After this week’s inflation report, the stage seems to be set for the Federal Reserve to cut interest rates at next week’s Federal Open Market Committee (FOMC) meeting. But the one big question everyone has is, will the Fed cut interest rates by 25 basis points (0.25%) or 50 basis points (0.50%)? There are some advantages and drawbacks to each approach, and the Fed has to toe a fine line, lest it cause markets to panic. But what are the chances that the Fed jumps in with a big cut next week? The Case for 25 Basis Points The case for a 25 basis point cut boils down to three major points: Don’t Spook Markets While labor markets are weakening, a 50 basis point cut might be seen as an indicator that the economy is in worse shape than most people think, and thus is in need of greater stimulus. And that could scare Wall Street. The last thing the Fed wants to do is to spook markets and spur a huge selloff. Since most people are expecting a 25 basis point cut, doing that wouldn’t ruffle any feathers. Wait and See While inflation is down to 2.5% year on year, core inflation is still at 3.2% year on year. With core inflation still somewhat elevated, the Fed may want to wait and see what impact its initial rate cuts have. A rate cut that’s too big could boost inflation, necessitating either a mid-cycle pause or hike, something the Fed wouldn’t want to do. So a 25 basis point cut is seen as a good first step until the Fed has a better idea which way the economy and inflation are going. Don’t Do Too Much Before the Election The Fed also has to deal with the fact that the presidential election is coming up in November and the Fed doesn’t want to be seen as trying to influence the election. A 50 basis point cut might be seen as an attempt to goose the economy right before the election, and could damage the Fed’s reputation and credibility. A 25 basis point cut is the safer choice, as it’s already expected, and won’t be seen as trying to hand the election to Harris. The Case for 50 Basis Points The case for a 50 basis point cut also has three major bases of support. Historical Precedent The last time the Fed began a rate tightening cycle like this, in September 2007, it started off with a 50 basis point cut, before transitioning to 25 basis point cuts at subsequent FOMC meetings. So a 50 basis point cut wouldn’t necessarily signal that things are getting bad, merely that the Fed is starting off a rate cut cycle that it intends to see through, rather than an intra-cycle adjustment period. Get Ahead of the Curve The Fed was castigated for its failure to respond to inflation, and rightly so. First the Fed tried to tell us there would be no inflation, then it tried to say that inflation would only be transitory, then it tried to tell us that it could manage it. None of those were true, and the resulting inflation ended up being the highest in over 40 years. The Fed was behind the curve the entire time. Does the Fed want to remain behind the curve when it comes to its rate cutting cycle as well? Some Fed officials are already questioning if smaller rate cuts might not respond to falling inflation fast enough. If the Fed isn’t aggressive enough in its cuts, the fear is that inflation could fall to under 2% before the Fed gets interest rates to where it wants them to be, which could spur larger rate cuts later. Markets Have Already Priced in Cuts Since the beginning of July, yields on 1-, 2-, 3-, 4-, and 6-month T-Bills have fallen 27, 29, 37, 46, and 65 basis points respectively. That means that markets have more than priced in a 25 basis point cut already. If the Fed wants to actually influence interest rates and markets, a 25 basis point rate cut won’t do much, because that cut has already been priced in. But a 50 basis point cut could certainly push interest rates down further. Does the Fed want to rely on its forward guidance to allow markets to anticipate Fed actions and price them in ahead of time? Or does it want to be a market maker and have its policy actions actually influence markets and interest rates? For those who don’t want the Fed to remain at the mercy of markets, and who want the Fed to stay ahead of the game, a 50 basis point cut is necessary to ensure that the Fed retains its credibility. What the Fed Will Do, and How You Might React With core inflation remaining elevated and higher than expected, there’s almost no chance that the Fed will cut by 50 basis points. So expect a 25 basis point cut and no more next week. But given the fact that the labor market continues to weaken, further cuts can be expected at the next two meetings. Markets have already priced in at least 1-2 more cuts before the end of the year. We could be at the beginning of a major rate cut cycle, like the Fed’s 2007-08 rate cut cycle, which saw rates fall from 5.25% to near zero. And if that’s the case, you can kiss current interest rates on savings accounts and money market accounts goodbye. Many Americans have been content to park their money in accounts earning 5%+ interest rates, but that could all be coming to an end. So the question they have now is, where can they put their money where it will be relatively safe? As everyone knows, there’s no such thing as a risk-free investment. But there are some assets that are considered safe havens, ports in a storm, that can help safeguard wealth when times get tough. Gold
Fed Cuts Interest Rates: Markets React
In a move that was widely expected, the Federal Open Market Committee this week decided to lower the target federal funds rate. The move had been more or less forecast for weeks in advance, and recent economic data releases bolstered the Federal Reserve’s case for cutting rates. What was surprising to many, however, was the fact that the Fed decided to cut the federal funds rate by 50 basis points (0.50%), rather than the 25 basis points (0.25%) that many people had expected. That brings the federal funds rate down to 4.75-5.00%. With the last CPI inflation reading showing core inflation still stubbornly over 3%, and increasing more than expected, many had speculated that the Fed would stick to a 25 basis point cut rather than a 50 point cut. Markets reacted as might be expected, with the Dow Jones jumping nearly 200 points on the news, the S&P 500 climbing nearly 30 points, and both gold and silver rising as well. Stock markets greeted the news as a sign that the monetary spigots may be opening up again, while precious metals markets saw the rate cuts as a sign that the economy may be slowing down, setting up conditions beneficial for gold prices. But all those gains were given up by the end of trading Wednesday, perhaps due to the growing realization that the 