Itâ€™s the one arm lean in the early afternoon I remember the most; heâ€™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 â€˜I already know the answer to the question Iâ€™ve been dying to askâ€™:
â€œWhereâ€™s the price of gold headed?â€
Of course, thereâ€™s always the matter-of-fact follow up, â€œYeah, I heard itâ€™s going to $2,000 an ounce easy,â€ or â€œYouâ€™re a fool selling gold now; $3,000 an ounce in no timeâ€¦ well, do you have any gold for sale?â€
His buddyâ€™s an expert, I get it.Â So hereâ€™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 â€˜valueâ€™.Â If gold was guaranteed to price at $3,000, itâ€™s already there, itâ€™s that simple. For every expert convinced that one particular indicator, say past performance, concludes a rise in goldâ€™s price, youâ€™ll find another expert convinced that an alternate indicator, say moving average, ensures a drop in price.
â€œBut look at the economy!â€
Sure, what better indicator than fear to push the price of gold upward.Â 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 hereâ€™s my thought: I believe markets tend to overreact.Â If a well-traded commodity, like gold, is trading at an all-time high, Iâ€™ll tend to shy away from it.Â However, like the example of a bank after an economic recession, Iâ€™ll tend to invest in an agitated asset.
So when Iâ€™m asked where I think the price of gold is headed, I shrug, and just before the client thinks Iâ€™m completely incompetent, I tell them exactly what I just told you.Â Fortunately, commercial real estate is a clear beneficiary of this reasoning; prices have depreciated, and youâ€™re definitely not buying at a peak.Â Also, properties produce a tangible source of income (i.e. rent), gold can never do that.
With everything, there are exceptions.Â A lot of people are paid a lot of money to fortune-tell, to advise, and to invest wisely.Â Since anyone can buy a whole lot of gold, an over-abundant fear can be an indicator capitalized on by a well-researched investor.Â But remember, large movements of gold are probably carried out by â€˜expertsâ€™ and gold is likely just where they believe it ought to be, and itâ€™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 donâ€™t know about could have appreciative value.Â So Iâ€™d say, donâ€™t worry about an expertâ€™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.Â Instead, purchase real tangible income-production or something with future up-scale prospects (something you really believe in), and fortunately, itâ€™s possible for commercial real estate to posses both those attributes.