Priced in gold

[Roy]

I picked this up from Mike Maloney's latest vid.

 

http://pricedingold.com/uk-house-prices/

Edited June 11, 2021 by Roy

[AndrewSL76]

@Roy perhaps I need to follow your signature rules and adopt the alcohol is a solution mantra as that chart baffles me. Is there a specific way to read this properly? I may be showing my huge ignorance here, but I have never been ashamed of needing to learn. Cheers!

Edited June 11, 2021 by AndrewSL76
a missing mantra

[Roy]

Well, I was hoping someone would tell me!

What caused the drop in c.1968?

I think it's saying 100oz of gold would buy a house in 1955 and also in 2020 whereas in £ it's gone up 100 times?

[HawkHybrid]

10 minutes ago, Roy said:

Well, I was hoping someone would tell me!

What caused the drop in c.1968?

I think it's saying 100oz of gold would buy a house in 1955 and also in 2020 whereas in £ it's gone up 100 times?

 

I think any data before 1971 on the gold chart could be ignored.

what I don't get is, does that chart say that house prices are ~£10,000 in the uk in 2020?

 

HH

Edited June 11, 2021 by HawkHybrid

[Roy]

Perhaps it's simply an index- no denominations i.e £ or toz but 10 x, 100x etc.?

'When measured in Pounds Sterling, UK Houses are over 100 times more expensive than they were in the early 1950s (the £ index has risen from 100 to over 11,000). But measured in gold, house prices are about the same today as in 1952 (gold index 100 then, 105 in mid-2020). Since 2005, house prices in £ rose almost 50%, while prices in gold fell by more than 75%.'

Edited June 11, 2021 by Roy

[AndrewSL76]

I remain none the wiser, but I am seriously happier having read the responses. Laughing. smiling and frowning trying to understand what on earth this is all about. What a lovely end to the week. Hahaha!

[Roy]

I miss @Kman

Oh, he's blocked me...can someone else tag him please?

[Stuntman]

Yes it's an index chart. 

At the start of the time series on the chart, the average house price in units of gold and in units of GBP was 100 units.

At the end of the time series on the chart, the average house would still cost the same 100 units of gold, but you would now need over 10,000 units of GBP (being over 100 times as many units of GBP than you needed 70-ish years ago to buy an average house).

So the conclusion I draw from the chart is that in 2021 an average house is worth the same amount of actual physical gold as it was in 1950 or thereabouts.  So the increase in the price of gold has mirrored the house price inflation over those 70 years.

 

Interesting to note that house price inflation was faster than gold price inflation until about 1973 (i.e. the thick line is going up) - then gold goes up faster than house prices until about 1980 (i.e. the thick line is going down) - etc etc.  

With the UK housing market currently going a bit nuts, the thick line will currently be going up again.

 

[silenceissilver]

7 hours ago, Stuntman said:

Yes it's an index chart. 

At the start of the time series on the chart, the average house price in units of gold and in units of GBP was 100 units.

At the end of the time series on the chart, the average house would still cost the same 100 units of gold, but you would now need over 10,000 units of GBP (being over 100 times as many units of GBP than you needed 70-ish years ago to buy an average house).

So the conclusion I draw from the chart is that in 2021 an average house is worth the same amount of actual physical gold as it was in 1950 or thereabouts.  So the increase in the price of gold has mirrored the house price inflation over those 70 years.

 

Interesting to note that house price inflation was faster than gold price inflation until about 1973 (i.e. the thick line is going up) - then gold goes up faster than house prices until about 1980 (i.e. the thick line is going down) - etc etc.  

With the UK housing market currently going a bit nuts, the thick line will currently be going up again.

 

The house prices going up first and gold following is due to the gold standard till 1971. Nixon said, he had to "suspend" it because of gold price speculators. The speculation however took place because already before 1971 they printed more Dollars than the gold standard would have allowed - but gold had an official price which made gold too cheap compared to its actual value. Thus the gold price speculation and thus also the house prices going up first and gold catching up in the 1970s.

It would also be interesting to see an index for the number of hours an average earner needs to work to buy one house or a certain amount of gold. You would see you need to work much longer for the same amount of house or gold today, probably roundabout a factor of ten - really only very roughly (compared to the 1950s).

