There are many good and valid reasons for why you should open a Precious Metals IRA. With currencies around the world locked in a destabilizing race to the bottom, natural disasters that are taking real tolls on the economic production and output of whole nations, and international tensions and crises on a never before seen scale, it only takes a tiny spark to set off a veritable powder keg explosion that can take down large sections of the global financial system with it. The antidote to this systemic global banking and financial weakness is known as physical gold, silver, platinum, and palladium. These four hard and historically valuable assets deliver incredible and long-lasting protection against serious and potentially real financial world shocks by helping you to establish an investment portfolio that is strategically balanced. With a precious metals IRA, you are able to avoid having to depend on the whims of stocks, bonds, and other paper investments whose value is reliant on the successful decisions of other people. No person, business, or government can deflate away the value of nor cheat precious metals, and this is the ultimate appeal of its value.
What Is A Precious Metals IRA?
Individual Retirement Accounts, or IRAs, where physical holdings of gold and other permissible precious metals are contained are known as gold IRAs or Precious Metals IRAs. They work the same as do regular IRAs, but rather than contain many possibly worthless paper assets and holdings, they are comprised of physical bullion bars or coins. Such forms of Precious Metals IRAs typically prove to be self-directed IRAs. In these types of IRAs, custodians are encouraged to include a broader range of investments within the retirement investment account. Such self directed Gold IRAs are able to comprise other kinds of retirement accounts including SEP IRAs, Roth IRAs, Simple IRAs, TSP Thrift Savings Plans, HSAs, and 401ks.
Precious metals IRAs can contain certain allowable forms of the four precious metals which are universally accepted around the world— gold and silver, and platinum and palladium. When in coin or bullion form, they must be in coins or bars that the IRS has specifically approved for Precious Metals IRAs. The phrase Gold IRA is often used interchangeably or in place of the Precious Metals IRAs because gold is the most commonly contained metal. They are also correctly known when appropriate as Silver IRAs, Platinum IRAs, and Palladium IRAs.
Precious Metals IRAs typically provide investors with the benefits of a longer-term inflationary hedge that helps to diversify the portfolio. When the ravages of inflation devalue the paper currency such as dollars, gold and silver’s purchasing power usually holds together well. Besides this, the precious metals act as an insurance for the other types of investments in the portfolio, since it is the nature of precious metals to typically move up and down independently and often inversely of bonds, stocks, and Treasury Bills. This makes them a typically reliable hedge when instability overtakes equities markets and helps to keep the ship of the overall portfolio and its value righted. These Precious Metals IRAs are managed by a trustee who either maintains the precious metals in house in their own facility or who employs a third party depository which keeps them in their proprietary storage facility.
The Various Means for Investing in Precious Metals In An IRA
There are three principal means for investing in precious metals within the confines and structure of an IRA. These are:
• Physical Coins and Bars
• ETFs or Exchange Traded Funds
• Gold Mining Stocks
Physical Precious Metals Bars and Coins
The IRS maintains a strict and vigorously enforced set of rules on which precious metals bars and coins may be kept within a Precious Metals IRA. Where bars are concerned, they must be either:
• 24 Karat Gold with the hallmark of a COMEX or NYMEX approved assayer or refiner on them, or in the case of coins 22 Karat to 24 Karat Gold only.
• Fineness of .999+ silver bars or coins.
• Fineness of 90.9995+ platinum or palladium bars or coins.
Platinum & Palladium
• Tangible physical assets can not be inflated away.
• Physical precious metals assets can not be treated as IOUs.
• Physical coins and bars can be delivered to you and then easily transported to another, safer place.
• Physical precious metals always have value in every country, time, and location.
• There are a limited number of and specifically approved selections of gold, silver, and especially platinum and palladium coins and bars which are allowed within the Precious Metals IRAs.
• There is a surcharge to acquire physical gold bars, and the charge over gold spot prices is often higher still on coins than it is on bars and other forms of bullion.
IRA Approved ETFs
Exchange Traded Funds are stock-like instruments which permit investors to own shares in gold via a stock market traded vehicle. Most of these funds own the appropriately correlated underlying precious metals and store them in a vault. The difference between owning actual gold, silver, platinum, and palladium bullion and these paper shares is that you do not have the rights to walk into the vault and request your share of the bullion bars or coins be handed to you in exchange for your paper shares. There are various advantages and disadvantages to this form of precious metals ownership in your retirement account.
• These ETFs prove to be far more convenient and liquid when it is time to sell them or to add to them.
• You receive the same market price for the precious metals in the fund as would a major hedge fund or mega trader.
• Owning these ETF shares can qualify your account for minimum brokerage requirements.
• Owning precious metals this way is not free, as there are fund expenses which are passed along to all shareholders.
• If there were to be a time of political and economic crisis, as with a revolution or economic meltdown, the risks of you not being able to access your precious metals holdings in paper share form are quite high.
• There is always the chance that the ETF fund sponsor fails or mismanages the funds and collapses, tying up your retirement funds and investments for an extended period of time while the particulars are sorted through.
IRS Approved Mining Company Stocks
• Gold mines are supposed to be an ideal means of realizing profits by holding gold through the leverage of a gold mine. This is true since flying high gold prices can create a multiple increase in the company’s mining profits as the profit margins can suddenly explode with higher gold prices.
• The biggest problem with gold mining company stocks is that higher gold prices never guarantee that the gold mining stock prices will rise proportionately or even at all. Gorton and Rouwenhorst ran a study that covered a 41 year time frame with gold and determined that gold’s returns were substantially higher than the relevant basket of gold stocks’ return rate over the same time span. The correlation between gold mining stocks and gold prices only correlated and moved in tandem about 40% of the time.
• Gold stocks correlate and move in tandem with other stocks much better than they do with gold. This correlation between gold mining stocks and other stocks amounted to 57%. The ultimate conclusion of the study was that gold mining stocks really do correlate much more strongly with the overall stock market than they do with the gold market upon which their prices are suggested to be based.
• Gold mining firms can experience financial problems because of mismanagement, while physical gold can never be mismanaged.
• Managements can selfishly line their own pockets with unjustified bonuses and salaries, wasting the company’s resources and even overstating reserves and future revenues in the process. Gold does not pay anyone nor overstate anything.
It should not come as a total shock to those planning for retirement savings and investing that financial institutions like brokerages and banks would prefer that you invest in the paper assets like the precious metal ETF’s and paper certificates such as gold mining stocks. The main reasons for this are self interest. These institutions can not make any serious money obtaining physical precious metals on the behalf of clients. They can charge a large commision for purchasing stock shares and ETFs. What is more, many banks and brokerages do not have access to physical bullion in the first place. Beware the advice of bankers and stock brokers or money managers where Precious Metals IRAs are concerned.