Should I Invest in a Gold IRA?

should I invest in a gold IRA

Should I invest in a gold IRA is the question that still many ordinary folks ask themselves. In this post, I will outline the reasons for ordinary folk to invest in a gold IRA account.

Any investment asset has certain risks, some higher and some lower. The idea when investing is to know exactly what the risks of a particular asset are, in order to make the right decision, the decision that suits your needs best and at the same time minimizes your risk. Over the years, we’ve seen many investors lose their fortunes because they just got too greedy.

Many investors should be asking themselves the should I invest in a gold IRA question more often, this way they will be able to make a better decision regarding their IRA investment.

The same applies to your IRA investment. An IRA invested solely in mainstream assets will put your savings at risk in case of a market crisis.

For example, last year (2020) between February and March the stock market lost 10.000 points. As a result, trillions of dollars invested in stocks bonds, and other mainstream investment products were lost. Many IRA investors had to postpone their actual retirement time, due to low funds in their retirement accounts.

Gold IRA Definition

A gold IRA investment is an individual retirement account, an account that functions the same way as a regular IRA account however, instead of holding paper assets, it holds physical bullion coins or bars.

Gold IRA vs Traditional IRA

A gold IRA is treated by the IRS as any other IRA. The difference between the two is that a mainstream IRA is invested in mainstream assets such as the stock market, government bonds, options, and so on whereas in a gold IRA the money is invested in gold. The IRS has also allowed IRAs to be invested in other precious metals such as silver, platinum, and palladium. Moreover, Cryptocurrency IRAs are also allowed.

should I invest in a gold IRA

A gold IRA is an asset that holds its value, especially during bad economic times. A gold IRA will secure your savings and offer financial stability to your investment.

A traditional IRA investment (401k, SEP, Thrift, Roth, and so on included) invest in traditional assets, such as the stock market. Although these types of investments can offer great returns, they are subject to large fluctuations during difficult times. That means you could see your money disappearing in a very short time.

Reasons to Invest in a Gold IRA

  1. Diversification. In an investment portfolio putting all eggs into one basket is a big mistake. A prudent investor should include different types of investments just in case things go wrong. Gold is the asset that will diversify your investment portfolio.
  2. Protects your investment from inflation. Inflation rates will rise to high levels thanks to endless money printing by the Fed. High inflation rates are bad news for your dollar. In a high inflation environment, your purchasing power will drop substantially.
  3. Gold is a tangible asset.
  4. Gold is not a chain in someone else’s liability. eg. Having your money invested in a company’s shares and the company goes bust due to illegal activities or because it took the wrong business decisions.
  5. A gold investment protects your savings from geopolitical uncertainty. If a war breaks in the Middle East, for example, the traditional investment assets will take a downturn (stock market) but not gold and other precious metals.
  6. Increasing demand for gold and silver for industrial use. eg gold is used in computers mobile phones and so on.
  7. Low or negative interest rates. That means your dollar loses value every single day if it is stored at the bank.
  8. The weak dollar is more bad news for your life savings
  9. The stock market bubble. We are witnessing an unprecedented bubble in most assets. The stock market bubble though is the one that once it bursts it will actually cause the biggest problems in the economy because this particular bubble is a huge one.

Rotten Political and Financial System

The newly elected Biden administration is faced with an almost impossible task. First, the social and political divisions of this great country should be addressed. Then something must be done to deal with the covid19 virus and then something should be done to change the monetary system.

should I invest in a gold IRA

Most finance experts and market analysts agree that today’s fiat currency monetary system does not work. Since its introduction back in 1971 it has only created disorder and turbulence in the economies and the markets.

Unfortunately, we are faced with irresponsible individuals who do not have the political will and guts to make the right decisions for themselves and for the country. In addition, central bankers are also responsible for this, because they have seen their profits skyrocket, at the expense of you and me, and they do not want that to change.

