What Is a Gold IRA?
Gold IRAs are investment options where individuals hold onto gold bullion, coins or other standard precious metals to use them for retirement savings. Gold IRAs were created by the Congress in 1997 as an alternate form of investment, but its popularity only surged after the financial crises crisis of 2008.
The public interest for Gold IRAs has remained persistent in post-recession USA because of inflation caused by the government’s stimulus programs. The reason we bring up Gold IRAs in our discussion today is because of its increasing relevance in the inflation induced economy of the US.
Inflation in the US
Inflation in the US is the result of massive government debt and Federal Reserve’s monetization policies. If you study the trend of both these factors, it’s easy to conclude that the inflationary pressures are likely to remain in the long term. Inflation from 2018 to 2023 is expected to grow annually at a steady rate of 2%. In such a situation, if you wish to save money for your retirement, you need to be extra careful.
Gold as an Inflation Hedge
You have several saving options for your post-retirement life. If you compare Gold with other forms of investment, you might question its utility based on the fact that it does not offer any periodical monetary return such as rent or interest. The answer to such doubt or criticism is that Gold is the best choice, or arguably the only choice, when governments and their financial institutions are employing policies that increasingly threaten the value of your currency; as they are in the US today.
When a country is experiencing inflation, the value of wealth that is owned by its citizens diminishes. And alongside the wealth that citizens currently hold, the value of their future income and savings also decreases. For instance, the value of revenues you earn through interest or income rent on your investments in monetary terms may seem to be constant or even increasing. But behind the scenes, constant and continuous inflation could be eating up that return to the point where you actually are poorer than the previous day.
Economists term the inflationary adjusted return as ‘real’ return. When the rate of inflation exceeds the return on your investment, or in other words when in real terms you are experiencing a negative return, the best strategy you can employ is to invest in an asset that maintains its purchasing power despite the inflation. Gold has a 5,000-year history of preserving its value, and that is especially important during such times of continued inflation.
As discussed in the section above, inflation in the US is expected to stay for a longer term. In such a situation, when investing for your retirement, you need to select your options wisely so as to avoid purchasing an asset that does not optimize benefits for your post-retirement life. Gold here is the most favorable alternative considering US’s macroeconomic and financial conditions.
Gold is rare, has historic value, and the government cannot increase its supply by fiat. Moreover, its value has proven to not erode with inflation. And that is precisely why it needs to be an essential part of your retirement investment portfolio.