Gold or properties? Which is the ideal means of storing wealth? – Part 2

Part 2

(to read part 1, click here)

After my friend finished with his analysis regarding the properties’ faults and the advantages of storing wealth in gold, it was my turn to present my point of view:

Properties: “Bullet proof during the crisis, with justified constant growth for decades”

Some of my friend’s arguments are correct, but from my point of view most of them are wrong. Here you have my personal take on the matter:

1.      “Properties are the means of storing wealth which has been used more than anything else throughout the history of mankind. For every one Euro of investment in gold, there is always an investment of 1.000 Euro in properties (1 / 1.000). This means that they are also the easiest assets to liquidate, when you need your money now”.

2.      “Properties serve real needs. We all need a roof over our heads, an office to work in and a civilized environment to do our shopping in. Their evaluation uses mainly realistic and objective data (not 100%, I admit)”.

3.      “Properties are irrelevant when talking about the recent bubble. They were just used by the speculators, in order to earn commissions and create  toxic bonds. This fast appreciation actually hurt the essence of properties, which is the slow constant growth over decades. By default gold is meant to be a means of storage for institutions and properties for the mass population”.

4.      “Properties can produce a monthly, or annual income. They can also increase their value based on solid reasons and (for the wise investors) in a 10 year investment cycle they pay more than deposits, bonds or any other currency or commodity, gold included”.

5.      “Except the crazy period of 2005 – 2008, any serious investor who checked the market carefully and chose a property based on the criteria we all know (location, quality etc.) saw his property’s price increase, slowly but surely. A property has the minimum number of risks compared to any other means of storing wealth”.

Gold: “Useful just for the Indians, to wear it around their neck”

On the other hand, I noticed several disadvantages that gold has. I always refer to quantities that are equivalent to the price of a property, not a few golden coins:

1.      “What is gold’s practical use? The total quantity of gold worldwide could be stored in just a few (Olympic-size) swimming pools. Assuming that someone collects it all, what is he going to do with it? It is only useful for the Indians, to place it around their neck. This is why they are the biggest consumers in the world. Otherwise it is one of many materials we use for jewelry”. (I exaggerated with this one, but this is exactly the argument that the analysts of a very famous, in Romania, fund manager are using to describe the value of gold)

2.      “Gold is connected to psychology, a decision made by the heart, not the mind. Would you store your wealth in something that varies in price, according to people’s psychology and mood?”

3.      “Gold might be a choice for difficult periods, but it is also the most volatile investment. Today it is 5% up, tomorrow it is 3% down. So far it has risen, but who knows what the maximum price will be and when it will start dropping? It’s happened in the past, it can happen in the future too. Don’t be surprised to see the price of gold collapsing from 2.000 to … 200 dollars / ounce. Storing wealth should not be similar to gambling”.

4.      “Let us assume that there is no more money around and you have collected one kilo of gold. How are you going to benefit from this? Will you scratch it and take a small piece, in order to exchange it for bread? How does it become useful to you?”

5.      “A property does not need to be stored, but gold does. Where do you store it? What is the storing cost? Do you keep it at home? Did you calculate the investments you will do, in order for you to protect it? Or would you pay annual fees to professionals who store it for you? Gold has lots of hidden costs”.

I did not succeed to reach common ground with my friend. We agreed to disagree. But what is your opinion on this subject?