It’s the one arm lean in the early afternoon I remember the most; he’s typically a few years past his prime, but his eyes gleam youth; like a real tipster he checks the front door, then he looks back to me, once more he eyes the door and speaks a bit hushed but with a smile that says ‘I already know the answer to the question I’ve been dying to ask’:
“Where’s the price of gold headed?”
Of course, there’s always the matter-of-fact follow up, “Yeah, I heard it’s going to $2,000 an ounce easy,” or “You’re a fool selling gold now; $3,000 an ounce in no time… well, do you have any gold for sale?”
His buddy’s an expert, I get it. So here’s a one-step tutorial on valuation:
A widely traded stock, commodity, property, or good is priced based on its present-day prospects, near-future prospects, far-future prospects, past production, or any number of infinite indicators convincing experts of ‘value’. If gold was guaranteed to price at $3,000, it’s already there, it’s that simple. For every expert convinced that one particular indicator, say past performance, concludes a rise in gold’s price, you’ll find another expert convinced that an alternate indicator, say moving average, ensures a drop in price.
“But look at the economy!”
Sure, what better indicator than fear to push the price of gold upward. But what if your fear in the economy is far greater than the investor that sees a significant drop in the price of alternative investments, i.e. property.
So here’s my thought: I believe markets tend to overreact. If a well-traded commodity, like gold, is trading at an all-time high, I’ll tend to shy away from it. However, like the example of a bank after an economic recession, I’ll tend to invest in an agitated asset.
So when I’m asked where I think the price of gold is headed, I shrug, and just before the client thinks I’m completely incompetent, I tell them exactly what I just told you. Fortunately, commercial real estate is a clear beneficiary of this reasoning; prices have depreciated, and you’re definitely not buying at a peak. Also, properties produce a tangible source of income (i.e. rent), gold can never do that.
With everything, there are exceptions. A lot of people are paid a lot of money to fortune-tell, to advise, and to invest wisely. Since anyone can buy a whole lot of gold, an over-abundant fear can be an indicator capitalized on by a well-researched investor. But remember, large movements of gold are probably carried out by ‘experts’ and gold is likely just where they believe it ought to be, and it’s difference of opinion that has one expert buying and another selling.
The tendency of money to inflate should raise the price of most everything over a period of time, and something real useful that a lot of people just don’t know about could have appreciative value. So I’d say, don’t worry about an expert’s opinion too much, chances are, a lot of people are listening in on the same advice, and that advice is already valued in the good. Instead, purchase real tangible income-production or something with future up-scale prospects (something you really believe in), and fortunately, it’s possible for commercial real estate to posses both those attributes.