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Should I Invest in Gold?

nvesting in gold is a great way to diversify your portfolio and hedge against inflation. Gold has become an insurance policy for your IRA/401(k)

Is gold a good investment? Yes, and here’s why you should start investing in gold NOW.

In the current economic environment, you may be thinking that your portfolio is secure and looking good. You may even feel as though your IRA or 401(k) is performing well, but how long will it last? 

This uncertainty is why you need an asset to protect your financial future, and this is where gold makes sense. Let’s look at the benefits of precious metals investments. 

Why is gold a good investment now?

As you consider your portfolio and enjoy the bull run of the stock market, you might even hear experts say that, as we come out of the Covid crisis, the bull run will continue.

But the stock market is extremely overvalued, and there is another big problem you have to look at when it comes to your IRA/401(k): Inflation is gaining traction quickly.

Gold protects against inflation

Fortunately, gold has long been an excellent hedge against inflation. As the Fed continues to print money, households will have more money to spend on goods, driving up demand and prices, causing inflation. Over time, this weakens the purchasing power of the dollar.

When the purchasing power of the dollar falls, the price of gold tends to rise. Take a look at this chart, which shows the strength of gold versus the dollar over the last 50 years. 

Since the 1970s, when the government changed from the gold standard to fiat money, the purchasing power of the US dollar has fallen, and the price of gold has been on the rise.

As you can see, gold has strengthened over the last 50 years, while the dollar has weakened considerably over that same period of time.

Gold protects against financial crises

The stock market is looking pretty good right now, albeit over-extended. It’s actually at record highs. However, asset bubbles are forming throughout the market.

Gold, on the other hand, is one of the only asset classes that aren’t currently at an all-time high. This means that gold has plenty of room to grow while the stock market has plenty of room to fall. 

So, what happens to your gold investments when the stock market crashes? Take a look at this chart, which shows how gold performed during crashes and corrections.

Gold tends to perform better when the market has major corrections. If the experts are right in assuming that a crash is on its way, gold might see a major spike.

The last six major stock market corrections, crises, and crashes of course affected the paper assets you hold in your IRA or 401(k). However, those who chose to invest in gold prior to these events unfolding were more secure and at ease because their portfolios didn’t rely solely on the performance of the stock market. 

That’s where diversification is a prudent strategy and makes financial sense.

Gold offers true diversification

One of the most important things you can do to protect your retirement is to diversify. While your financial advisor might tell you to diversify with stocks and bonds, it’s also essential to invest a portion of your money in assets outside of the paper assets markets. 

True diversification comes when your investments are spread between asset classes that are inversely correlated. This means that when one asset class, such as stocks, goes down, another asset class, like gold, typically goes up and protects your entire portfolio against the risk of losses.

Currently, as a prime example, the real estate market is at its 2006 peak and asset bubbles are forming across the investment landscape. Gold, on the other hand, is just starting its uptrend higher. And diversifying your portfolio with a Gold IRA will help you achieve true diversification. 

Why should I buy physical gold?

When you tell your financial advisor that you want to invest in physical gold, they will most likely introduce you to  ETFs and mining stocks. These are both alternative ways the financial community says you can invest in gold; however, both these options are “paper” assets and are exposed to “counterparty” risks; they are dependent on a third party you have no control over for its underlying performance. In the long run, neither of these options compare to investing in physical gold. Gold is a tangible, physical asset that has NO counterparty risk. And best of all, unlike paper assets, gold cannot default on you. 

Investing in physical gold over ETFs and mining stocks is a much SAFER & SECURE option. You can roll a portion of your 401(k) or IRA over into a Gold IRA, and you will own physical gold that is not dependent on the uncertain performance of the stock markets. 

Is gold cheap today?

As mentioned, gold is one of the few assets that are not at an all-time high today and just entering a bull cycle. 

At the time this article was written (June 30, 2021), the price of gold was $1,769. 

The bottom line is, investing in gold is a prudent strategy to hedge against inflation, obtain true diversification, and avoid losing your life savings when the stock market inevitably crashes. 

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