The Abandoned Gold Standard

In 1971 President Nixon abandoned the gold standard policy. It was a move that surprised the western world. The US kept cheating the rest of the world by printing cash in order to finance the Vietnam war. There was only one way for the US to get out of this and that was to abandon the gold standard policy.

What President Nixon started in 1971 is now leading to an uncontrollable money printing bonanza. Nevertheless, money printing has been carried out in the past in most western economies. Nowadays though the money printing programs that take place right now are enormous. President Trump and the Fed carried out a gigantic 2,5 trillion money printing program. The new Biden administration is willing to add another three billion fake money to the economy.

The Europeans too agree to raise a 2,1 trillion dollars stimulus package. Their funds will be raised by selling bonds collectively. In addition, similar money printing and bond selling programs have-are been carried out by most western countries.

Financial Crisis is on the Way

All these money printing and bond selling programs mean more debt for the bond sellers and worthless money flooding for those who chose to print cash. The results from these are likely to be.

  1. Further weakening of national currencies including the American dollar
  2. High inflation levels
  3. A large drop in our purchasing power
  4. Mainstream assets (stock market, etc.) to take a large fall
  5. Gold and other precious metals will see their value increased substantially
  6. Mainstream IRA programs will suffer big losses

should I invest in a gold IRA

Gold IRA Benefits

You may regret if you choose a conventional IRA or 401(k) investment with a bank or brokerage firm. The stock market bubble is expected to decimate traditional investment assets. Stocks, bonds, and so on will see their prices drop substantially. That means your, life savings could perish overnight and in the end, there won’t be enough savings for you to retire.

Since most IRA accounts are invested in traditional assets, and since all these assets move downwards or upwards together, (correlated assets) there must be another asset that does the opposite.

On the other side gold is a non-correlated asset. (an asset whose value isn’t tied to larger fluctuations in the traditional market) In fact, gold always does well in times of crisis. Call it a financial crisis, recession, geopolitical tensions, war, covid-19, trade war, whatever the case is, gold not only maintains its value but also sees significant gains.

Black Monday1987Iraq-Kuwait War1990Dot Com Crash2001Financial Crisis2008Stock Market Decline-38.9-22.5-27%-34%Gold Price Results+5%+7.5%+1%+5%Gold Outperformed Stocks By Ratio45:131:129:140:1

========>related articles  Gold IRA frequently asked questions

Conclusion

We have seen the risks involved with a mainstream investment portfolio. Prudent investors do not put all eggs in one basket. This is applicable right now because we are facing an overvalued stock market and the effects of the uncontrollable money printing policy.

An IRA investment should be low-risk or risk-free. That’s because it is made of money that is not in abundance but your own hard-earned savings. In addition, if that money gets lost, then you will have nowhere else to turn to.

Since the IRAs are made of hard-earned money then, extra care should be taken to make sure the investment is well protected. Considering gold is a safe-haven asset during bad times, then a gold IRA will ensure that your life savings will not perish overnight in case of a financial crisis.

Should I Invest in a Gold IRA?

There is no doubt the evidence for investing in a gold IRA is overwhelming. However, when investing your life savings all care should be taken in order to avoid possible traps and mishaps.

 

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Investing in Gold and Coins – 2020

investing in gold and coins
Gold Bar

Investing in gold and coins could be a headache for the new investor. There are many ways to invest in gold but not all of them are recommended. In this article, I will present to you all ways of gold investing and I will explain why investing in physical gold is the best way to invest in gold and coins.

In today’s economic environment, it is crucial for the investor to have part of his/her portfolio invested in gold. In these troubled times, there should not be an investment portfolio that does not include gold.

Investing in Gold and Coins

Gold in the Past and Gold Now

In the past, humans used gold as a way to facilitate trade and to accumulate and store wealth. In particular, there was a gold standard policy where early paper currencies were generally backed by gold with every printed bill corresponding to an amount of gold held in a vault. This approach to paper money lasted well into the 20th century.

Nowadays the gold standard policy has been replaced by fiat money therefore, the link between gold and paper money has long been broken. Nonetheless, investors and central banks, still consider the yellow metal a paramount investment tool. For example, central banks still own huge amounts of gold.

