Why Gold compliments property?
You won’t be surprised to hear that there’s a lot more I want to say about the various points I mention below. If you want to get my FREE report that gives you more detail then please fill out the contact form and ask for it.
Gold is very complimentary to property
Do I think you should sell your property and buy gold….no. I love property…but I think you should get some exposure to gold.
The combination of property and gold is particularly powerful.
Let me talk about some of the areas where Gold could add another angle to what a property portfolio can offer.
You’ve probably already got a property portfolio which you’re very happy with.
But I want to show you how you might be able to make it even better.
1 + 1 could equal 3 if you combine Property and Gold.
Working together it may be possible to not only build on what you already have. But also protect it.
Let’s go!
Cashflow
In terms of cashflow, gold is everything property isn’t and vice versa. With property you get a nice income from the rent – you don’t get that from Gold. Of course you can get a dividend from some shares….but there’s no income from physical gold.
But what you do get from Gold that you don’t get from Property is liquidity. You can sell it quickly.
Property is an illiquid asset. It takes time to buy/sell and not only incurs high transaction costs, but also the risk of a sale falling through (especially if the market isn’t that great). You don’t really get that with gold.
With property, if you need cash quickly it can be hard to get your hands on it. Especially if the market stagnates.
Not only is it illiquid but it’s chunky. Why sell somewhere for £200,000 if you only need £20,000?
You can’t just sell the spare bedroom.
Gold is divisible, so you could buy it in amounts that you might need the cash for. For example, if you’ve got £100,000 you could get 10 bars that are worth £10,000 each. You only therefore need to sell a couple if you need that £20,000.
Holding gold provides a cushion if you need access to cash while holding onto long-term property investments.
Diversification
Gold and property are not strongly correlated: Their prices don't usually move in the same direction. So when property markets are flat, gold may hold or increase in value.
There’s also the currency angle.
Although some investors might have property in several countries, most don’t.
There’s a good chance that all they are in the same country – probably the UK.
Future returns are very much tied to the fortunes of that particular country.
Don’t get me wrong. That could be great. But it could also suck.
You don’t want ALL your eggs to be in one basket, in case something happens that’s completely out of your control. For example, some new legislation could come in that hit’s prices hard.
There’s nothing you can do about it, but it might hurt the value of your investment.
Anyway, the bottom line is that if you’ve got all your properties in one country, you’ve got massive exposure to that currency
In the case of the UK, we’re talking Sterling.
I reiterate, great if your currency does well. But if it takes a bath, you’ve got no diversification. I’d point out that you’ve got literally no control over what Sterling does…..so your property decisions could be great. But if Sterling falls, you’re losing purchasing power - through no fault of your own.
Currencies matter.
I would also add that Gold has global demand. You’re taking a risk on the gold price and NOT the currency. If there’s a recession where your properties are (say in the UK) and values and rent get hit - you’ve got your Gold - it’s a different asset class.
Hedge Against Inflation
Both gold and property can act as inflation hedges, but in different ways:
Gold will probably preserve your purchasing power if we get inflation.
Property on the other hand benefits from rising rents and property values over time.
We obviously don’t know what will happen, but by having both you’ve got more bases covered.
Crisis and Economic Cycle Balance
During economic or geopolitical crises, gold typically performs well as a "safe haven."
Property may underperform during recessions, especially commercial or luxury residential sectors.
Gold can cushion portfolio losses during such times. It’s nice if you’ve got something performing well if your other investments are struggling.
Capital Growth vs. Capital Preservation
Property is often geared toward long-term capital growth and passive income (via rent).
Gold is geared more towards capital preservation, especially in times of uncertainty or market volatility.
Gearing
You don’t need me to tell you that a lot of the returns available on property are because you can leverage it. The rent paying for the interest payments.
This can be fantastic but can also decimate your capital.
Let me run three scenarios past you.
Scenario 1
You buy a property for £200,000 and put £20,000 down as a deposit and you pay interest and capital expenditure on the property of say £6,000 a year. The rent is £12,000 a year, and there’s a modest capital gain. When you come to refinance, mortgage rates are the same or lower, you’re very happy.
Scenario 2
You buy a property for £200,000 and put £20,000 down as a deposit and you initially pay interest and capital expenditure on the property of say £6,000 a year. The value remains flat, but you have to refinance it and interest rates are a lot higher and you find yourself paying interest and capital expenditure of £12,000 a year. You can squeeze the rent up a bit to say £13,000 a year, but you don’t have much headroom. You’re less happy.
Scenario 3
You buy a property for £200,000 and put £20,000 down as a deposit. The market falls and the property is now worth £180,000. Your mortgage provider will only lend 90% LTV (in a falling market this could be worse), so you then have to find another £18,000 to keep the property. To make matters worse you can only refinance at a higher interest rate (perhaps the rent and capital expenditure does not cover the interest payments).
In this scenario, you initially intended to allocate £20,000 to the property and calculated your returns on this. But you need to allocate another £18,000 to it. So you’ve invested £38,000 in a property with a value of £180,000. To make matters worse your holding costs have increased significantly. You’re not happy.
BUT
If you’ve got some gold, then the features that I’ve just mentioned….such as liquidity and diversification, may enable you to hang on to the property and wait for the market to bounce back. If the property price has fallen due to events in the UK, perhaps your gold hasn’t been impacted by that. It might have even gone up in value (Look at the tab on Gold Price Projections to try and get a better feel about this).
ON THE OTHER HAND
If all you have is property, then the only way you can raise cash is to sell some of your other property in a falling market.
Not easy.
Hopefully you’re not too highly leveraged. Perhaps your leverage is fine in current market conditions but things change. It might have been easy to get a 90% LTV loan to buy it, but what happens if the banks are lending 80% LTV when you come to refinance it.
Appreciate that some of you might have NO leverage against your property, so you’re saying “This isn’t an issue”.
But if you look at the return on property in the 12 months to January 2025, they were 4.9%. Obviously, there’s some rent to add to that, let’s say that takes the return on the asset up to 10%. Given Gold has averaged an annual return of over 10.6% since 2000 (in Sterling), doesn’t it make sense to have a bit of diversification in case your property does not work out for you?
But I’m going to pass it down to my children
I know a lot of people in the industry who are planning to pass it down to their children, but that may not be as straightforward as you’d hope.
For example:
1) Although you can probably manage it until you’re say 80, after that you might want your kids to manage it. They may not want to do this (especially if you’re taking the lion’s share of the income), or not be very good at it. In which case you risk falling out with your own family.
2) Your kids probably want their own place and view your property as a good source of capital to get it. If you give it to them and survive the 7 years requirement for Inheritance Tax purposes that’s great. But there’s a “contingent liability” on the gift for 7 years. Again you may want them to provide you some sort of return for your gift, which may be ok if it’s modest, but could cause some resentment if it’s not.
3) Appreciate we never want to talk about divorce, but unfortunately, it’s a fact of life. Although this applies to both property and gold, because gold is divisible, you may be able to help your children make the necessary payment without selling the property. If all you have is the property, your only real option might be to sell it.
I’ve never known kids being unhappy because they’ve got some gold! It’s particularly easy to manage!
Anyway, back to gold and property.
Making money is one thing. Keeping it is another. If you’ve made some good money on property, then now may be the time to diversify a little.
I made my money in property. I love it. But I don’t want all my eggs in that basket moving forward.
I was told never to love anything that can’t love you back. I love property, but I know it won’t love me back!