Financial Poise
Investing in Gold

Why Investing in Gold Remains a Reliable Choice, Despite Economic Uncertainty

Looking For a Golden Opportunity? Adding Gold Investments to Your Self-Directed IRA Could Be It.

In early August, gold prices hit an all-time high, eclipsing over $2,000 per troy ounce. In the midst of heightened economic and social uncertainty, investors are looking for something tangible that will last. Once again, they’re turning to gold as a standby option. But why?

For one, gold appeals to investors who enjoy owning an asset that they can see, touch and hold. Precious metals can even provide some emotional support during periods of uncertainty. Gold investments can also play a critical role in a longer-term diversification strategy, such as planning for retirement. Indeed, for skittish Baby Boomers, gold investments can be appealing retirement investments that act as portfolio shock absorbers during volatile times.

So, should you invest in physical gold? Whether you’re looking for peace of mind, portfolio diversification, or simply want to take advantage of the rising price of gold, there are a few things you should know about investing in gold– especially if you’re considering investing for retirement. A closer look at self-directed IRAs, recent regulatory changes and precious metals storage can offer an answer.

5 Reasons Gold Investments Are Worth Considering

Investing in gold can be beneficial for a variety of reasons, including:

  1. Because gold carries no credit risk, is liquid and is not subject to inflation, the investment is safer over time.
  2. Gold has maintained its value throughout the ages. From 1997 to 2016, gold’s hardiness as an investment shone through. It finished in third place on an annualized return basis, just behind real estate investment trusts (REITs) and large cap domestic stocks.
  3. Gold prices continue to rise. In fact, Phillip Streible, an analyst with Blue Line Futures, predicted gold would hit $2,500 by December 2021.
  4. Gold is a crisis commodity, in that it retains its value in times of financial and geopolitical uncertainty.
  5. As an alternative asset class in your portfolio, gold adds a bit of diversification. Compared to other alternative assets, it is often viewed as one of the more reliable investments.

Add Gold to Your Self-Directed IRA

For those looking to gold to bolster their retirement options, they should consider adding gold investments to their individual retirement account (IRA).

While an IRA is meant to provide investors with a flexible, tax-advantaged account that can be used to save for retirement, most traditional financial services firms only allow investors to hold approved stocks, bond, mutual funds and CDs in their IRA.

Those looking to invest in gold for retirement should consider a self-directed IRA, which allows them to invest in alternative investments such as gold, private equity and real estate.

In fact, the IRS allows self-directed IRAs to hold gold, silver and platinum coins. Investors can also hold gold, silver, platinum and palladium bullion that meet certain standards. Aside from gold, the three primary precious metals most often found in self-directed IRAs are:

  • Platinum: One of the rarest metals on earth, platinum is used in emission control devices and dentistry.
  • Palladium: A byproduct of platinum and nickel, palladium is mainly used to make catalytic converters and ceramic capacitors.
  • Silver: Popular for use in jewelry, silver often found in industry and electronics as well, due to its electrical conductivity.

Investing in Gold—and Savvy Storage

Keep in mind, though, that you can’t just store your gold investments in your closet. Recent regulations from the IRS require savvy storage for any IRA-owned precious metals.

Some investors think they can save money on storage by buying gold or precious metals for their self-directed IRA through a limited liability company (LLC), and then storing the metals at home or in another place of their choosing. However, that’s a misconception. For one, establishing and maintaining an LLC can be pricey. Investors don’t realize that they could end up paying as much or more, while also adding administrative complexity. In addition, the IRS forbids investors from storing gold and other precious metals that are part of their IRA at home.

Unfortunately, if you do decide to invest in gold as part of your self-directed IRA, your storage options are limited. Similar to traditional IRA deposits, your gold deposits must be under controlled access, in order for the IRS to track and tax them. This means they must be stored in an IRS-approved licensed bank, credit union or trust company.

Some investors use Precious Metals IRA custodians who offer overseas storage options. But these facilities may operate with lower security standards than those in the U.S. And, should the assets need to be retrieved quickly, these offshore arrangements may delay timely retrieval.

For investors looking to skirt the rules and store their gold investments at home or in a storage facility, it’s worth noting that, if IRA-owned precious metals aren’t stored correctly, they no longer qualify as an investment with tax benefits. Instead, they’ll be considered collectible items.

All That Glitters Could Be Gold

While stable, liquid and traditionally safe, gold investments are not guaranteed to glitter for every investor. Keep in mind that, with gold and self-directed IRAs, the responsibility falls on the investor to ensure they’re undertaking due diligence. That means that investors must educate themselves on the proper storage, as well as tax concerns that come with gold investments and self-directed IRAs.

Another thing to keep in mind is that regulations around self-directed IRAs and non-precious metals can change. Be sure to contact your IRA provider if you have questions about investing in gold using IRA funds. Consulting a financial advisor or working with a precious metals broker can also help keep you abreast of evolving regulations.

[Editors’ Note: While gold is viewed by many as a way to hedge against inflation (i.e., a way to protect against the erosion of purchasing power), this is not a universally agreed upon proposition. Financial Poise advocates for investors to do their due diligence before making any investments.

To learn more about this and related topics, you may want to attend the following webinars: All About Asset Allocation, Personal Finance & Investing Fundamentals 2.0, Investing Basics. This is an updated version of an article originally published on October 6, 2017.]

©All Rights Reserved. December, 2020.  DailyDACTM, LLC d/b/a/ Financial PoiseTM

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About John Drachman

John Drachman, Financial Marketing Writer, is an IABC Gold Quill-winner for editorial excellence, He has developed marketing communications initiatives for hundreds of financial services clients over three decades. He has also served in executive positions at Putnam and Pioneer Investments. Do you need to turn complex ideas into actionable messages? Discover more about John on…

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