Adding Gold to an IRA
Bullion In Your IRA
Investing in gold has been taking place throughout the centuries providing a ‘safe haven’ in troubled or uncertain times. This still applies today for the modern investor, although there are additional reasons that underpin the widespread renewal of investor interest in gold.
In uncertain times, shifting savings and investment into metals not only provides security but if done correctly can prove to be an investment that offers gains while most other investments cannot. Gold is among a handful of financial assets that do not rely on an issuer’s promise to pay, offering refuge from default risk. It provides insurance against extreme movements and collapse that often occur during economy change.
Most investment portfolios are invested primarily in traditional financial assets such as stocks and bonds. The reason for holding diverse investments is to protect the portfolio against fluctuations in the value of any single asset or group of assets that react in a common fashion. Portfolios containing gold are generally more stable and predictable than all other investments.
Market swings may come and go, but over the long term gold keeps its buying power. Its value, in terms of the real goods and services that it can buy, has remained remarkably stable not only in one country but all countries. In contrast, the purchasing power of many currencies has generally declined due to the impact of rising prices for goods and services. As a result, gold is often bought to counter the effects of inflation and currency fluctuations.
Gold is often used as an effective hedge against the weakening and strengthening of the US dollar, the world’s primary trading currency. If the dollar appreciates, gold drops, while a fall in the dollar relative to the other main currencies produces a rise in the gold price. While this may also be true of other assets, gold has consistently proved among the most effective in protecting against dollar weakness.
All in all, gold is significantly less volatile than most commodities and many other equities. In this respect it tends to behave more like a currency. Including assets with low volatility in a portfolio will help to reduce overall risk, with a beneficial effect on expected returns. Risk factors that may affect the gold price are quite different in nature from those that affect other assets generally leaning to a more predictable value.
Demand and supply
As is true of all asset prices, gold’s price moves in response to the changing balance between supply and demand. Mine production is relatively inelastic due to the long lead times that exist in gold mining, which explains why the rally in the gold price since 2001 has still not engendered an increase in production levels. Meanwhile, demand has shown sustained growth, due at least in part to rising income levels in gold’s key markets. This has crafted the foundation for the most positive outlook the precious metal has known for a quarter of a century.
As an investment, gold is the most popular and safe of all the precious metals. Investors as well as coin collectors typically purchase gold as a contingency against any economic, political or social issues or potential crises in currency crises, such as market deterioration, growing national debt, currency failure, inflation or war.
Just like other commodities however, gold is subject to speculation, especially in futures, contracts and derivatives. In fact, gold has many of the characteristics of money that we use on a day to day basis. For example, gold reserves are a major player in central banking. Gold’s pricing in relation to fiat currencies during the financial crisis of 2007–2010.
The Price of Gold
Throughout history, gold has been traded like money. It has stood as the main standard for currency equivalencies in various economic regions. It was quite common for European countries to use gold standards in the late 1800s until the financial crises during World War I brought them plummeting down.
After World War II, the Bretton Woods system measured the United States dollar in terms of gold rates at US $35 per troy ounce. This system existed until 1971, during the President Nixon years, when the U.S. made the overriding decision to disallow direct conversion of the dollar to gold and shifted to a fiat currency system. In 2000, the Swiss Franc was the last currency to separate itself from gold.
Today, the most common point of reference for the price of gold is London gold fixing, a telephone meeting of representatives from five bullion-trading firms in the London bullion market that occurs two times a day. This has been going go since 1919. In addition, gold constantly is traded around the globe based on the intra-day spot price, resulting from over-the-counter gold-trading markets around the world (code “XAU”).