No longer is gold in vogue as a common store of wealth as it has been in the past. Both property and art have grown in terms of importance for the sophisticated investor.
Of course, if there is turmoil in the world, the price of gold will go up and then when the world is perceived as safe again, gold will go down, but often plummeting. Even for many sophisticated investors, the gyrations of gold prices are just too great.
Prices of Manhattan Luxury apartments and those of other global cities like London, Paris, Hong Kong, and, most recently Miami, however, generally tend to rise with inflation and have done exceedingly well over the long term. While there are periodic corrections, such corrections are nothing like what happens with the price of gold, especially when we are talking about the high end of the residential real estate market.
The same thing can be said for art. Recently, Paul Provost, Deputy Chairman, Christie’s, stated: “Although the art and real estate markets are different, high-value art and property purchases are both about passion and investment. Fine art is increasingly considered an investment asset because values have risen so dramatically in recent years. The two markets are converging to a degree, as people increasingly seek to diversify and acquire assets of lasting intrinsic value.”
While gold is a very liquid investment, investments in Manhattan luxury apartments can be leveraged with mortgages allowing owners to build wealth using other people’s money (the bank’s). In addition, property investments allow for tax deferments as well as revenue production. Even art investment doesn’t have these types of financial benefits.
“Historically gold was a great instrument for storing of wealth,” the chairman of BlackRock Inc. said at a conference in Singapore on Tuesday. “Gold has lost its luster and there’s other mechanisms in which you can store wealth that are inflation-adjusted.”
Over the centuries, bullion traditionally lured demand as a protection of wealth during crises, including conflicts and periods of inflation. Prices posted the first back-to-back annual drop last year since 2000 as investor holdings in exchange-traded products contracted, global equities rallied and the dollar climbed on prospects for higher U.S. interest rates. Since peaking in 2011, it’s dropped about 38 percent.
“The two greatest stores of wealth internationally today is contemporary art….. and I don’t mean that as a joke, I mean that as a serious asset class,” said Fink. “And two, the other store of wealth today is apartments in Manhattan, apartments in Vancouver, in London.”