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Published On: Wed, Jul 20th, 2022

How To Take Advantage Of The Bear Market With A Gold IRA

There is a global bear market affecting not just stocks but, unusually, bonds as well. Inflation has risen to 40-year highs, while economic activity has stagnated, taking us to the verge of 1970s style stagnation, with a helping of a 2008-style debt crisis. The last time the world experienced stagflation, gold rose 1355% across the 1970s. Gold has remained essentially flat for the year, and perhaps more importantly for investors looking to position themselves for this next round of stagflation, gold remained undervalued. Gold IRAs are a key vehicle for investors considering a gold investment. 

photo/ Steve Bidmead via pixabay

What is a Gold IRA?

A precious metals individual retirement account (IRA) holds physical precious metals, gold, silver, platinum, or platinum, on behalf of the account owner. The only difference with a regular IRA is that, rather than holding financial assets, it holds physical precious metals. Gold is the most widely chosen precious metal, and so, it is often referred to as a “gold IRA”. Physical precious metals are held in the form of Internal Revenue Service (IRS) approved bullion bars or coins. 

Gold IRAs are typically self-directed, allowing account holders to determine their own asset allocation and composition, as opposed to a regular IRA which has greater strictures. 

Precious metals IRAs are funded either directly from your earned income, or, by rolling over other retirement accounts. 

Precious metals must be stored according to the requirements set forth in the Internal Revenue Code. Trustees, who provide IRA accounts, either have their own storage facilities, or employ those of a third-party. 

Why Invest in Gold?

As we said at the top of the article, gold is a proven performer under stagflationary conditions. The 1970s are the last great period of stagflation and as the 

The chart below depicts gold’s incredible rise during the 1970s. Historically, gold has been the best performing asset class during stagflationary periods, making gold IRA investing an important tool investors need to protect their portfolios. 

Source: World Gold Council

Despite this, gold has remained flat in 2022. This has worried some investors, who are anxious for safe haven. It must be said that not losing money on gold in 2022 year-to-date (YTD) is a good thing. Secondly, investors should look at the 2008 debt crisis to understand that gold does not always respond immediately to favourable conditions. In that time, gold responded to the debt crisis, when investors were searching for safe haven, by plunging 15% early in the year. The price eventually hit bottom in November of that year, before going on a run that gave investors a 165% return, ending in September 2011. 

 

Source: World Gold Council

The message to investors is, look past gold’s immediate inability to respond to world events. Right now, dollars and dollar-denominated real assets are being bought by investors and central banks across the world, making gold cheaper against the dollar. Eventually, those assets will become too expensive and they will rotate into gold. This period of flatness is an opportunity for investors to buy a quality asset cheaply.

Author: Rhojane Marie

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