Publilius Syrus, a Latin writer in the Roman Empire, famously said, “When gold argues the cause, words are not required.” More than two millennia have passed since then, but the statement rings true even today and the world’s trust in the yellow metal remains the same, especially when the times are uncertain as they are now with all this paper money printing activity.
There are records of treasures consisting of gold as early as 4000BC, confirming the relevance of this precious metal to wealth and power for many millennia. Minting of gold coins and their use as currency goes as far back as 550BC. But even before its use as currency, gold was long known as a sign of wealth.
As an investment, gold existed in the form of a traded asset much before stocks and bonds. Investing and trading in gold, in its physical form or derivatives, offer lots of opportunities in the preservation of wealth for the investor.
Ever since ancient times, people have considered gold as a store of value. Its aesthetic appeal and virtually indestructible nature have been helpful in placing gold in this exalted position as an asset. Almost all the gold that has been mined or found till now is in circulation even now. Gold’s rarity and malleability also work to its advantage, making it easy to make coins or jewelry because of its low melting point.
All these features combined to help gold being the basis for circulated currency and play a formal role when the gold standard was in place. Even now, there are huge reserves of gold with central banks around the world.
According to the World Gold Council, out of the nearly 200,000 tons of mined gold till now, 21.6% is with private investors, around 47% circulates as jewelry, 14.2% finds use in other applications like electronics, and 17.2% is with central banks and governments.
While economies continue to grow, there are pitfalls to the endeavor of striving to expand constantly. To put it in simpler terms, we risk an economic crisis whenever there is realignment as we pass from a period of expansion into a recession.
Typically, economic crises are directly related to business cycles. An increase in the unemployment rate and a sharp drop in GDP usually occurs with an economic downturn. This in turn leads to panic amongst the investors.
Economic crises can be in the form of a currency crisis, GDP crisis, bank crisis, or a broader financial crisis brought on by external non-economic factors. The latter, like the economic crisis resulting from last year’s pandemic, has the potential to severely affect the whole economy and start a chain reaction that spurs other crises.
In the present scenario, there is the possibility of past trade tensions with China and the EU rearing their ugly heads again. The EU levied taxes worth billions following the US subsidies to Boeing, and there seem to be no plans by the new administration to roll back tariffs on Chinese exports imposed in 2018 because they know that tariffs work and have been working.
Gold has a negative correlation to stocks and a positive correlation to inflation. It is a universally upheld belief that gold rallies in value during an economic crisis. So, while there is turmoil in the markets and crises in the economies, gold has the propensity to shine and thrive.
The past couple of years have seen continuous printing of currency by central banks to mitigate the effects of recession due to the ongoing pandemic. This in turn has driven up gold prices on the back of inflationary concerns. There are further cuts in the interest rate and quantitative easing (QE) programs, in the offing. More rate cuts and stimulus packages can drive the yellow metal to record highs.
We can see that central banks are determined to follow the ongoing monetary policy, abandoning inflation markers to keep printing currency. This ultra-loose policy exerts a downward pressure on the US dollar while proving to be a boon for the yellow metal prices.
If we go back a decade to the financial market meltdown in 2009, gold initially depreciated because investors needed to raise cash by liquidating their gold positions, as in previous economic crises. However, subsequently, gold behaved exceptionally by rallying until 2011 even though the recession ended in 2009.
Although gold has a long history as a store of value and a financial asset, it started gaining its place of eminence in contemporary finance only after the late 1800s. This was when almost all the nations started adopting the gold standard, fixing their currency values to gold’s price.
Many countries kept dropping and readopting the gold standard until 1971, when they replaced it with free-floating currencies. Only when the financial crisis in 2008 did the price of gold start its upward climb again. Experts attribute this spike to the central banks’ ratification of quantitative easing (QE).
