Loose monetary policy in the wake of the 2008 financial crisis has brought about an unprecedented period of low interest rates as officials have sought to stimulate investment in the economy. Finally, this year the Federal Reserve began to raise interest rates as concerns over the possibility of inflation have grown. What do these inflation concerns mean for investors, and how can they mitigate the potential damage to their investment portfolio with precious metals?
Why Investors Buy Precious Metals as a Hedge Against Inflation?
Gold, like other commodities, is among what are called “real assets.”[1] Real assets are defined as physical assets with intrinsic value, such as precious metals, base metals, agricultural commodities, oil, real estate, and equipment. Given their inherent value, real assets are often used as a hedge against inflation, as they are viewed as being able to retain value even when currencies are devalued, as occurs with inflation.
Among real assets, commodities like gold and oil are particularly sought after as inflation hedges, since commodities prices tend to be early indicators of inflationary pressures. Simply put, when there is an increase of inflation, often as a result of an overheated economy, demand for key commodities also increases, thereby pushing commodities prices higher. While an overheated economy is not the only potential driver of inflation, it is a common cause in the era of active central banking, in which central bankers push to keep inflation at a manageable low as a strategic focus. Commodities in general, especially intrinsically valuable commodities like precious metals, therefore are logically viewed as strong hedges against inflation by many investors.
Are Precious Metals a Good Long-Term Investment?
While the performance of any investment can never be guaranteed, certainly precious metals as a sector have performed well over the last several decades. Gold, for instance, has averaged a compound annual growth rate (CAGR) of 7.86 percent since 1970 to 2017. During the same period, the Dow achieved a CAGR of only 7.28 percent.[2] Given the fact that precious metals are also viewed as a hedge against economic uncertainty as part of a “flight to quality,”[3] as well as the portability and tangible nature of precious metals, it is easy to see why many investors view them as good long-term investments.
Can You Hold Precious Metals in an IRA?
Until 1997, the U.S. government did not allow precious metals to be included in tax-deferred IRA accounts. Congress remedied this unfortunate circumstance however as part of the 1997 Taxpayer Relief Act, which opened up gold, silver, platinum, and palladium to placement in special custodial IRA accounts.[4] As such, you can now use precious metals as part of your retirement portfolio. However, not all bullion bars and coins qualify for inclusion in a precious metals IRA – here’s a precise list of the
IRA eligible precious metals.
Where to Buy Precious Metals?
Many investors prefer to buy precious metals in the form of bars and coins to paper-backed investment instruments. In the United States, the U.S. Mint sells precious bullion coins only to a network of Authorized Purchasers who meet certain criteria, and many of the coins that are IRA-eligible are U.S. coins.[5]
Scottsdale Bullion & Coin (SBC) is a dealer of U.S. Mint coins and can provide the highest quality precious metals investment opportunities available. Our team at SBC is knowledgeable about gold, silver, and platinum bullion bars and coins from around the world and can also educate investors on precious metals IRA investing. Contact a member of the team today for a free consultation, or download our free guide to precious metals investing as a starting point.