The global economic climate is tough and is likely to get even tougher in the years ahead. The financial panic that first manifested itself in 2008 is far from over. The upbeat stories reported by much of the main stream media are simply deceptive and not a true reflection of the many very significant underlying issues that are far from resolved.
Many people are looking into different investment options they can rely upon for the long run, such as investing in Gold and Silver using a self-directed IRA. Many investors are attracted to relatively low risk investment opportunities that can hedge against inflation. Some investors may not know where to turn in this confusing time where the financial news is often contradictory. The stock market is particularly undependable. The volatility and risk in the stock market is too high for many people to consider it a safe long-term investment for all of their retirement portfolio. Diversifying a retirement portfolio to hold physical gold or silver via a self-directed IRA provides the balance many investors seek.
The money that the Federal Reserve has poured into the canyons of Wall Street in conjunction with very low interest rates has propped-up the stock market and created a new bubble. In the same way, the real estate market has been propped-up by ultra-low mortgage rates only made possible by the extraordinary efforts of the Fed. A re-inflated real estate bubble does not offer a comfortable long-term investment opportunity. Asset bubbles pop, just as they did in the US markets in 2008 and 2009 and seem certain to do again in the early 2020s. Investing in bubble asset classes is not a winning long-term strategy. Diversification is important in this uncertain environment. Many investors place a portion of their retirement portfolio into a self-directed IRA that holds physical gold, silver, platinum or palladium.
The Federal Reserve is printing and creating money at a previously unheard of rate. They are acting to prop-up the stock market and the real estate markets to maintain the confidence of the US consumer. It is that consumer confidence that backs the US dollar.
What is a Fiat Currency
The US dollar is a fiat currency, meaning there is nothing backing it up other than the confidence of the people who accept it as money and the government who declares it legal tender. Printing massive amounts of currency out of thin air such as the Federal Reserve has been doing since the start of the 2008 financial crisis is considered by many to be a recipe for high inflation rates in the future. When the dollar is being debased in this way, people who understand the implications look for investments that do not rely entirely on the future strength of the US dollar.
One of the preferred long-term and lower risk investments available to people in the current global economic climate is investing in Gold and Silver through a self-directed IRA. Even though many people put a portion of their money into precious metals as part of a diversification strategy there are several other compelling reasons for making such an investment now. We explore those reasons further along in this article and in the other articles on this site. Taken together these reasons make it convincingly clear that precious metals can be an excellent investment to weather a difficult economic future. As many notable financial experts say, it is better to be early than even one week too late when in comes to making investments that protect your long-term wealth.
Is Gold Valuable?
When considering precious metals in comparison to the U.S. dollar, investors recognize the intrinsic value of precious metals. Gold, silver and other precious metals do not depend on anything else for their value. The value is in the precious metal itself; intrinsically. That is why gold and silver have long served as money, serving as a medium of exchange and a store of wealth throughout the history of mankind. Investing in Gold and Silver is investing in what has served as real money for thousands of years.
The precious metals are rare and they are difficult to find, mine and refine. The quantities are very limited, especially as one compares the quantity of available precious metals to the huge and rapidly expanding stockpile of paper currency. That paper currency is backed by nothing at all and can be – and is being – created at will by the Federal Reserve and other central banks around the world.
As the national economies of the world have slowly become more interdependent, paper currency that is not backed by gold or silver (being then called “fiat currency”) has been jeopardized by global overprinting as each country seeks to protect its ability to compete and maintain export levels. When the economy of a major country experiences a downturn, as is happening in many countries now, a knock-on effect occurs where interlinked economies around the world are also adversely affected. A country experiencing an economic downturn will often turn to fiscal stimulus along with monetary easing. The government starts spending large amounts of money to stimulate the economy, runs a large deficit and issues debt to cover the spending. When the central bank monetizes the debt by printing more money out of thin air, that countries fiat currency is slowly being debased. More and more paper currency is chasing a limited supply of goods and services. That is happening now around the world. Each major country is debasing their currency to maintain their export advantages. It’s called a “race to the bottom”. Unfortunately for the people in the countries that are racing to the bottom, the purchasing power of their savings is being reduced by the effects of inflation caused by the excess money printing. Inflation robs the wealth of savers. And it can rob from retirement accounts too that are not invested to protect against the long-term effects of inflation. That is one powerful reason many people are making physical gold a part of their IRA or other retirement holdings.
