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Gold Outperforms Canadian Real Estate and Stocks Since 2001
Since January 2001, gold has been Canada's top-performing asset, outpacing real estate and stocks, with a 10.3% CAGR, despite many Canadians viewing real estate as the most reliable investment; this is due to a disconnect between the Consumer Price Index and asset prices, with asset prices closely tied to the growth of the money supply.
- What asset class has yielded the highest return in Canada since 2001, and how does this compare to the commonly held belief about real estate investment?
- Since 2001, gold has outperformed Canadian real estate and stocks, achieving a 10.3% CAGR compared to real estate's 6-8.6% and stock market's 7-8%. This contradicts the common perception of real estate as the most reliable investment in Canada. However, real estate's leverage through mortgages can significantly impact returns.
- How does the disconnect between the Consumer Price Index (CPI) and asset price inflation explain the significant growth of asset prices like gold and real estate?
- The superior performance of gold is linked to the rapid expansion of the money supply and its inherent scarcity, driving asset prices higher. In contrast, the Consumer Price Index (CPI) primarily measures consumer goods and services, not asset prices, thus underrepresenting the impact of money supply growth on asset inflation. This disconnect explains the divergence between CPI and asset price growth.
- Given the projected continued growth of the money supply, what are the likely long-term implications for asset prices and income growth, and how might this impact investment strategies?
- The continued growth of the money supply at approximately 7% annually suggests a similar long-term trend for asset prices, potentially leaving income growth lagging. While past performance is not indicative of future results, the analysis highlights the importance of considering factors beyond CPI when evaluating investment strategies and the significant role of leverage in real estate investment returns.
Cognitive Concepts
Framing Bias
The headline and introduction emphasize the underperformance of Canadian real estate compared to gold, potentially shaping reader perception from the outset. The article focuses on the 'different story' revealed by removing the leverage effect of mortgages, thereby downplaying the potential benefits of using leverage in real estate investment. The sequencing of information, presenting gold's superior returns early on, sets a tone that may influence how readers interpret the subsequent data on other assets.
Language Bias
The language used is generally neutral, employing precise financial terminology. However, phrases like "the numbers tell a different story" and "the disconnect between CPI and asset prices" could be perceived as slightly loaded, subtly guiding the reader towards a predetermined conclusion. More neutral phrasing might be preferred to maintain complete objectivity.
Bias by Omission
The analysis omits discussion of Bitcoin's performance, despite acknowledging its superior returns. This omission, while explained, could mislead readers into underestimating alternative investment options. The exclusion of other asset classes beyond gold, Canadian real estate, and stock market indices also limits the scope of the analysis and potentially the conclusions drawn. Further, the article doesn't explore potential risks associated with each asset class, which could impact a reader's investment decisions.
False Dichotomy
The article presents a somewhat false dichotomy by focusing primarily on gold's performance versus other asset classes without fully acknowledging the complexity of investment strategies and risk tolerance. While gold outperformed others in the specified timeframe, the analysis doesn't explore factors like diversification and the role of risk in investment portfolios. Presenting gold as definitively superior without a more nuanced discussion oversimplifies investment choices.
Sustainable Development Goals
The article highlights that asset prices, including real estate, have risen significantly faster than incomes, which are more closely tied to the Consumer Price Index (CPI). This widening gap contributes to increased inequality as those who own assets benefit disproportionately from asset price inflation, while those who primarily rely on income may struggle to keep pace. The text mentions that "Ultimately, if the money supply keeps growing at a compound rate of around 7 per cent annually, asset prices are likely to follow a similar long-term trend – while incomes, more closely tied to CPI, may lag behind.", directly indicating a potential exacerbation of income inequality.