EDITOR'S NOTE: Kitco News is turning five; to celebrate, all this week, we are featuring articles that look back at the gold market, showcasing the changes we've seen during the last five years. Click here to see our full coverage.

Consumers Need 20% More Gold But 25% More U.S. Dollars To Buy A Home Compared To 2009

By Neils Christensen of Kitco News
Wednesday October 15, 2014 10:18 AM

(Kitco News) - The gold market’s 2013 correction, which saw the biggest drop in prices in more than 30 years, damaged the yellow metal’s purchasing power from the last five years, but has not completely erased it.

In celebration of Kitco News’ five-year anniversary we looked at how much gold a person would need to buy a few big ticket items in 2009 compared to today’s market. In general, prices have gone up, and although gold has lost value against the U.S. dollar since its 2011 highs, the rise in prices in gold terms was lower, compared to U.S. dollars.

Kitco News published its first story in December 2009; at the start of that month Comex December gold futures opened at $1,181 per ounce. Tuesday’s closing price for December Comex gold futures was $1,234.30 an ounce, showing a gain of 4.5% over the last five years.

The first purchase we looked at was the cost of a new home. The housing market saw some stabilization following the 2008 financial crisis. According to the U.S. Commerce Department the average price for a new home in December 2009 was $278,300 or 235.6 ounces of gold.

Although the housing market has not seen a consistent recovery from the financial crisis, prices for a new home have generally trended higher. In August 2014, the latest report available, the Commerce Department said that the average price of a new home was $347,900, or almost 281.9 ounces of gold at the Oct. 14 price. In the last five years the price of a new home has risen 25% in U.S. dollar terms, or 20% in gold ounces.

The next purchase we looked at was a vehicle, the second biggest purchase in a person’s life. Of course we didn’t just pick any car; we compared the price of a 2009 BMW M5 to the 2014 model. With seating for five it is the perfect family car; however, a 500hp V-8 engine allows this “family sedan” to go from 0 to 60 in 3.7 seconds, putting most sports cars to shame.

Of course this performance is not without its price. According to AOL.com, a fully-loaded BMW M5 in 2009 cost $85,500, or 72.4 ounces of gold. The website priced the 2014 fully-loaded model at $92,900, or about 75.2 ounces of gold. In U.S. dollar terms the cost of BMW’s dream machine increased 8.6% in U.S. dollars the last five years but only increased 3.8% in gold terms.

The final purchase Kitco News looked at was the annual summer vacation. According to the Bureau of Labor Statistics, consumers were still feeling the effects of financial crisis and travel spending remained depressed in 2009.

“In a period of high unemployment, it is reasonable to expect that many people who either become unemployed, or anticipate the prospect, will reduce their non-business travel,” the department said in a report that looked at travel spending between 2005 and 2011.

The report said that spending among traveling families in 2009 was around $4,300 or around 3.6 ounces of gold.

With the U.S. economy showing signs of a recovery, a May survey conducted by American Express noted that not only were more people expected to go in vacation this year, but that prices were also going up. The annual American Express Spending and Savings Tracker survey reported that 75% of Americans were planning a summer getaway in 2014, up from 69% in 2013. The survey also said that vacationers were expected to pay $1,246 per person. For the average family of four that equals a total of $4,984 or 4 ounces of gold.

According to the data, the price of a family vacation has risen almost 16% in the last five years and risen 11% in gold ounces.

Although the data shows that over the last five years gold’s purchasing power has declined, Keith Weiner, CEO of Monetary Metals and founder of the Gold Standard Institute, said that the yellow metal shouldn’t be dismissed.

He added that although prices have gone up for some items, especially big ticket purchases like homes and cars, they have gone down in other areas - especially electronics.

“There are many forces on prices,” he said. “Industries are always trying to develop new technology to increase efficiencies, which will bring down prices.”

He noted that prices for big items like homes and high performance cars have gone up because central banks like the Federal Reserve have been pushing credit into the monetary system.

Ultimately, because gold is a commodity, Weiner said its value is measured in a speculative market. “I think the speculative acceptance in 2011 has led to the speculative backlash we are seeing right now. I call it a speculative casino and it is destructive.”

Weiner added that gold’s true value comes from the fact that it is not subject to the same credit risk as the U.S. dollar.

“I try to look at inflation as a quality of credit and at some point it can’t continue to go up because somewhere down the line someone will want to be paid,” he said. “As long as people trust that the U.S. debt can be serviced they won’t question the U.S. dollar, but what happens when it can’t?

“You should hold gold because there is no counter-party risk,” he added.

By Neils Christensen of Kitco News nchristensen@kitco.com



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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