Why Gold and Silver Make Sense As Retirement Investments

Why Gold and Silver Make Sense As Retirement Investments

The definitive call on whether to have precious metals in your retirement portfolio…

by Marc Courtenay, Retirement Panel Chairman
The Oxford Club

Feelings of financial insecurity are running full throttle. Couple that with a growing mistrust of government, and it’s beginning to remind me of 1974 all over again.

How so? The world at the time was going through a series of financial challenges and upheavals.

  • Here in the United States, we had a president “on the ropes,” who was being investigated by Congress.
  • Inflation was starting to rear its ugly head, too.
  • And paper currencies that weren’t backed by precious metals were losing their appeal, worldwide.

“How safe can you feel with something backed by the promises of politicians and intrinsically worth only the paper and ink used to create it?”

The late economist and author of several bestselling books (and Libertarian Presidential Candidate), Harry Brown, spoke those words to me back in early 1974. It was he who articulated why I needed to invest in precious metals, which turned out to be a brilliant call ahead of gold’s historic ascent.

But the world is a much different place today. Given that, do gold and silver make sense as retirement investments?

To put it simply – and emphatically – yes! Let me tell you why…

Expose Your Retirement Portfolio to Precious Metals

In today’s economic climate it’s hard to ignore the relevance of having exposure to precious metals in any retirement portfolio.

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There’s a lot of uncertainty in the air. For starters, money supply has been expanding significantly – in both the developed and developing world – for the better part of three decades now. Governments are just printing away.

As currencies experience this “monetary dilution,” their buying power decreases greatly. If you’ve been buying goods and services over the past 30 years you know this reality very well.

So unless the money supply suddenly shrinks (you could get better odds of Michael Phelps winning Wimbledon), I believe it’s inevitable that gold will break through its 1980 inflation-adjusted price level. (That would put its price above $2,000 an ounce.)

Add to that the likelihood of further increases in the costs of healthcare, energy, food, durable goods and other essentials, and investing in precious metals makes even more sense.

That’s why I want to make sure you have 5% of your portfolio allocated to gold and silver, per Alexander Green’s marching orders.

For me, personally, the need to keep up with the cost-of-living has become more of my priority. So I’ve actually increased my exposure to 15%, since I’m much closer to retirement.

But everyone’s situation is unique. That’s why my key point here is to make sure you at least maintain the exposure to gold set forth in our allocation model.

And if you’re a little light in that area, you’re in luck. Precious metals have cooled off a bit, creating a nice opportunity to buy.

The Dramatic Increase in Silver and Gold Prices

The increase in gold and silver prices – off of their respective 2001 lows – has been dramatic. But that doesn’t mean the move is over.

Below are four powerful reasons why precious metals prices will march higher in the coming months.

1. Precious metals are considered a virtual currency by many investors. Particularly in Asia, where there’s a growing consensus that precious metals hold their value better than any paper currencies over the long term. Such beliefs will translate into more demand for gold and silver going forward.

2. Investment class status. Gold and silver are accepted as a component in most asset allocation strategies, giving the metals inherent demand. Furthermore, the latest statistics reveal that the majority of investors still don’t own any precious metals-related investments. The fact that there’s a great deal of “catching up” to do lends itself to more buying.

3. Demand-side dynamics. According to watchdog organizations like GATA (Gold Anti-Trust Action Committee), the demand for gold and silver is outstripping supply. Producers are having a difficult time finding and refining enough to meet the upsurge in orders. As demand continues to crescendo, supplies will be exhausted at an ever-increasing rate, triggering higher prices.

4. Inflation. It will eventually return – and with a vengeance. As accommodative monetary policies continue and governments around the world desperately spend more to stimulate their economies, inflationary pressures will surge. And gold (and even silver) are looked upon as attractive hedges against inflation.

The Many Options For Buying Gold

Now, as far as buying gold goes, investors must choose among many options, including (but not limited to) ETFs, mutual funds, coins, bars and bullion.

A good one to take a look at is the SPDR Gold Trust (NYSE: GLD). Holding more gold than most central banks, GLD is the world’s largest gold fund – and it recently exceeded $50 billion in assets.

There are big advantages to owning physical gold, too. For starters, you own one of the world’s most scarce assets. It’s said that in all of history, we’ve only mined enough gold to fill two Olympic-sized swimming pools (National Geographic).

Moreover, buying physical gold – coins and bars, or storing your gold offshore through Perth Mint Certificates – means you’re avoiding the risks associated with holding mining stocks. If a mine goes off-line, and you’re holding shares, lookout below.

As I’ve shown, gold is likely to head higher for the most pedestrian of reasons: supply and demand. Just don’t take a pedestrian approach when it comes to your retirement portfolio. And add the 5% exposure soon.

Three Important Considerations Before Buying Gold…

Lastly, here are three important considerations to make before buying gold:

1. Expect volatility. As we witnessed in the last half of 2008, if hedge funds and other institutions feel compelled to dump their gold at the same time, prices can plummet faster than a steel ball in a pond. But we can learn from this and buy only on the dips, that way volatility is our ally.

2. Treat it as insurance. As retirement approaches, gold is more like insurance than a sure-fire investment. Its merit comes mainly as a hedge against inflation and the devaluation of paper currencies.

3. Pricing is not always efficient. Gold’s pricing and supply is oftentimes manipulated. I’ve researched this phenomenon for years and noted how many institutions and cartels “short” precious metals using futures contracts and options on futures. Such maneuvering can distort the realities of supply and demand. And cause unexpected aberrations in pricing. However, over time, these inefficiencies always balance out.

Allow me to make this point, as well. If I’ve learned one thing in my 37 years of investing, it’s that objectivity and experienced guidance go hand-in-hand with making informed decisions.

Good investing,

Marc Courtenay
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