Friday, May 3, 2013

Houses Surpass Gold for Hedging U.S. Inflation

Anyone seeking protection against a pickup in U.S. inflation would be better off buying houses than
gold, according to Michael Hartnett, chief investment strategist at Bank of America Corp.’s Merrill Lynch unit.
U.S. house-price index, compiled quarterly by the Federal Housing Finance Agency, and the price of the precious metal since 1995. 

     The dollar’s buying power is poised to decline, Hartnett wrote, as the Federal Reserve seeks to bolster economic growth through bond purchases, or so-called quantitative easing. Fed policy makers raised the prospect this week that the pace of buying may increase from the current $85 billion a month.

     “No one knows if the QE experiment will ultimately prove to be successful,” the New York-based strategist wrote. “But we do know the ’journey’ involves asset-price inflation. With the outlook for gold looking more muted, U.S. real estate looks the best hedge.”

     Home prices rose 6 percent through the end of last year from their low in the second quarter of 2011, according to the agency’s index. The first-quarter reading is due May 23. Prices in 20 of the largest U.S. cities increased 0.4 percent through the first two months of this year, according to the Standard &
Poor’s/Case-Shiller index.

     As houses became more expensive, gold got cheaper. The precious metal’s price declined as much as 31 percent on New York’s Comex from its peak of $1,923.70 an ounce, reached in September 2011.

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