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Investing in precious metals can potentially offer some similar tax advantages as a traditional IRA — plus other notable benefits, according to Kevin DeMeritt, founder and chairman of Los Angeles-based gold and precious metals firm Lear Capital.
Gold coins, for instance, are a tangible asset that investors can possess. As a result, they generally wouldn’t present the same risks stock or exchange-traded fund ownership could involve, since those assets’ value can be contingent on business decisions an investor has no say in.
Unlike currency notes, which can theoretically be printed anytime, gold coins also generally have a more limited production, adding to their value.
However, despite the advantages precious metals can provide, a number of consumers may not be aware the asset class is an option, DeMeritt says.
“Since 2008 or so, exchange-traded funds, where you can purchase a piece of paper backed by 80% or so in physical gold, is what a lot of financial advisers wanted to talk about,” he says. “[They felt,] ‘If I can’t offer physical gold to you, how do I make my commission on it?’ They like the stocks — either a mining company or an exchange-traded fund that’s backed by physical gold. But physical gold that you could actually physically deliver [to investors]? They don’t bring that up.”
Even if investors know physical precious metal investments exist, some may be holding off on making them, DeMeritt says, due to a number of misconceptions — which include:
Common Misconceptions About Investing in Precious Metals
Misconception No. 1 — Physical precious metals can’t be part of a retirement portfolio
Gold IRAs — a type of self-directed individual retirement account involving ownership of a precious metal asset such as a gold or silver bar or coin— may not as widely publicized as the more traditional type of IRA that contains elements like stocks and bonds; certain types of metals, though, qualify for inclusion in a gold IRA.
Some stipulations apply, including specific coins having a required parts per thousand measurement.
“The government has made these rules that the precious metals have to have a certain fineness to them to qualify for an IRA,” Kevin DeMeritt says. “If it has that quality, then you can add it to an IRA; if it does not, then you cannot — with the one exception being a Gold American Eagle coin.”
Gold IRA assets — such as bullion like the silver American Eagle and gold Maple Leaf coins, whose value is derived mostly from their precious metal content — have to also be held by a third party in a separate location, instead of somewhere like your home.
Provided coins meet all the criteria, they can be a viable investment opportunity. Gold bullion has shown solid performance in recent decades, and premium versions — rare coins that were minted before 1933 and can’t be reproduced — have performed particularly well in the past during recessions, according to Lear Capital.
Some have experienced exponential price growth. A basket of gold mint state rare premium coins, for instance, purchased in 1970 for $1,000 is worth a whopping $105,995 today.
Misconception No. 2 — Gold and silver are too expensive to invest in
Not necessarily, says Kevin DeMeritt. “Gold is trading at around $1,650-$1,700 per ounce today, so if you wanted to purchase a 1/10th ounce gold coin it would go for around $200 today,” he says. “Silver is even less — it’s about $20 an ounce. So you could start with silver, which is a great option right now, and then move your way up to gold as you accumulate enough silver. You need to look for the asset that’s going to give you stability and offset the volatility from some of the other investment areas.”
Along with stability, precious metals can often also potentially provide positive returns. Gold and silver prices have actually steadily increased during the past two decades, according to National Mining Association records.
Misconception No. 3 — Gold is typically a less volatile, and therefore boring, investment
“People think it’s a relic,” Kevin DeMeritt says. “It’s been around for 5,000 years; if something’s been around that long, [it’s perceived as] maybe old and just no longer useful.”
While cryptocurrency may seem like a more trendy option, there’s a reason, DeMeritt says, that banks continue to hold gold.
“They understand paper and [currency] could potentially go away,” he says. “It has in the past; we’ve had hundreds of currencies collapse or go away, and the gold is still there in all of the central banks’ accounts. [Banks] need something that’s physical and [has] real value.”
Another fallacy, according to the Lear Capital founder, is that gold doesn’t have a great performance record.
“From the year 2digital 000, if you invested $80,000 in stock and $20,000 in gold, it would be worth $385,000 today; you picked up an extra $65,000 in your bank account just with 20% of your assets in gold,” he says. “If you look at gold by itself, it’s dramatically outproduced the stock market. The misconception that gold can’t produce profits for people, and it’s just more of a safety-type asset, is completely incorrect.”
By comparison, he says that $100,000 invested during the same time period would fall $65,000 short of that stock-gold diversified portfolio. The bottom line? A total of $320,000.
While the stock market can experience shocks that echo political and economic uncertainty at any point, silver and gold tend to perform more evenly — and may even rise.
During the 2009 recession, for example, gold prices increased by 50% from September 2010 to September 2011, according to the U.S. Bureau of Labor Statistics.
Inflation currently is at an elevated 7.7% level, fueled in part by substantial shelter, gas, and food costs. With additional rate cuts likely to be issued by the Federal Reserve’s Federal Open Market Committee — which has already increased the target range for the federal funds rate from 0.25% to 0.50% in March to 3.75% to 4% in October — numerous investors may be contemplating how they can add stability to their investment portfolio, according to Lear Capital’s Kevin DeMeritt.
Blending alternative assets, such as gold, with investment vehicles like traditional IRA accounts could be an option, as concern about the economy’s future mounts.
“Slowly but surely through inflation, purchasing power drops; through higher interest rates, your bills go up,” Kevin DeMeritt says. “That’s why they’re saying 2023 is going to be the year of the recession. [It’s] a misconception that if interest rates go up, the gold market is going to fall. Gold [went] from $50 an ounce in 1974 to $850 an ounce at the peak of inflation in 1980 and all the while, interest rates doubled as well. You’re going to continue to see, over the next five or six years, how demand will continue to increase for precious metals around the world.”