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Gold and Property

Owning your own home has always a key tenet of the great Australian dream. However, as many people are aware, housing prices have skyrocketed over the last two decades, with daily reports of housing reaching new all time highs, and rising concerns about housing affordability. With interest rates at record lows, it has also been noted that housing prices are appreciating far faster than people can build a deposit for their first home purchase, with research from MLC in early 2016 suggesting two thirds of the country believe the next generation of Australians will not be able to afford their own home.

But what if you saved for your house in something other than cash?

Since the turn of the century, the price of the average Australian home has increased from below $190,000 to just over $610,000 by the end of 2015, a more than three-fold rise in prices that has sadly put the Australian dream beyond the reach of many Australians.

However, those Australians who have saved in gold are doing far better, owing to the price appreciation we’ve seen in gold over this time period. Back in December 1999, gold was trading for just AUD $412 per troy ounce. This meant that back in 1999, one needed just over 400 ounces of gold to purchase the average Australian home.

Fast forward to the end of 2015, and the picture is almost exactly the same. Whilst the average house now costs over $600,000, gold had also risen, closing out the year trading just above AUD $1,450 per troy ounce. Any Australian who has saved in gold over this period still only needs just over 400 troy ounces of gold to buy the average Australian home, and participate in the Australian dream.

The superior power of saving in gold over the longer term, as expressed through the cost of saving for property in cash vs. saving in gold, is demonstrated clearly in the chart.

Source: Returns are gross of fees. Gold prices in AUD from the World Gold Council, Property returns are from the ABS Residential Property Price Index. Average price for property as at end 2015 from ABS Residential property price update released 22nd March 2016.