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Updated 19:46 01/03/21

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Gold to real-estate ratio

The gold to real-estate ratio shows the relative value between gold and real-estate, and can be used by some as a quick way of visualising which of the two is currently under or overpriced. The gold to real-estate ratio indicates the number of ounces of gold needed to buy the average UK house.

Both gold and real-estate are seen as alternative physical assets to stocks. Both offer tangible investment choices, but as discussed in our gold vs real-estate article, property has seen its potential value decrease in recent times. In the majority of cases, gold outperforms property, while proving a much less stressful investment choice.

How many ounces of gold do you need for a house?

Based on the national average house price for 2020 (£216,092) and the gold price at the start of the year (£1,185.88 per ounce), we get a gold to real-estate ratio of 182.22. This means that as of 2020 you need over 182 ounces of gold for a house in the UK.

The chart below shows the gold to real-estate ratio since 1975:

Chart tracking to the gold to real-estate ratio. .

The ratio peaked in 2005 at 676 ounces, with house prices skyrocketing while gold was nearing the end of a prolonged bear market. The average in that time was 264, and since 2011 – when the gold price peaked during the financial crisis – the ratio has remained below this average level. This demonstrates that the gap between the two investment vehicles has closed. Gold has remained popular, and high in value as a result, while house prices have failed to keep pace – rising, but at a slower rate.

It should be noted that the usefulness of the gold to real-estate ratio is questionable. Unlike gold and silver, property is a significantly different asset that moves independently of precious metals. Gold will tend to perform well during financial crisis, while house prices tend to drop. Whereas the gold-silver ratio can indicate a buying opportunity for either metal, it is difficult to draw meaningful conclusions from the gold to real-estate ratio.

The normal conclusions of ‘expensive’ and ‘cheap’ are subjective. The current ratio of 182 would suggest that gold is ‘expensive’ and, considering it is near all-time highs, this does make sense. However, for the ratio to increase towards the long-term average, gold would either have to decrease in value, or house prices increase in value.

Global uncertainty is high, which makes a significant drop in the gold price unlikely in the short-term. House prices have remained relatively flat in recent years, and although demand is high and growing, there is no reason to expect a sudden surge in house prices.

It is more likely that the growing popularity of gold means that the ratio average will likely continue to decrease in the coming years, and a new balance between the two assets is reached for the near future.