Gold and the Relationship to the Dollar
Gold and the dollar most often have an inverse relationship. This means that when the dollar is strong the economy is healthy and not risky therefore gold prices tend to be lower. On the contrary, during times of economic stress, the dollar is weaker and people sell their dollars to get a safe haven investment in gold.
Individuals have many reasons for buying gold; however, the main reason is that gold has a history of relative safety and strong performance during volatile economic times. The price of gold is also controlled by central banks which makes it less volatile.
You only need to look at history to see the lesson, as recently as the 1970s world monetary systems were in upheaval. The value of the dollar dropped and hyperinflation set in. You need only remember that paper money, in many situations, has become less valuable than the paper used to print the money. Gold on the other hand has always retained some value, simply because it is gold. Many people hold the opinion that a global monetary crisis is not only likely, it is inevitable. In this respect gold is a safe haven investment and when people are fearful, they buy gold as an economic insurance policy.
Gold is also a sound investment during inflation and a hedge against the decrease in the value of the dollar. Whenever the U.S. Government starts the printing presses to create more money they decrease the value of the money already in circulation. Over the last several decades we have seen a continual inflation rate of 10-15% each year. This is a key reason that gold has such a high value and the dollar has such low value.
The inverse relationship of gold and the dollar started in 1971, when President Nixon removed the gold standard from our currency. This meant that the dollar was not backed by gold and could not be converted into gold. When the gold standard was removed from the dollar, gold was selling at $35 per troy ounce. Over the next 10 years the price of gold rose to $800 per troy ounce. Current prices are more than double the prices in the 1980s which is a good indicator of the fear level about economic crisis.
Gold value has stayed strong and countries that are in economic growth, specifically India and China, whom which are both an economic superpower, are hording massive quantities of the precious metal. Both India and China have held onto gold as a personal savings strategy. Holding gold may not give them the boom time profits that Americans have experienced recently, but in times of economic crisis, the people who hold gold end up benefiting more than the rest.
Gold for your IRA
Were you aware you could hold proof and bullion coins, such as gold and silver bullion in your IRA? This ability allows you to get some additional diversity in your IRA portfolio.
How It Works to Add Gold or Silver to Your IRA
Many of our customers want to add gold and silver to their retirement portfolio. We can help you with that aspect of your investment planning.
When you decide to add precious metals to your IRA, you will need to choose an appropriate custodian for your IRA. We can suggest a third party custodian, if you need help selecting one. Once your IRA custodian gets the required paperwork and funds, you then can decide which precious metals you want to purchase in your IRA. We can guide you through the entire process. This process is easy as 1-2-3. All you need to do is to contact one of our Account Consultants so we can better advise you on the best way to approach this and we can give you the step by step guidance you need to get this process completed in a quick, effective and efficient manner.
Anytime you want to take a distribution from your IRA, we can help you convert your precious metals to cash or arrange to have your gold or silver coins delivered.
Which Coins You Can Hold in Your IRA
The rules for IRAs are those of the U.S. Government and currently they allow certain bullion and proof coins like the Gold and Silver American Eagles to be purchased and added in your IRA. Proof coins are uncirculated collector's versions of the legal tender coins.
Proof coins are rare because they are limited in the number of proofed coins in circulation. The price of proof coins are driven by a number of factors including the demand for gold or the precious metal, the price of the precious metal used, mintage, condition, age and rarity. Each year the U.S. Government mints a specific number of proof coins and depending on the year and popularity of that minting, the coins can sell out very quickly. Proof coins sell at a premium over the value of the precious metal content due to their numismatic or collector value.
In contrast, bullion coins that are not proof coins are more common because they do not have the numismatic value and as such their value is closely tied to the price of the precious metal in the coin.
Contact us now and speak to one of our skilled account consultants for more useful information on how to add gold to your IRA and protect your hard earned money from the devaluation of the American dollar.
Gold Confiscation Act of 1933
History is a great teacher and you only need to look back to the 1920s and 1930s to get a very important lesson about owning gold during stressful economic times.
The roaring 20s were high times for many Americans. In the mid to late 1920s, the stock market exploded exponentially, mostly due to a frenzy of investing. This sent stock prices beyond their reasonable value and in 1929, on Black Tuesday, the stock market began a crash which led to the Great Depression. In 1933, the nation was demoralized and sought direction from Washington, D.C. and President Franklin D. Roosevelt for help. The President needed to inflate the dollar to battle the depression. Ultimately, the government issued an order to confiscate gold bullion from the American citizens. Penalties for holding gold bullion included fines and imprisonment. The confiscation order had certain exceptions, most notably that "gold coins having a recognized special value to collectors of the rare and unusual coins."
After the Confiscation Act of 1933, during 1934 the U.S. Government devalued the dollar and raised the value of gold by close to 75%. Many of the gold coins the government confiscated were melted into gold bars.
Collectors of rare gold coins, who were exempted by the gold confiscation order, profited considerably from the melting and revaluation in two significant ways. First, the price of gold increased from $20 per ounce to $35 per ounce. Secondly, the melting of the confiscated gold coins created a scarcity for those coins and as a result the coins appreciated in dramatic fashion.
The history lesson from the Gold Confiscation Act of 1933 and the years following that event, prove the importance of owning collectible gold coins as opposed to regular gold bars.