Who Buys Gold?

It is not only investors who buy gold. In fact, 50% of gold demand comes from jewelry. People love to wear gold.

Another 40% comes from direct physical investment in gold bullion, gold bars, and coins, including all collectible numismatic gold coins, medals, and so on. Physical gold investors include central banks and individual investors. The Chinese and Russian central banks are some of many central banks who invested in physical gold recently.

Gold is considered to be a safe haven asset. Every time there has been political and economical instability, gold has been called upon to save the day. When a paper currency loses its value and global inflation starts rising, gold offers security and acts as a safe haven for the investor.

Last but not least, industrial demand for gold is on the increase, especially in technology. Computers have gold and so do mobile phones. Gold is also used in electrical appliances, medicine, and so on.

Reasons to invest in gold

  • To protect and preserve wealth from unexpected events.
  • A hedge when the stock market is not expected to do well.
  • Portfolio diversification.
  • The weak dollar
  • Loss of confidence in central banks
  • Geopolitical uncertainty (Middle East, Brexit, ISIS, North Korea, Hong Kong.)
  • The US-China trade war.
  • The covid-19 caused recession
  • Low or negative interest rates
Black Monday1987 Iraq-Kuwait War1990 Dot Com Crash2001 Financial Crisis2008
Stock Market Decline -38.9 -22.5 -27% -34%
Gold Price Results +5% +7.5% +1% +5%
Gold Outperformed Stocks By Ratio 45:1 31:1 29:1 40:1

Investing in Physical Gold

Gold Bullion Bars

Gold bullion bars are a popular way to invest in gold. They are available in various sizes, 12kg, 1kg, 100gr, 50gr, 10gr, 1gr, etc. Gold bullion bars must be certified for weight and purity. A serial number is attached to all certified gold bars for security purposes. Bars’ purity must be 99.5% (24 karats) at least, whereas there is a number of manufacturers producing bars at 99.9% purity. (24 karats too)

Gold bars can be sold easily at any given time. However, it is best to own smaller size bars rather than the 12 kg or 400-ounce bar. Imagine, owning a 400-ounce bar and wanting to sell it. It’s not easy to find an investor willing to fork out $650,000 overnight. If you want to liquidate 10% of it you can’t exactly saw off 10% and sell it. The best option is to own smaller size bullion gold bars, as most gold investors do. They offer much better liquidity.

Gold Bullion Bars Pros

  • Direct exposure
  • Tangible ownership
  • High liquidity (small size bars)

Gold Bullion Bars Cons

  • Markups
  • Storage

Gold Coins

investing in gold and coins

Gold bullion coins is another popular way to invest in gold. Bullion coins are priced according to their fine weight plus a small premium, based on supply and demand, as opposed to numismatic gold coins, which are priced mainly by supply and demand, based on rarity and condition. If you are willing to invest strictly in gold, focus on widely circulated coins and leave the rare coins to collectors.

Bullion coins are mostly minted in smaller than one-ounce sizes, making them a more convenient way to invest in gold compared to larger bars. Reputable dealers can be found almost anywhere, even your local bank might be able to help you.

Gold Bullion Coins Pros

  • Direct exposure
  • Tangible ownership
  • High liquidity

Gold Bullion Coins Cons

  • Markups
  • Storage

Gold ETF’s and Mutual Funds

Gold exchange-traded funds, (ETF’s) is an interesting way to invest directly in gold. Each share of these specialized tools represents a fixed amount of gold, such as one-quarter of an ounce. These funds can be purchased or sold like shares, in any brokerage. This is a simple and cost-effective way to invest in gold, especially for small investors. ETF funds hold gold bullion as their own asset therefore, you will not have to actually store your own bullion.

Mutual funds hold gold bullion and actually own gold companies. They are part of their own investment portfolios. Investors should be aware, only a few mutual funds focus solely on gold investing. Most of them own a number of other commodities, which have nothing to do with gold.