Edited June 11, 2021 by silenceissilver

[Tn21]

@Kman

Can we pls get your interpretation of the chart 

[GoldenGriffin]

8 hours ago, silenceissilver said:

The house prices going up first and gold following is due to the gold standard till 1971.

Totally agree with this.

Houses attach to gold like an elastic band and gold tends to attach to silver with an elastic band, with each elastic band having different lengths and different elasticity.

Up goes housing, pulling up gold, then pulling up silver.

But like a timing belt in a car, each band needs replacing and adjusting at some point down the road to account for economic policy.

The timing belt analogy springs to mind only because my car is currently having its MOT (I hate the waiting) 😅

[Kman]

19 hours ago, Roy said:

I miss @Kman

Oh, he's blocked me...can someone else tag him please?

Not blocked 

I dont want to support the forum anymore by providing content

 

 

[AndrewSL76]

6 minutes ago, Kman said:

Not blocked 

I dont want to support the forum anymore by providing content

 

 

Sorry to read this. I guess all good things come to an end. Thanks for all the analysis etc. on the GGP thread. That was appreciated. 

By the way, loving the elastic band analogy @GoldenGriffin. Hope the motor made it though! 

[GoldenGriffin]

1 hour ago, AndrewSL76 said:

By the way, loving the elastic band analogy @GoldenGriffin. Hope the motor made it though! 

Yes, my car passed its MOT thank you @AndrewSL76! 😊

It's always an anxious time 😅

Edited June 12, 2021 by GoldenGriffin
.

[Robb]

The chart indicates that (generally) gold is hedge against the rising prices of homes in the UK between the early 1950's and today.  To wit:

The chart begins in the early part of the 1950's.  At that time, gold was given an index of 100 as was the price of a house in the UK (which is problematic, as you will see).

Soooo....in 1953ish  both the real estate home price and the gold price were indexed the same:  100 (since that is the starting date)

From the early 1950's up until about 1968 or so, the price of gold and the price of UK houses remained similar:  If you look at the slope of the lines between 1953ish and 1968ish they are identical.  

What does that mean?  (this is why you should have paid attention in math class).  It means that the value of both gold and real estate were rising at the same rate (hence the same slope or rise/run).  As the price of homes went up, the cost you pay in fiat or gold followed in lock-step.  Gold or fiat...made no difference they were the same (relative to house prices, per this chart).

But, take a look at 1973:  Gold and home price in fiat now diverge dramatically.  The gold slope becomes negative, while the slope of the house bought with fiat goes positive.

Now, the house will cost you more in Fiat, but less in Gold.   Why is that news?

Because if you had 50 oz of gold (arbitrary number for demonstration) in 1973 and did NOT buy a house for whatever reason you could buy the same exact house 10 years later for the same amount of gold  In other words, your gold has not lost value (relative to housing in UK).

If, on the other hand, I had 50k in fiat and waited the same 10 years, I would now need about 210k in fiat to buy the same exact home that I looked at 10 years previously.

Of course there are many, many other factors that need to be included in a calculus of this level but the idea is to show you how awesome gold is why you need to buy it from the seller 😉

The reality is much more complex, but one that sticks out to me is what data was used to generate the UK home values ?  Median?  Mean?  Was the general increase in home sizes/amenities taken into consideration? In New England where I live, homes from the late 1960's and 1970's can't be compared to homes build in the 2000's due to size increases and other factors.  They are naturally going to be more expensive since they are so much better.   You could make your own chart using  info from you local area and get more accurate info.  Where I live I use median home value per zip code and try to normalize for location and type/size of house. 

The price of gold in the 1950's up to 1974 is also a bit problematic to me since well, many of us couldn't legally own it 😉

 Remember:   People can cherry pick data to infer any conclusion they want.  You need to understand the biases of those creating the chart and really think about what they are trying to prove and why 😉 

 

 

[Stuntman]

This link shows the historical price of gold in $ per oz for 200 years, up to 2015.

https://onlygold.com/gold-prices/historical-gold-prices/

It's interesting in the context of the original chart because it shows the gold standard value of about $35 per oz between 1953 and 1967, which is why the two lines on the chart were in lockstep until 1968.

And then if you look at 1973 and 1974, you will see that gold (priced in $) went up by 67% and 73% year-on-year, respectively - which is why you wouldn't have needed as many ounces of gold to buy the same sort of house at the start of 1975, compared to the start of 1973.

