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Commodity Prices Historical Prices Macroeconomics

Precious Metals

With the recent rally in gold, we’ve been hearing a lot about precious metals. Actually ever since the financial meltdown last year the gold bugs out there has been much more boisterous… so I’ve finally broke down and prepared a post on gold and silver. This is another one that’s not particularly about real estate prices, but I will throw in a tie-in towards the end.

Here is a graph of the historical gold price per ounce, nominal prices in US and Canadian dollars, and in inflation adjusted Canadian dollars. Many investors generally look at precious metals as an inflation hedge, but it is prone to bubbles of it’s own… obviously as was witnessed in the early 80′s and is evidenced in the inflation adjusted figures.

For those thinking about buying gold you should take note of the tail end of this graph and that while gold has just recently reached it’s all time (nominal) high in US dollars, in Canadian dollars it actually peaked in the winter here and is a fair bit below that price currently.

So, if you’re thinking of putting money into gold, don’t just trade blindly based on what it’s value is in US dollars, you need to figure in the exchange rate into your calculations.

Here we have the same graph for silver, charts similar though it’s spike in 1980 was even more severe. Ignoring that, we can see that like gold, overtime it tends to hold it’s value without much if any appreciation, but is trending up the last few years.

For those interested in such things, here is a graph of the relationship between gold and silver prices. We can see the ratio has gone as high as 97.3 and as low as 17.2. Since 1971 the average has been 55.7, with a standard deviation of 18.1.

Finally we’ll do that tie-in with real estate, just for shits and giggles. This is a graph of the number of ounces of gold it would take to buy the “Average Residence” in Edmonton. There has been a fair bit of fluctuation, particularly in the 70′s. Over the period presented, the average has been 272, median 261 and standard deviation 101. So our current situation is right around normal, but it got as high as into the 500′s in 2007.

Interesting to note, the huge gold spike in 1980 coincided with the prior real estate bubble. While housing prices had somewhat plateaued from ’77-’82, the ratio plunged from north of 550, to less then 100.

Lastly, the same graph for silver. Average was 14,660, median 14,721 and standard deviation 5,723. In this case we’re currently well above the long term mean, and it’s interesting to look at the differences in pattern/scale of some of the movements between gold and silver with this measure.

So, take it for what it’s worth. Like any of the other commodity analysis’ I did earlier, any relationship with real estate appears anecdotal at best, but I included it because it’s been requested often. What I take from looking at this data is that like other assets, beware of bubbles, and be sure to figure in the exchange rate should you start putting your money into any investments.