When looking at how it is that a gold liquidation would impact a personal investing portfolio, we need to remember how it is that Gold will generally act as a store of value against uncertainty, inflation, and general macroeconomic risk. However, the only real reason why it is that gold stores value is because it is a tangible asset. The perceived value of Gold is no longer tangible, because currencies are no longer tied to it.
This means that Gold’s value is about as relative of the currency values which it is trying to protect against. Such an awkward attribution of price therefore makes it very difficult for us to actually predict a price for gold, which makes it even more volatile, and therefore an indicator of the emotional responses of investors. While Gold may provide a safe-haven for investors in times of panic, it is important to remember that Gold is only as safe as investors are scared. As soon as investors start to feel safe again, we need to cash out, and take our money back home, literally.
Another tangible asset that is well known to hold value over time is Real Estate. Home property has shown a strong resiliency in its ability to retain value because of the way in which it tends to be (generally) fairly valued. Essentially, people need homes, and they don’t usually buy and sell their households on a whim over the weekend. Except for the occasional bubble in the market that is generally supported by artificial stimulation or foreign money, the ability of property to hold its value makes it an ideal venue for liquidating gold holdings into.
That being said, holding value is pretty boring. How can we turn gold holdings into house-holds, and then take that investment to the next level of sophistication, without taking on too much incremental risk?
A standard sales line from most financial planners is that you should leverage property into investments so as to reap a greater return and pay off other obligations. While there are many reasons why this is an extremely appealing investment strategy, we need to remember that leverage is debt, and debt creates more risk than we want to take on as personal investors. So then how do we get access to the scale of property returns without needing to go into debt?
Real Estate Income Trusts are one fantastic option. Another alternative would be to simply invest in companies that inherently carry a great deal of property on their balance sheets. McDonalds is commonly referred to as a ‘Hamburger REIT’ because it owns all of its own properties. Warehousing companies, dealerships, and even consumer staples companies all control a great deal of physical property, which can preserve the real value of your investment over the course of a liquidity injection into the market from a gold sell-off.
