Balance has returned to the relative value of gold versus farmland. The ratio reflecting the ounces of gold required to buy an acre of Illinois or Iowa farmland has eased back to levels existing in the early 2000s, prior to the explosion in gold and then farmland prices.
Gold prices remained relatively stable at the turn of the century and then began rising, punching through $500 an ounce in 2006. Prices soared during the financial crisis of 2008 and peaked in 2011. Farmland values moved higher as well, starting in 2007, triggered by ethanol demand. Land values peaked in 2013. During that raucous ride, the ratio dipped near 3-to-1 in the case of Illinois farmland and under 3-to-1 for Iowa farmland. Then it soared near 7-to-1 as gold prices collapsed and farmland prices continued to surge.
Since then, that ratio has eased back into the 5.5- and 6-to-1 zone, an area more in line with the ratios seen in the first five years of this century.
Granted, the fundamentals for gold and commodity prices, thus farmland values, remain subdued. In addition, inflation remains tamed, even a point of concern for the Federal Reserve. But the return to a “normal” ratio suggests the economic relationship is in balance. It hints that farmland values could begin to show the slow, steady single-digit percentage increases noted in the first years of this century.