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The Growing Popularity of Gold IRAs

By Ed Moy,

Gold or precious metal IRAs have become a popular strategy for long-term investors to diversify their retirement savings.

Congress allowed investors to put away gold and other precious metals into a self-directed IRA beginning in 1997. They were responding to investors who wanted to diversify their retirement portfolio from paper assets like cash, stocks and bonds to add some tangible assets.

Those paper assets are subject to the value of the dollar and a tangible asset like gold usually moves in the opposite direction of the dollar. Typically, when the dollar goes up, gold goes down, and when the dollar goes down, gold goes up. Therefore, a gold IRA can act as an insurance policy against a devalued dollar eating away at retirement. Some individuals also like the idea of having gold in their portfolio because it will always be worth something, unlike the risk inherent in paper assets (just ask the owners of Lehman Brothers stock).

The law allows for gold, silver, platinum and palladium coins and bars to be put in a self-directed IRA. American Eagle (22 kt) gold, silver and platinum bullion coins and the American Buffalo (24 kt) gold bullions coins made by the U.S. Mint are all eligible, in addition to other foreign-government-made bullion coins.

When I was director of the U.S. Mint, we analyzed the gold IRA market and found that it was negligible because it was a complicated transaction for only the most-motivated investor.

Buying the gold was easy because of the plethora of gold bullion retailers. However, by law, an investor cannot hold the precious metal themselves so an investor had to find a self-directed IRA administrator to be the custodian. The precious metal also needs to be deposited in an IRA-approved depository. Finally, the precious metal has to be transferred to the depository in a way that the self-directed IRA administrator could properly account for it. Buyer interest was moderate, the process difficult, resulting in few investments in gold IRAs.

Then with the Federal Reserve’s multiple rounds of stimulus and the uncertainty of unwinding $4.5 trillion of excess dollars created, investor interest in precious metals jumped. The marketplace responded by developing a one-stop shop that handles the entire gold IRA transaction for the customer.

The combination of increased demand and an easier transaction resulted in robust sales. Total IRA assets were estimated to be $6.5 trillion in 2013. Between 2.5 percent and 4 percent of those assets are now in non-traditional assets, like gold, which is held by 5 percent of all households. An individual will make this investment by typically rolling over a portion (say 5 percent) of their traditional IRA into a gold IRA.

Regardless of the short-term fluctuations in gold prices, interest in gold IRAs continues because of the long-term nature of the investment. The daily price fluctuations are less important than making sure one’s retirement portfolio is diversified to reduce risk.

And looking long term, there are several risks that favor the continued growth in gold IRAs, such as the fragile global economic recovery, potential of aggressive inflation in the United States, growing concern of a major stock market correction and increased geopolitical risks.

Demographics also favor gold IRAs. For example, Millennials saw their parents’ stock portfolios take a big hit during the Great Recession and are more likely to have diversified retirement portfolios.

Expect precious metal IRAs to continue to grow and become a greater share of the overall IRA market.

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