Doom, Gloom, And Gold

Alan is totally debt-free. He's been reading some books that have doom and gloom scenarios. His wife thinks they should convert all their assets into gold. What does Dave think?

QUESTION: Alan in Atlanta and his wife are totally debt-free. He’s been reading some books that have doom and gloom scenarios. His wife thinks they should convert all their assets into gold. What does Dave think about that?

ANSWER: That’s what happens when you read stuff that tells you the world is coming to an end. It makes you believe it. People have been writing books about the world coming to an end as long as I can remember. So far it hasn’t happened, so I think that’s a bunch of crap.

I don’t have anything in gold because I think gold is ridiculous. It is way high, it’s a bubble, and it’s going to burst. You’re going to lose your butt in gold. The current price of gold is not based on anything except for people reading books like you’ve been reading. That’s what’s driven gold up. Everybody’s freaking out about government spending being out of control—which it is—and they’re freaking out about the economy collapsing because for the first time in more than 20 years, we got kicked in the knees really hard 18 months ago. Half of the population isn’t even old enough to remember the last time that happened. The last deep recession occurred in 1982. For the first time ever, some of these little 32-year-old MBAs are finding out, “Gosh. The markets cycle. Go figure.”

What would I do? I’m putting every dollar I can get my hands on into real estate at a bargain—paid for—and into good growth stock mutual funds. I think the stock market is poised to shoot up. For real estate, this is the best buyer’s environment I have ever seen in my life. I think we’re in an artificial dip. As much as gold has been driven up, I think the value of real estate is artificially low. The cost to build a home has not gone down. All of the components to build a home costs about what it did two and a half or three years ago. Buying a piece of constructed real estate right now, you can often buy it 25% below what it would cost you to build it. Guess what happens when that inventory burns off? The price will start to approximate the cost of new because the cost of goods sold creates the cost of the inventory then, and it will lift the price. That tells me we’re at an artificial low driven by fear.