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Gold trumps prime real estate but not modern art over the past decade so which hard asset wins next?

 -- Published: Thursday, 23 April 2015 | Print  | Disqus 

By Peter Cooper

Gold is up in price by 179 per cent over the past 10 years. London prime real estate is up 138 per cent over the same period, and New York prime property by 67 per cent. But modern art beat the lot, up 252 per cent in the Knight Frank Luxury Index.

Call it the battle of the hard assets if you like. Then again price rises are one thing. Being able to cash out quickly – liquidity – is quite another. Estate agents and art dealers seem to have been very successful in persuading the rich to invest in property and art.

Liquid assets?

But only gold can be sold instantly and with minimal commission. Estate agents and art dealers know that only too well of course but they don’t have any problem being paid high commissions.

Still gold has held up well as a hard asset over the past decade despite its correction of the past three, almost four years. Real estate and art bubbles tend to fall like oil prices when they really tank. And higher interest rates only have one impact on property prices and art. The correlation with gold prices is not nearly so clear and in the late 1970s gold prices soared as interest rates hit the roof.

That said gold prices fell on Wednesday and Thursday this week because the US housing market showed signs of life and this revived fears of higher interest rates that might make gold a less attractive asset to hold.

However, it is true that gold prices have been very boring and range bound over the past few months. In order for gold to begin to show its metal there has to be a catalyst to cause a market breakout. Where’s that going to come from?

Black swans

ArabianMoney can still see three black swans on the horizon that could well do the trick: Greece’s bankruptcy, perhaps on July 20th according to the latest calculations; a sudden crash in Chinese stocks and rush back into gold by its biggest consumers; or a correction in US equities.

That could all take some time to pan-out though if we are really talking about unpredictable black swans that might turn out to be wrong too. Financial markets do look in a dangerously volatile condition. The high US dollar and crippled yields on German bonds are not a healthy sign. Asian equities in particular look in a bubble phase that could end at any moment.

True those who hold gold and silver may see its value dip a bit further. But the upside potential for gains when an accident happens will be far greater and might be missed entirely by selling gold now.

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 -- Published: Thursday, 23 April 2015 | E-Mail  | Print  | Source:

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