Does Mortgage Reduce Need For Gold Holdings? (Inflation Protection)

[TripleB]

If someone has a 30 year mortgage at a low interest rate, does that reduce the need for gold within a portfolio since the mortgage is an inflation hedge?

I'm sure HB would argue, NO, it does not, because the home is a consumption item and not an asset or investment. I first thought the answer is "maybe" but I'll explain my thought process and show why I agree with HB.

First, housing costs are between 20% to 70% of most people's expenses. Germany's inflation index lists it as 20% weighting, and from personal experience, housing has been between 50% and 70% of my monthly budget for the last 10 years.

The PP shouldn't be considered only for nominal dollar amount. It doesn't matter whether the PP provides X% return. To me, the PP is a tool that provides spending power. If my spending needs become fixed (partially) due to a mortgage, then my needs on an inflation-adjusted basis are different.

In other words, I dont "need" the PP to respond to inflation as strongly, if 50% of my inflation-adjusted spending needs become fixed at 5% with a mortgage.

I don't think tinkering with the PP weightings would work well. One possibility would be to reduce the PP to VP ratio. For example, go 50% PP and 50% VP. This would bring gold down to 12.5% of your total portfolio. The downside is that the VP will fluctuate and one shouldn't mix the PP and VP.

The other downside is that this analysis ignores gold as part of the total portfolio, and only in isolation. It's true we don't need to account for inflation as much if we have a fixed mortgage. However, that's looking at gold in isolation. If you look at it as part of the total PP, then the inflation-protection of gold is designed to move relative to the other 3 components such that the overall PP is preserved. Thus, it shouldn't matter whether your expenses are fixed relative to inflation or not, you need inflation-protection within the portfolio to secure the other assets within it.

[WildAboutHarry]

I'm with Harry on this one.

A house is a consumption item.  As such you should own it free and clear of a mortgage as soon as possible (sorry, couldn't resist).

[clacy]

Trading housing for gold certainly wouldn't have helped you much in the past 4 years.  It's important to remember that you can have commodity price inflation, while simultaneously having asset price deflation in housing.

I tend to think of my primary residence as a consumption item.  Rental real estate would fall into another category, and the PP would be another.