Whenever economic downturns occur governments and central banks typically begin printing more money to mitigate the downturn. Regrettably, this usually has a long-term damaging effect on the currency. As more currency is being printed, inflation eventually takes hold and the paper currency itself decreases in value. Any currency, such as the dollar, becomes less and less valuable due to overprinting. The purchasing power of the currency declines and savers slowly suffer as their savings are taken from them in the form of reduced purchasing power caused by inflation. High inflation also causes the real value of many investments to drop substantially along with decreasing the value of dollar. Investors who physically own gold, on the other hand, have discovered that it can be a particularly powerful and effective long-term hedge against the effects of inflation.
When a fiat currency declines in value, gold’s value in terms of that currency rises over the long term. The quantity of gold in the world is limited and cannot be mined and produced nearly fast enough to keep up with the explosive amounts of currency being printed these days. Owning precious metals in physical form can protect your total net worth in the absolute worst case scenarios of a currency collapse or another economic crisis. While the worth of paper money may decrease because of the effects of overprinting and inflation, the gold acts as a true store of value. Gold cannot be printed or created out of thin air by governments. There is a very limited supply of gold and it is a slow and difficult process to increase that supply through mining operations.
The Value of Diversification
Consequently, investors are wise to diversify their portfolios by adding ownership in physically-owned precious metals such as gold or silver. A self-directed IRA is a preferred vehicle to own and hold that gold. While many people understand it is a good idea to diversify in terms of paper assets such as stocks, bonds and other currencies, it can be a smart idea to also own physical precious metals for long-term wealth preservation. In the event of an economic downturn, assets tied to paper currency are often the first to fall. Investing in gold, on the other hand, as was noted earlier, can act to offset those losses in the long-term and ensure that your wealth is protected. It is not only gold that can provide this hedge, but also other precious metals such as silver, platinum or palladium held in physical form. Physical ownership, instead of paper claims, can protect a retirement fund from the ravages of a rapid dollar decline.
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Many investors use diversification programs that include other precious metals to work with gold so as to protect their investment portfolio’s overall value. Investing in palladium, platinum and silver are examples of other precious metals that could help an investor hedge risks, where the investor is prepared to buy and hold for the long run. Your IRA is intended to preserve wealth for your eventual retirement. Though there likely will be ups and downs in the value of precious metals in dollar terms, or in terms of some other currency, as the dollar itself slowly declines in value over time owning physical precious metals can act to preserve your wealth for your retirement years.
When considering the long run, a further advantage that gold presents over the US dollar is that it cannot be created out of thin air by governments. Gold can only be extracted via mining operations and then refined to produce the pure gold bars that are very valuable to investors worldwide. There will always be a high demand for precious metals because they are something that is limited in supply and have long acted as a store of wealth throughout human history. Every fiat currency that has ever existed has eventually failed and been replaced by something else. Gold, silver and other precious metals have long served as stores of wealth in human history.
While the value of a paper currency might rise or fall as a result of a wide variety of issues, precious metals have always played an important role as a store of wealth and form of true money. If history tells us one thing, it is that precious metals survive as a store of wealth and true money even as currencies come and go. As the demand goes up for these precious metals in times of a currency crisis, the value of silver, gold and other precious metals rises with that demand, and sometimes dramatically so.
The Price of Gold Can Vary Widely Over Time
Regarding shorter-term trends, the price of gold is not free from the effects of market fluctuations or market manipulations. That means investors should never purchase gold for the short or the medium term, but should focus on the long run, where the price of gold will eventually rise as the underlying currency loses value. Unlike stocks and bonds denominated in a currency such as the dollar, the intrinsic value of gold will never be wiped out by market crashes, company bankruptcies, or currency collapses. Once you invest in Gold and Silver, be it in bullion bars or bullion coins, even in the event of a short term decline in terms of some currency, you can rest assured that the long-term intrinsic value of gold is still there. The wealth preserving and true money characteristics of gold and silver remain intact even if a currency such as the dollar is declining in value or collapsing.
For any investor considering precious metals, we recommend that you check-out Goldco. A number of happy customers have ranked this company highly for helping them get started in gold investments. The friendly, knowledgeable staff helps investors select the investment type that will be just right for them, including precious metal bullion coins as well as bullion bars. Creating an account with Goldco helps clients quickly and conveniently manage their portfolios. Investing in Gold and Silver has never been easier.
In addition to helping individual investors select the right investment for their unique needs, the Goldco service team provides helpful content that potential investors can use to learn more about precious metals and get started in the right way. Investing now to protect your wealth for the long-term is something every investor should be doing. It is better to be early than even one week too late.