You Have the Control
Finally, an investor in gold or real estate has control over the asset, as long as the gold acquired is not part of an Exchange-Traded Fund (ETF) and the real estate is not part of a Real Estate Investment Trust (REIT). However, the type of control is much different. An investor in real estate can control the performance of the asset by raising or lowering the rents when economic times are good or bad. He or she can also provide sweat equity to improve the asset’s value. Even location can enhance the value of a real estate investment.
This type of control is not available to an investor of gold. When gold is purchased, whether it’s in the form of gold bullion bars or coins, one of the most important considerations is where to store the gold. If it is stored in a custodial vault, the investor has to worry about whether or not the custodian will go out of business. If that occurs, the investor is left with an unsecured claim against a bankrupt custodian. If the investor purchases a safe and stores the gold at home, then there is the concern of a robber stealing the gold and possibly harming the investor or their family in the process.
A few years ago, I had a client who owned $100,000 in gold. He stored the gold in a safe at his home. He wanted to invest in a commercial income-producing real estate investment with me and was required to be a co-signer on the mortgage loan. He submitted his financial statement to the bank showing that he had $100,000 in gold. The banker wanted to see the gold. The investor did not want to take the gold to the bank nor did he want the banker coming into his home to see the location of the safe. They finally compromised by having the investor take his gold to a coin dealer for verification of its value and providing certification that he was indeed the true owner of the gold. The whole process was a hassle.
In summary, gold has performed well over the past 40 years, but it does not have the same performance capability as an income-producing real estate investment. Gold may provide positive appreciation in value similar to real estate, but it can’t provide cash flow, leverage and equity buildup. Nor can it compete with real estate when it comes to tax benefits, stability or control. In short, when all the additional advantages of a real estate investment are considered, gold just doesn’t stack up.