Would you Choose Property or Gold?

Last year, the RSL raffle offered an interesting prize choice.

The RSL raffle is conducted by the RSL Art Union, an organisation that raises funds to help Australian veterans.

They usually give winners a home as first prize, sometimes even together with an amount in gold bullion.

Yet, in April 2017, they were offering something a bit different. Something they called the ‘$2 million choice’.

That is, if you won you could choose between two options.

One choice was a three-bedroom Sydney penthouse with a private roof terrace that had panoramic city views. The prize also included $97,800 in furniture, transfer fees and $250,000 in gold bullion.

The whole package was valued at $2 million and the estimated rental income per year for the property came up to $75,400, according to the RSL.

The other choice was $2 million in gold bullion.

That is, the winner of the $5 raffle ticket could choose between property or gold.

Which sparked the following debate: what would you rather invest in? Property or gold?

Sydney’s property market was hot back then. In fact, it had been performing…spectacularly.

It was hard to find a home in Sydney. While many were wishing for their dream home, competition was tough…and many could not afford one.

With property being a hot ticket, many charities were buying properties and then raffling them. In fact, as Domain reported back then, many were turning to buying raffle tickets as a way to get on the property market.

[C]harities are increasingly competing in Sydney’s hot property market; raising funds by buying homes to then raffle off as younger generations look for a shortcut to home-ownership in the face of rising prices.

‘“We have noticed a real shift in recent years in the type of person buying tickets in our prize home lotteries, particularly for homes in the Sydney market,” said RSL Art Union general manager Tracey Bishop.

‘“We are seeing more young families and young professionals purchasing tickets,” she said. “So many of them feel the housing market, particularly in Sydney, is out of their financial reach.”

Property has been a stellar investment since 2009 in Sydney and Melbourne. Just take a look at the following charts from Corelogic showing the increase in home prices in both capitals between 2009 and March 2017.

Capitals dwelling value changes 16-05-2018


Source: CoreLogic
[Click to enlarge]

It’s not surprising that with gains like this, buyers were in a frenzy to enter the market while sellers were bragging about insane gains in short periods of time.

While properties have been increasing at lighting speeds, average wage growth in Australia has done this:

Australian wage growth changes 16-05-2018


Source: Trading Economics
[Click to enlarge]

How did gold perform in the same period?

The price of gold rose by about 54% between January 2009 and March 2017. Not too shabby, though not great compared to Sydney’s property market.

Things have changed a bit for Sydney since April 2017 though.

The latest data from Corelogic shows that both property markets in Melbourne and Sydney are in decline. Sydney has dropped 3.4% change year on year.

The fact that Sydney’s property values are dropping have a big impact on Australian property value, as Sydney holds about one fifth of all of Australia’s property stock and about 30% of national property values.

How has gold done in the last year?

As you can see below, the price of gold has been zigzagging between US$1200 and $1350 since last year. If you had bought gold back in April, you would have made about 6% in gains.

Price of Gold - USD 16-05-2018


Source: ABC Bullion
[Click to enlarge]

That is, you would have been better off choosing gold.

Which leads me to the following question. If you won the $2 million choice today, which would you choose? Would you choose property or gold?

In other words, do you think the recent falls in Sydney’s property market are just a blip, and property will keep on rising in the future?

Or do you think gold is a better investment in the long run?

I know what I would choose.

I would choose gold.

Why?

Because I think gold is set for a come-back.

For one, stock markets have been on a great run for the last years. Yet, with interest rates rising and conditions tightening, I think they have a lot of volatility coming.

For another, geopolitical tensions are rising everywhere.

From war between US and North Korea, a trade war between US and China, even a stock market meltdown…you get the drift.  Any shock could increase gold prices and send investors scrambling into gold to protect their wealth.

Because, when tensions rise, gold is a safe haven.

So, if you won the $2 million choice today, which would you choose? Would you pick property or gold?

I would love to hear which one you would choose and why. Write me a note and let me know. You can reach me at cs@portphillippublishing.com.au.

Best,

Selva Freigedo,
Editor, Markets & Money

PS: Crisis & Opportunity editor Greg Canavan also thinks gold is about to breakout…big. But, wait. Before you go running off to buy some gold, you should read this first.


Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the ravaging effects of hyperinflation, high unemployment, deposit freezes and debt default. Selva now writes from her vantage point here in Australia. She is lead Editor at the daily e-letter Markets & Money. And every week, she goes through each report and research note produced by our global network of trusted advisors to find the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.


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