All good stuff!

[Robb]

10 hours ago, Stuntman said:

 

It's interesting in the context of the original chart because it shows the gold standard value of about $35 per oz between 1953 and 1967, which is why the two lines on the chart were in lockstep until 1968.

Not sure the fact that gold was fixed had anything to do with the 'relative' value between gold and real estate.  The reason of course is that real estate prices would also have to remain steady, otherwise the slopes would be different and there would be divergence between the two, regardless of the price of gold.  The chart shows them being almost exactly the same...hence I'm suspect where the home price data came from.

If the chart was gold vs cost of a computer between 1953 and 1967 there would be significant divergence despite the fact that gold prices were fixed.

Edited June 13, 2021 by Robb

[Stuntman]

^^^ I don't think so.  The lines being in lockstep between 1952 and 1967 is because the value of gold was 100% linked to the value of fiat.  So regardless of the item in question (whether houses or computers in your example), the two lines would stay in step.  The lines diverge when the value of gold differs from the value of fiat (in this particular instance, the price of gold in GBP).

The slope of either of the two lines clearly also then depends on their relative value versus house prices.  So the fiat line generally keeps rising (because housing usually costs more to buy, due to inflation - whether wages or house prices, or both) whereas the gold line goes up and down depending on whether the gold price rises faster than house prices.

You can also see in the chart that the fiat line actually slopes downwards in the early 1990s (post-recession in the UK) and in the late 2000s (post-global financial crisis).  This accords with the reality of the UK housing market.   The gold line decreased sharply in the late 2000s (in fact between 2005 and 2012) because the gold price was increasing rapidly, while for some of that time the housing market was decreasing.  So in 2012 you would have needed far fewer ounces of gold to buy the same sort of house than you would have done in 2005.

Note also that the chart appears to have a logarithmic scale on the Y-axis so the slope of the lines is not directly linear.  In other words, the slopes would be a lot steeper if the Y-axis had a linear scale.

That's my analysis, anyway 🙂 

[sixgun]

The text above the chart i have found reads

Quote

UK House Prices

When measured in Pounds Sterling, UK Houses are over 100 times more expensive than they were in the early 1950s (the £ index has risen from 100 to over 11,000). But measured in gold, house prices are about the same today as in 1952 (gold index 100 then, 105 in mid-2020). Since 2005, house prices in £ rose almost 50%, while prices in gold fell by more than 75%.

Nationwide House Price Index from 1952 in GBP and gold:

 

The chart shows the RELATIVE price of a house over time when prices in gold and GBP.
It starts at 100 - that is 100 units of GBP and the amount of gold that GBP would buy in 1952.

So let's say it was 100 oz of gold in 1952.

Up to about 1972 increasing amounts of gold and GBP were needed to buy the house but relatively more gold was needed.
At the tail end of 1971 the dollar came off the gold standard. Less gold was needed to buy the house into the first half of the 1980's.
Then house prices start going up faster compared to gold. More gold is needed until 2005 after which the price of this average house has been falling in terms of gold.

@Roy In 1968 Decimalisation started to kick in. An excuse to put GBP prices up. The house price in terms of GBP went up but down in gold.

Since 2005 gold has been a better investment than housing.

Edited June 16, 2021 by sixgun

[SidS]

Decimalisation was inflationary.

When the smallest division of a pound goes from 1/480 to 1/200, there's bound to be an inflationary effect as there's less than half the former parts of a pound available to price in.

The same would occur if the 1p and 2p coins were removed from circulation. The smallest part of a pound would go from 1/100 to 1/20.

[modofantasma]

I think along the bottom axis it is  the number of oz of gold and along the vertical axis it's the date 🤔

[modofantasma]

Joking aside one could compare the average house price each month from Nationwides data and compare to average gold price each month to work out a gold to avg house price ratio?

Eg avg house price is 260k in UK whilst spot is 1300 would give a ratio of... 1:200 1 house being about 200 oz of gold 

The issue to the usefulness of such a chart potentially could be demand though. 

Housing demand has grown as families are often seperated more population growth etc which will affect the ratio it's not like for like comparison 

With all the data in the world though 2 people can still interpret it differently and justify their answer