Gold ETF’s and Mutual Funds Pros

  • Direct exposure
  • Highly liquid
  • A simple way to own gold
  • Low cost
  • Suited for small investors

Gold ETF’s and Mutual Funds Cons

  • Fees
  • No upside beyond gold price changes

Gold Jewelry

investing in gold and coins
Gold Jewelry

If you believe that, because you possess a lot of gold jewelry, you own a small fortune, then you are wrong. In jewel manufacturing the amount of gold is small. The purity of gold is measured in carats. The purest amount of gold you can find is 24 carats. However, in jewelry 14 or 18 carats is common. Keep in mind, that a low amount of gold in jewelry does not mean that it is not good enough, as gold in its purest form (24 carats) could bend or deform quite easily.

From an investor’s point of view, jewelry will not reward you with high profits, as retail markups are up to 400% of gold’s value. However, bargains can be found at auctions or estate sales. This way you avoid the retail markup.

Gold Jewelry Pros

  • Gold jewelry makes you feel good

Gold Jewelry Cons

  • Mediocre gold investment

Investing in Paper Gold

Gold Futures and Options

investing in gold and coins

 

Gold futures are contracts to buy or sell a particular amount of an item (gold) on a given date. Futures are traded in contracts, not shares, and represent a predetermined amount of gold. Some contracts settle in dollars, while other contracts may settle in gold. As a result, the investor has to be very careful. Futures are suited to the experienced investor.

Options are also another way to invest in gold. They give you the option to buy a futures contract, without having to pay the contract outright. Instead, you will have the option to buy the futures contract at a preset time frame and price. An option might reduce losses to the price paid but, a futures contract based on a margin might require more capital than originally invested, in case of losses mount quickly. Options are also suited to the experienced investor.

Gold Futures and Option Pros

  • Highly liquid
  • Small upfront capital investment to control a large quantity of gold
  • Low commissions

Gold Futures and Options

  • Indirect gold exposure
  • Time-limited contracts
  • Need to be a financial expert

Gold Mining Company Stocks

Investing in Gold and Coins - 2020
Gold Mine

Another way to own gold indirectly is to invest in gold mining and refining companies. You can do that by purchasing their shares. If gold’s price rises, so will its profits and the value of your shares will follow. Simple as that. However, you have to be thorough and diligent when selecting which gold mining company is worth investing in.

Mines are commercial enterprises, with problems such as flooding, subsidence, structural failure, mismanagement, negative publicity, nationalization, theft, and corruption. Such factors can lower the share value of mining companies.

Gold Mining Stocks Pros

  • Usually, track the gold price
  • You may get dividends

Gold Mining Stocks Cons

  • Indirect gold exposure
  • Mine operating risks
  • Exposure to other commodities

What is the Best Way to Invest in Gold?

As you can see there are many ways to invest in gold. They all have their advantages and disadvantages. If you want to invest small, then gold ETF’s could be best for you. You can also invest in gold coins and keep them safe somewhere at home.

For those who are willing to invest a large amount of money into gold, the best will be to invest in bullion bars and coins. Direct gold ownership is best because it has the ability to track gold’s performance. Most investors feel better when owing a tangible asset stored at an independent private facility.

If you are an aggressive and experienced investor with direct access to the markets, the gold futures and options market could be best for you. Beware though, that the risk is high, and so are the profits and losses.

Mining stocks are also an interesting way to invest in gold. Jewelry though isn’t worth considering at all.

Final words

Investing in gold offers several benefits including portfolio diversification and protection from unexpected events. A prudent investor always includes gold in his portfolio, usually around 10%.

There is no one size fits all investment however, you are now armed with the knowledge of how the industry works, and all you need to do now, is to consider all the available options and make the decision that’s right for you.

During these troubled times, ordinary folks have seen their life savings decimated. It is imperative for an investor to diversify his/her IRA investment in order to protect it. A Self Directed gold IRA investment could safeguard and protect your savings.

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