General economic wisdom suggests that QE causes inflation. Since the prices of yellow metal rise with inflation, the adoption of QE leads to an appreciation in the value of gold. Here are some of the more pertinent reasons to invest in gold to protect and preserve your wealth:
Typically, gold holds its value or appreciates with a depreciating dollar and a rise in inflation. This makes it a good hedging asset for investors looking to cut their losses.
Gold is a scarce, stable asset that provides insurance against economic downturns and uncertainties. Interest rate fluctuations and decisions to control supply by printing impact currencies have no direct effect on gold, making it a safe haven for investors.
A balanced and diverse portfolio must include assets like gold as a countermeasure to the stock market. This helps in mitigating risk and reducing volatility for investors.
Although gold stocks usually reflect the price movements of the metal itself, gold stocks can prove to be profitable even at the low prices of gold. In addition, the high dividend payouts by mining companies can act as a further incentive for investors to buy gold stocks.
Regular IRAs (individual retirement accounts) restrict your investments to the usual asset class of stocks, bonds, and cash. On the other hand, a gold IRA allows you to invest in physical gold, platinum, silver, and palladium.
Gold IRAs are an intelligent option for retirement investors looking for a balanced and diversified portfolio. Adding a gold IRA to your retirement portfolio acts as an insurance policy countering inflation, as prices of gold travel in the opposite direction of other paper assets. This approach balances the portfolio and minimizes risk over the long term.
The popularity of gold IRAs has soared since the 2008 financial crisis and the worldwide recession that followed it. Investments in gold IRAs have witnessed phenomenal growth resulting in the proliferation of many companies, simplifying the transactions, and ensuring a robust gold IRA environment.
The inflationary impact of stimulus packages by the Federal Reserve has also generated considerable interest in gold IRAs. Finding a custodian and an approved depository for the IRA would be best. Once you buy gold or any other precious metal, you must transfer it to the depository for the custodian to be able to account for it.
To invest in gold, you must form a self-directed IRA that you can manage directly, allowing you to invest in the broader pin, the broader investment products compared to other IRAs. A gold IRA must have a broker and a custodian to purchase the gold and manage the account.
Usually, banks, brokerage firms, trust companies, or credit unions act as custodians. They need government agencies' approval to administer custody services to investors and advisors. Selecting a metal or bullion dealer is the responsibility of the investor.
However, traditional custodians having connections with metal dealers may share the list. Conversely, some metal dealers may provide references for an IRA custodian to an investor. But as a consumer and investor, you can look for custodians independently.
You can exercise the option to roll over all or some of your existing traditional IRA or 401(k) funds into a gold IRA. The entire process for rollover is the same as other retirement funds. You need to fill out an online or paper application to set up an account that usually becomes operational within a day or two of completing the application process.
Given below are some crucial yardsticks to consider in the selection of a broker for a gold IRA:
There must be clarity and unambiguity about all your upfront costs so that there are no surprises involving hidden charges or fees after you invest.
Going through customer reviews or the complaints filed against the company may be helpful in getting your opinion. You can look for a company with an exceptional reputation and track record.
Understand your needs and goals as an investor and choose a company that can cater to them accordingly.
Ask for and review the company's licenses, insurance, and registrations before appointing them as your broker.
The utility of gold as a hedge to the stock market has been thoroughly reinforced since the start of the coronavirus pandemic. While gold has broken all previous records since 2012, some analysts predict further gains, looking at the uncertainties still surrounding the pandemic that may not even end as it should for political reasons.
In the event of continuing financial uncertainty due to the recessionary influence of the coronavirus pandemic, gold may hit new highs this year.
A gold IRA is about flexibility and the freedom to use your retirement funds wisely to invest in gold. To help you get rid of the overblown markups and unlock the best value possible, here is our list of recommended gold IRA brokerages:
In common investment parlance, gold IRAs are alternative investments that do not trade on a public exchange and need the expertise to value. Depending on the size of your investment, it may make sense to identify and retain a competent financial advisor who can help you determine how gold can be an excellent fit for you.