Gold is still a good investment for your IRA

Posted on Posted in Gold articles, Gold bullion, Gold coins, Investments, IRA Tagged with , ,

 

Now is a good time to consider buying gold bullion and gold coins for your IRA and for your investment portfolio.

According to the World Gold Council gold prices are determined by the interaction of four key categories:

  1. Economic expansion: Rising income is associated with higher demand for jewellery, technology and long-term savings.
  1. Risk and uncertainty: Market downturns and political uncertainty often boost investment demand for gold as a safe haven asset.
  1. Opportunity cost: The relative value of other investment assets competes with investment in gold. Assets such as bonds, stocks provide income such as interest and dividends. Gold does not provide any intermediate income. Capital gains is provided when gold is sold at a price higher than when it was bought.
  1. Momentum: Asset flows and price trends can intensify or diminish gold’s performance.

Below are three weekly price charts which cover a four year period from 2017 to 2020.

The gold futures charts shows gold rising from a low of approximately $1,150/oz to over $2,000/oz in 2020, a return of approximately 74%. An investment in gold in your IRA would have provided an above average returns. According to the World Gold Council, an investment in gold of just 5-10% of the entire portfolio would increase risk adjusted returns and reduce volatility.

 

The second chart shows the US Dollar futures index. Normally the US dollar and gold move inversely to each other. If the US dollar is weak, gold will be strong. In the year 2020, the US dollar declined while gold strengthened.

The consensus seems to be that the dollar will continue to weaken which bodes well for gold.

The third charts shows the weekly S&P500 Index. The precipitous drop in prices in the first quarter of 2020 was due to the COVID-19 virus. Prices thereafter rebounded. The COT reports at the bottom of the chart shows the commercials and large speculators are largely flat which indicates some market uncertainty.

In summary gold has always been a safe haven asset in times of economic and political uncertainty. 2020 provided economic uncertainty due to the COVID19 virus and in the US political polarisation.

For more information on buying gold coins for your IRA, please see recent blog post