Dr. Gary North replied to a site member who asked whether it was wise to sell gold to free up money for real investment purposes?
This was posted yesterday.
My wife and I are steadily saving cash for investment homes for when the time is right. We have one, now, that we own outright but want to rapidly pick up the pace as we are 40 yrs old now. My area of the country has a white-hot real estate market (which seems to be the story all over the country,) so we're just exercising patience and building our cash on hand at the moment.
At the same time, we have a decent (to us) amount of bullion that we could liquidate to help us accelerate the curve on our purchases when the time comes. I've been buying coins since I read some of your books in high school, and I've never sold them, it sort of goes against the grain. But I also remember how frustrating it was in 2009 when I was able to buy our primary residence at a good deal, but lacked the cash to get into any rentals.
A part of me wants to sell some coins, using that cash plus our savings to get into more rentals when the price drops, assuming that this may be the best time in my life (since 2009 anyway) to lock in properties. It seems like this can't keep happening every ten years, and if I play it super safe and only another house this next time, I may be kicking myself later.
Would you ever recommend selling a percentage of bullion for this purpose? If so, what percentage? . . .
Jget (reply)
My take, high end of the market for homes means good deals are hard to find. Look for them anyway. Failed deals are a good way to exercise your ability to execute all the aspects of your home buying mechanism. Research, title search, and rapid access to money that's not coming out of your pocket. When we are on the other side of this is not the time to discover where you are slow in executing steps or deficient in resources.
When selling gold I'd ask do you think we are near a top and if so, give me your source so I can sell too. Otherwise, what do you need the money for now vs. a point in the future when you are making a purchase?
North's reply is here:
At present, John Schaub favors building
up cash. I agree with him.
The advantage of selling gold now is
that your capital gains tax is low. In my view, that is going to change next
year. The Democrats are going to hike capital gains taxes. So, if you have a
profit in anything these days, and you are looking to take advantage of it, now
is the time to sell. You will pay less to the government after the transaction
is completed.
There are major advantages of real
estate over gold as an investment. First and foremost, local conditions vary.
If you have accurate knowledge of local conditions, you are able to take
advantage of this information. With gold, you have no advantage geographically.
The second advantage is leverage. If
you can get a mortgage at a low rate, which these days you can, you can buy
more real estate. Yes, the price is going up, but, in a recession, the mortgage
rate is still going to go down. All long-term interest rates will fall. So, if
you can hold off until rates fall again, and you are in the midst of a
recession in which housing is also falling, you have a tremendous advantage as
a buyer.
The third advantage of real estate in
relation to gold is that it forces you to become an active manager. The very
fact of becoming an active manager and an active shopper gives you an advantage
over somebody who buys gold and holds it long-term. You are converting your
knowledge into capital. You have to be active. You have to monitor the market.
This takes many hours. Gold is passive. Gold is for people who want to buy and
hold it and pass it on to their children. It is a long-term hedge against price
inflation. But real estate is different. Real estate requires a lot of study,
and a lot of courage, but the payoff is higher than the payoff in gold is going
to be. This assumes that you know what you're doing. It also assumes that
you're not buying in a white-hot market today.
I think it would be wise for you to
sell a portion of your gold and put this money aside for purchases one year
into the recession. You might make it two years into the recession. I'm saying
this only on this assumption: you spend at least three or four hours a week
examining the local market, viewing properties, and actively gathering
knowledge about what constitutes a good deal.
