.
But, it is clear that gold to property has by no means stretched its legs even to halfway towards the highest ratio, which would be around 360 ounces of gold (half of 720) to buy an average house.
We hope this particular perspective has helped address the question in the title, which was – actually given by a new member of our staff at the time of selecting this topic. Dividing the average house price by the current price of gold per ounce to reach the ratio is an exercise worth repeating, say once a month, to see where we are as consumers and investors on the swing.
If you would therefore like to talk with a member of Bleyer’s staff call 01769 618618. This is particularly useful if you already know you would like to purchase some Gold, but would like to chat through which might offer the greatest advantage when it comes to additional financial considerations, such as V.A.T., Capital Gains Tax and Pensions. Or, if you’re ready to go with cleared funds, simply order your Gold online at Bleyerbullion.co.uk
We look forward to doing business with you.