Stocks & Real Estate Will Lose Value Versus Bullion?

Last week’s disappointing gold and silver spot price action will likely mean very little later this decade with today’s valuation bubbles in US stocks, and US home prices are perched to lose tremendous value versus bullion to come.

Long-term trends illustrate that these two precious metals should provide not merely wealth protection but also wealth enhancement as historic bubbles in some of the largest retail investor-owned asset classes lose real value to bullion ahead.

We will, of course, look in more detail about what happened this past week. But we will finish by focusing on the longer-term perspectives of where the two monetary precious metal values may reach later this decade.

Design guarantees that the fiat Federal Reserve and US Treasury will further devalue the world’s still dominant fiat currency, the fiat US dollar to come. The recent unprecedented increase in the fiat $USD’s supply guarantees more inflation to come. 

To avoid nominal currency unit confusion, we will take further fiat $USD devaluations out of the equation and focus on long-term value versus value ratios to get a sense of future outperformance. 

Spot prices for silver and gold were brought under pressure mid-week, with the silver spot price closing just under $22.50 oz and the gold spot price finishing the week around $1,790 an ounce.

The gold-silver ratio climbed back to close this week at 79.

Many mainstream financial media articles pointed to this week's bounce in fiat US dollar strength versus the euro, yen, etc., in the DXY. 

But remember, when you hear the term "dollar strength," they are only talking about fiat currency values versus one another. Do not be deluded by such short-term fiat financialized trader talk. For average investors, fiat currency debasement versus real things marches onwards by design.

In 2003, around this same 97-100 level in the often quoted DXY, the price of silver was less than $5 an ounce, and gold was below $400 oz.

The longer-term fact is all fiat currencies by design will continue losing real value to bullion to come, short-term price gyrations aside.

Of course, how the two precious metals respond early next week will tell the short and medium-term. But judging by bullion sales volumes to close this week, many of you out there are taking advantage of these lower spot price points already by heavily buying bullion.

We are turning now to the bigger bullion-related perspective at play.

This past week, I was pleased to present at Rob Kientz's GoldSilverPros online conference. The theme of my presentation revolved around how to know when gold and silver have begun to reach fair value and likely eventual overvaluation later this decade.

I will share a few critical charts related to most US investors' most significant asset classes. Bullion versus US stocks and US real estate. Valuation gain potential to come for both silver and gold, respectively.

Of course, when suffering under a total fiat currency regime, maintaining a prudent bullion investment position makes backtested mathematical sense. Jeff Christian's own CPM Group has documented that statement with a varied 500 portfolio backtest illustrating that having about 20% of one's liquid net worth in gold bullion over the last five decades-plus has been prudent valued against US stocks and US bonds. 

Since it is rather unlikely this modern full fiat currency regime goes back to being bullion-backed without massive inflationary years from here to there, always maintaining some bullion in your net worth will likely always make sense.

We'll start with the US stock market bubble threatening to roll over right now nominally—but instead measured by gold over more than 100 years.

The overall trend is up, partly based on the financial system incentivizing citizens to save for retirement using high-risk assets like US stocks. Still, nevertheless, you can see the last time we had a debt to GDP ratio bloated following WW2 and during the fiat currency falling 1970s commodity bull market to see just how far this ratio can fall. 

My conservative suggestion is to merely target the 2011 low in this ratio of about 0.75, meaning by owning gold bullion now, you would outperform the S&P500 by over a factor of 3X's perhaps by later this decade.

Of course, this ratio could go much lower in a gold mania phase, but the simple point I am making is that the US stock market is currently in an unprecedented bubble by nearly all measures. This ratio begins its next major slide. One can simply divest into gold bullion for safety and potential outperformance.

A similar pattern is setting up for silver bullion outperforming the S&P500 in this decade playing out. The 2000s early 2010s commodity bull market drove this ratio down to around 30, so a mere repeat of that feat means silver would outperform the US stock market by a factor of about 6X's here to there.

So, in other words, investors can divest from risk assets that can and often do fail and fall into bankruptcy and see potential value gains that have historical precedent, especially in burgeoning commodity bull markets.

We are moving to the most freakish real estate bubble the US has ever achieved, now dwarfing the 2007 version, even as the aging baby boomer generation still owns about two in five US houses. 

The average price for a US house is now near a half-million fiat Fed notes. Even the median or middle-priced home in the USA is over $400k.

When the value of gold or silver measures the average US house price, you can see we are basically in a confusing dead cat bounce, being masked by devaluing currency units and record low-interest rates.

Looking at gold versus US average house prices ahead, the 2011 low near 150 looks like a conservative target later this decade. 

In silver, the potential outperformance is even starker if we get back beyond the 2011 low near 5,000 oz. Yes, the average price of a US home is around $500k, so you can do the math of what that portends if silver repeats and possibly blows beyond its 2011 low in this ratio.

The bottom line is this.

Both these two major US asset classes are at high historical bubble levels. Could they go on much longer here?

Indeed they could extend for a few more years, especially as they get further muddled upward nominally by fiat currency inflation. But valuation gravity and these longer-term charts make me confident knowing that both silver and gold are the better long-term value choice at the moment.

A time will come again when that will not be true, but until then, I will be overweight long bullion, waiting to sell some into the era when they reach fairer values much higher from where they are today.

That is all for this week's SD Bullion Market Update.

As always, to you out there

Take great care of yourselves and those you love.

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James Anderson
James Anderson
Senior Market Analyst & Content

A bullion buyer years before the 2008 Global Financial Crisis, James Anderson is a grounded precious metals researcher, content creator, and physical investment grade bullion professional. He has authored several Gold & Silver Guides and has been featured on the History Channel, Zero Hedge, Gold-Eagle, Silver Seek, Value Walk and many more. You can pick up Jame's most recent, comprehensive 200+ Page book here at SD Bullion.

Given that repressed commodity values are now near 100-year low level valuations versus large US stocks, James remains convinced investors and savers should buy and maintain a prudent physical bullion position now, before more unfunded promises debase away in the coming decades...