Wild Price Fluctuations in Gold and Real Estate

On today’s show we’re talking about how to interpret price volatility.

Property prices tend not to be that volatile from one day to the next. If your goal over the long term is to acquire property, you’re happy that prices rise when you’re selling, you’re happy that prices rise when you look at your statement of net worth. But if you’re looking to acquire more, you are happy when prices fall so you get some bargains.

We’ve seen the price of gold fall from a high of 2084 on Aug 6 to below $1,900 in less than a week. That’s a 10% drop in a week. I bought more gold this week. It was more expensive than the gold I bought in March and less expensive than gold a week ago.

For the speculator, these price swings are headline news. Price swings cause anxiety and they drive emotional decisions. But for the professional investor who truly understands the fundamentals of the market, these moments are like finding your favourite food on sale at the grocery store. The reaction is, Wow, I just got a bargain. It’s not life changing. You just got something that you were going to buy anyway on sale.

I just placed an offer on some land. Prices are rising in the market and the level of competition for quality properties has risen dramatically. When a bargain comes along, you execute. One builder I spoke with this past weekend had 200 offers in the first hour for 8 building lots that were released on Saturday at 11AM.

A professional investor is looking past the next few hours, or the next week, or the next month. They’re focused on portfolio building. The professional investor knows that real assets are a hedge against inflation.

We also know that there will be a flight from the world’s weakest currencies to the world’s strongest currencies. Much as the US dollar is a hot mess right now, it’s hard to identify a currency that better. While the US dollar is being devalued by excess printing, the demand for US dollars outside the US seems to be growing as fast as the Fed can print them. Printing money is a strategy that works for a period of time, until it doesn’t.

Printing of money has the effect of making the currency less valuable. An original oil painting is worth the most. A limited edition print copy of the painting is worth less than the original, but will still have some value. An unlimited number of photocopies renders the copies virtually worthless. So it is with currency.

When we sell assets, we don’t aim to sit on the cash for very long. We aim to sit in dollars for a short period of time and then exchange for another hard asset fairly quickly. Now is the time to accumulate dry powder and to be ready to execute on opportunities when they present themselves.