When looking into investment opportunities to grow and nurture your hard-earned money, you face hundreds of options in various asset classes. However, there is one option that comes across everyone’s plate: gold.
There are many types of ways of investing in gold ranging from simple methods such as hoarding 20-dollar gold coins and gold jewelry, to more complex options like single stocks, closed-end funds, or gold backed IRAs. However, instead of taking a deep dive into each option, in this article, you will learn the viability and history of gold investment as a whole.
Investing in gold is nothing new and has been the subject of many contentious debates over the decades. Some go as far as to say that investing in gold is the only sure-fire way to secure a return on investment or at least retain an investment, as gold is the single commodity that holds its value over time in an erratic economy.
Regarding personal investment, it is just as contentious an issue as many people do not quite understand the actual role of gold, nor how, when and when not to invest in it. We take a quick look at the viability of looking to gold as a retirement investment.
History Of Gold
Less than a century ago, gold was backing the U.S economy: meaning that the Federal Reserve could print money according to how much physical gold the government had in its reserve. This had been the economic standard in many parts of the world.
In 1933, the Great Depression hit America and President Franklin Roosevelt was forced to make drastic decisions to keep the US afloat in a catastrophic economy.
In a desperate attempt to dampen the consequences of the depression, Roosevelt ended the traditional gold standard in the US.
To be able to print more money, the government would need far more gold in reserve and, so the US government mandated all citizens owning gold worth more than $100 to sell their gold to the federal reserve.
In 1934, the government increased the gold price in the federal reserve leading to a 69% increase in asset values.
In short, by increasing the value of gold, the government could print more money.
By printing more money, the value of each individual dollar began to decrease thus leading to inflation.
The Current Status Of Gold In The U.S
Interest rates and US fiscal policy affect the current price of gold. Right now, the Federal Reserve, the Senate and the House of representatives have been playing an intricate power game with gold prices by passing the recent tax bill along with increasing interest rates.
President Trump has had a pro-gold stance and is even advocating bringing back the gold standard, with many expert economists advising against this as it would limit government intervention during a recession.
Investing In Gold For Retirement
When we talk of investing in gold for retirement, we are usually referring to gold-backed IRA’s. However, these retirement accounts do not just use gold, but a combination of four precious metals, namely platinum, gold, silver and palladium, with metals allocated to account-holder depending on their profile.
Summed Up: Pros And Cons Of Investing In Gold For Retirement
In the long-term, these accounts do retain their value, even against erratic inflation rates. Compared to other assets, gold is a relatively low-risk investment in an inflationary market. For these reasons, they add great diversity to any portfolio.
This investment requires a lot of IRS regulation, which determines how and where the metals are stored, limiting your access to them. Gold is also riskier in a deflationary market versus an inflationary one.
There are other risk factors, especially for older people who may not always have time on their side to recover from the effects of fluctuating gold prices.