Gold beats property as an investment

Investor says gold outperformed property over the last 25 years.

Ten years ago, Mike Hamilton was a successful businessman – but he’d “had enough of the world; I just wanted to get out of the zoo, to find some peace in my life, to do my own thing and use my head.

That meant selling a successful business he’d built up from one person to 50-60 staff and leaving behind a second career as a management consultant. It meant the born and bred Aucklander moved north to “a world of nature and beaches…the real world”.

It also meant he moved into the world of gold and silver.

It was a rabbit hole I went down and I’ve never come back out of,” he says, “because there is so much to learn and understand.

It’s been a profitable rabbit hole. His bullion investments have increased in price by 135 per cent over the last nine years.

What he now understands – and is a fervent supporter of – is the value of gold and silver to investors, and he is a consistent customer of New Zealand Gold Merchants. His portfolio consists of 50 per cent cash, 25 per cent gold and silver, 15 per cent commodities and 10 per cent “other”. His best-performing part of that portfolio: “Hands down, gold and silver”.

Hamilton (not his real name) counts himself a secular investor – one who operates over the long term, rather than cyclical, shorter-term investments. Over the last 40 years, he says, the financial world has been shaped by interest rates tracking down, until the recent global rises.

Now there is a new secular move that is seeing a big swing for capital to go into hard assets,” he says. “That means gold and silver or commodities and items which are actually productive; which you can actually put your hands on and which maintain their value.”

He loves the old saying demonstrating gold’s staying power – that 2000 years ago, you could buy a good toga and a pair of sandals for the price of an ounce of gold. Now you can buy a good suit and a pair of shoes for the price of an ounce of gold. So, he says, it’s all about the value of something as opposed to the price.

Gold is a classic example [of secular investing] because it is a value preserver; it maintains your purchasing power and, if you look at New Zealand over the last 25 years, you can also see that gold has outperformed house prices over that period.

It is particularly important, he says, because of the world’s financial system and how it is being “used and abused”: “I have a highly cynical view of the financialisation of the markets over the last 20-30 years. We talk about a global housing crisis – it is really a global monetary system crisis.

“What’s happened is that they [governments] have used the monetary system to cover more and more gaps – printing more money and adding to debt, making everything more expensive. When I bought my first house in New Zealand, the house price-to-earnings ratio was three. Now it’s double digits.

The only way to protect yourself from that is to buy gold and silver.The volatility of equity investments he has made has become “greater and greater” while the volatility of gold and silver has always been “steady” but has lately reduced because of the move towards hard assets.

It’s possible, if you buy at the right time in the cycle, to make some money from the gold and silver price,” Hamilton says, “but its real value is as a value preserver. If you look at the history of the world, you’ll see that the value of gold always adjusts to the circumstances. You can’t say that about any other investment.

The key, he says is to understand what value preservation and value itself actually mean: “Fiat currencies are always devaluing. A fundamental change in thinking is required if you are to construct a value mindset – and that is to start pricing everything in gold, be it grams, ounces or kilos.

“It shifts your understanding of the world and allows you to observe value where it exists. Pricing anything in fiat currency has no meaning. To be successful at investing or wealth preservation, people need to get their heads around the difference between price and value, which the 1st graph beautifully describes.”

Tony Coleman, co-founder and director of New Zealand Gold Merchants recommends fortifying your portfolio with 10-15 per cent of bullion. An allocation of gold in a portfolio is proven to enhance the overall value over time, plus during economic uncertainty, it provides wealth protection where other asset classes cannot. Coleman suggests it might be wise to increase the amount given the geo-political climate.

New Zealand Gold Merchants has been trading for over 45 years and is the country’s leading precious metal dealer.

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