Gold and the Looming Retirement Crisis

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Author Zora Neale Hurston once wrote, “Ships at a distance have every man’s wish on board. For some they come in with the tide. For others they sail forever on the horizon, never out of sight, never landing.” This sentiment touches on the economic reality of most American’s today.

Wages have stagnated for more than three decades. Moreover, data from the Brookings Institute shows that 44% of Americans of working age (18-64) generate a median annual earnings of less than $20,000. While these numbers present a sobering picture for the present, the downstream effects are even more grim according to the Economic Policy Institute (EPI).

In their wide-ranging analysis, the experts at the EPI have determined that the share of families with retirement savings has declined since the Great Recession. All their data points to the same conclusion: a retirement savings shortfall is a threat to most Americans. In fact, their most alarming finding is that “most families—even those approaching retirement—have little or no retirement savings.” Pension plans have largely become a relic of the past, and meaningful 401K retirement plan participation remains weak. Many American’s simply have not fully recovered from the fallout from the 2008-2009 financial crash.

The final statistic from the EPI report gives dimension to just how dangerous the looming retirement crisis has become. The analysts write “retirement inequality is greater than income inequality even in peak earning years.” Those familiar with the intensifying state of income inequality will understand just how worrisome this conclusion is.

As American’s face these challenges can they find any solutions with an investment in gold? They answer may be yes.

Gold is a unique component of a retirement portfolio because it addresses three key challenges at once.

First, gold offers the possibility for capital appreciation that is not bounded by the rise and fall of the equities market. In other words, gold commonly moves in isolation to stocks and bonds. This relationship means that gold can be thought of as a counterbalance to the whims of the market. This fact is important given that a severe market downturn, like that seen during the Great Recession, can decimate a retirement portfolio. Even those who are older, but not nearing retirement, face heavy risks given that they often tap into retirement funds amid a job loss.  

Second, gold is free from the counter-party risk present in stocks and bonds. Counter party risk is the danger that another party involved in your investment will fail to act in your best interest.  When you engage in a contract with another group (“party”) you always face the risk of the other side failing to meet their obligations. Stocks, bonds, derivatives and options all carry this risk because there is always a chance that the other side will default. In such a scenario a company may file for bankruptcy. Gold is not subject to counter-party risk because there is no CEO, CFO, or board of directors to act inappropriately.

Third, gold is disconnected from the structural problems underpinning the retirement savings crisis. American’s do not have retirement savings because their wages have stagnated while the cost of living has increased annually. This imbalance has forced more Americans to borrow to survive. The loans are accumulating, but the repayments are slowing, or even stopping. This trend will likely bring about further destabilization to the economy risking losses across many asset classes. In a period like this gold often performs well as a safe haven.

Savvy investors are making moves today for the realities of tomorrow.


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