Investing in Gold and Silver to Buy Real Estate in the Future

It's no secret that the economy isn't doing well, the U.S. dollar is weakening, and that the U.S. government has been spending ridiculous amounts of money to keep the economy afloat, not to mention the Fed printing money at record amounts.

Furthermore, the stock market took a big hit back in 2008, and gold and silver prices have been on the rise. In fact, gold and silver have been by far outperforming the stock market for the last few years.

But what most people are unaware of is that we are in the midst of a commodities cycle that started back in 2000. Prior to this commodities cycle, we were in a cycle in which real estate and paper assets were the hot asset class; however, at this point and time the hot assets will be commodities, in particular gold and silver.

The last precious metals bull market was from 1966 to 1980, although the full effect of that precious metals bull market was not felt until the late 70s and peaked in 1980. But if you truly believe that history repeats itself then you will begin to see that it's really gold and silver's time to shine.

According to the S&P/Case-Shiller Home Price Index (S&P/CSI), in 1971 a median-price, single family home in the U.S. was $20,663. That same year silver's average price was $1.39 per ounce. Thus, it required 14,823 ounces of silver to buy a median-price, single family home in the U.S.

At the end of the precious metals bull run in January 1980, just nine years later, that same home cost $42,747, and silver was just over $52.50 per ounce, so it required roughly 814 ounces of silver to buy the same home. The house had increased in price 2 times, or 100 percent.

However, the currency supply had grown 2.45 times, or 145 percent. Inflation raged all through the 1970s, and the result was that though real estate increased significantly in price, it's true value barely kept up with inflation and may have actually fallen a little.

On the other hand, silver had increased 3,641 percent, outpacing inflation by more than 15 times.

But here's a really cool scenario. If you had sold a house in 1971 for $20,663 and purchased silver, by January 1980 your investment would have outpaced real estate by a factor of 17, growing to $770,796.

If you then sold your silver, you could buy 18 median-price, single family homes, all cash, at the 1980 price of $42,747 per house and benefit from 100 percent of the cash flows from those properties, or, if you were feeling really adventurous, you could put 20 percent down and buy 90 homes for the same price.

Today, we find ourselves in a similar situation, only better. Real estate has become much more overvalued and silver has become extremely undervalued.

Measured against silver, the median price, single family home in the U.S. hit its peak in 2002, at a price of 38,123 ounces of silver, some two and a half times higher than at the beginning of the last precious metals bull market in 1971.

When silver hit its peak of $52.50 in 1980, it was not rare. Today, identifiable aboveground silver stockpiles have been drawn down to a tiny fraction of their size in 1980.

Taking into account economic bubbles and the bursting of economic bubbles, the history and the current fundamentals of gold and silver, and the history of financial cycles, it wouldn't be unreasonable to think that less than 500 ounces of silver would be able to buy a median-price, single family home sometime in the future.

Currently 500 ounces of silver is selling for around $8000, and a median-price, single family home is selling for around $175,000. Wouldn't you just love to buy a home outright, for just $8,000? Or put 20 percent down and buy 5 homes?

Well, if you wait until silver is once again overvalued and real estate is once again undervalued, you might just be able to do so. Remember, in 1980 it only took 814 ounces of silver to purchase the average home, and silver wasn't rare then.

If indeed the day comes that you can buy a median-price, single family home in the U.S. for just 500 ounces of silver, then that means that if you owned a home outright, sold it now, and bought silver, then, when silver peaks against real estate, bought similar homes in the same neighborhood (barring tax losses), you could buy 23 of them outright, or 115 of them at 20 percent down.

I know these figures sound silly, but believe it or not, they are not improbable. It's just a repeat of the 1970s precious metals bull market---it's history repeating itself.

Brittany has been writing articles for nearly 1 year. Come visit her latest website about skirting for mobile homes and other materials for mobile homes.