50 basis point cut was the first salvo at an attempt to stabilize an economy that is slowly heading toward recession. What Will the Fed Do Now? The question everyone has now is what the Fed will do next. For perspective, the Fed’s first rate cut in its 2007-08 rate cut cycle was also a 50 basis point cut, which was then followed by a series of 25 basis point cuts. We might then expect further rate cuts at the next two FOMC meetings this year, which would bring the federal funds rate down to 4.25-4.50%. This comports with the summary of projections released by the Fed, which shows that most FOMC participants expect the target federal funds rate to be between 4.25% and 4.75% by the end of the year. Further rate cuts would then be expected next year, with most FOMC participants expecting the federal funds rate to be between 3.00% and 3.50% by the end of next year. Of course, FOMC projections are notoriously inaccurate. Changing economic conditions result in the need for action, so in all likelihood the rate may end up being lower at the end of next year. Shades of 2007 All Over Again If this sounds a bit like 2007 all over again, that’s because it’s eerily similar. In 2007 the Fed made a 50 basis point cut at its September meeting. Stock markets went on to set all-time highs in early October, then began a long and gradual decline that accelerated in 2008 and reached its nadir in 2009. Meanwhile the Fed continued to make periodic 25 basis point cuts, all while telling us the economy was doing just fine. Granted, we haven’t had our Bear Stearns or Lehman moment yet (or have we?), so there doesn’t appear to be any single major driver of potential recession. But given the Fed’s track record on rate cuts, and the history of recession occurring shortly after the Fed’s last two major rate cut cycles, the question of recession is right at the front of many people’s minds. The coming months will show whether the economy follows the same pattern it did back then. Every recession or financial crisis is different, but this one so far looks to follow the same pattern we saw back in 2007. What Can You Do? If the economy ends up in a crisis like that of 2008, we might expect to see the following: a gradual decline in stock markets later this year and early next year; rising gold and silver prices; and more signs of growing unemployment such as layoffs, buyouts, and return-to-office mandates. We could be entering a period of time that is quite similar to that of 2007-08, and many Americans are woefully unprepared. Debt levels are higher than ever, credit card delinquencies are rising, and we have yet to really feel the impact of higher interest rates on the commercial real estate market. A perfect storm of events is coming together that could result in another financial crisis as bad as 2008, or worse. Are you one of the unprepared? Or have you seen this slow motion train wreck coming and started to prepare yourself against it? Many Americans have already seen the writing on the wall, and have started to move their wealth into precious metals like gold and silver. Both gold and silver performed well during the aftermath of the 2008 crisis, and gold gained 25% during the same time period that markets fell more than 50% (October 2007 to March 2009). You don’t have to leave yourself at the mercy of financial markets, you can try to safeguard your savings and investments in whichever way you see fit. And gold and silver can be one way of doing that. With a gold IRA or silver IRA you can benefit from gains in gold and silver prices while still enjoying the same tax advantages of an IRA account. And you can fund your gold IRA or silver IRA with a tax-free rollover from existing 401(k), 403(b), TSP, IRA, or similar retirement accounts, helping you secure your retirement savings by owning physical gold or silver coins or bars in a precious metals IRA. Now that the Fed has commenced its rate cut cycle, the countdown has started. There isn’t an unlimited amount of time for you to secure your financial well-being if the economy continues toward recession. If you want to look at ways to help preserve your hard-earned money in the face of a looming downturn, call Goldco today to learn about how gold and silver can help
4 Reasons the Dollar Could Collapse
If you’ve noticed that your dollars don’t seem to go as far as they used to, you’re not alone. Millions of Americans are in the same boat. The recent inflation we experienced, the highest in over 40 years, was a wake up call that made many people realize that the financial stability they had taken for granted for decades no longer exists. Since the end of World War II, the US dollar has been the world’s reserve currency, which has been both a blessing and a curse. The US government has been tempted to use its reserve currency status to its financial advantage. This has resulted in massive devaluation of the dollar. Since 1971, when President Nixon closed the gold window and severed the dollar’s last link with gold, the dollar has lost over 87% of its value. And the dollar continues to lose value today. Continued inflation in the US is stretching many Americans to the breaking point, leaving them struggling to make ends meet. But if you think it’s bad now, it could get even worse in the future. Currency collapses, like many economic crises, happen very slowly, then all at once. While things may seem fine now, the dollar’s end could come quicker than many expect, shattering the prosperity of Americans whose financial well-being is tied to the strength and health of the dollar. Numerous currencies throughout history have fallen victim to inflation and devaluation, from ancient Rome to Weimar Germany to modern-day Zimbabwe and Venezuela. Will the dollar follow them? The harm that could come from a collapse of the US dollar can’t be overstated, as it could be devastating to millions of Americans. And here are four reasons the US dollar could collapse. Key Points to Consider 1. Out of Control Inflation Inflation, as Milton Friedman famously stated, is always and everywhere a monetary phenomenon. So it’s no surprise that the trillions of dollars that entered the US financial system in 2020 eventually resulted in sharply rising inflation. Many people saw that inflation was going to be problematic, but it seems like policymakers in Washington kept their heads in the sand. First we were told that inflation wasn’t going to happen, then that inflation was merely transitory, and finally that the Federal Reserve had everything under control. But that wasn’t true. Inflation reached the highest level it had in 40 years, and only now is starting to get back towards the Fed’s 2% goal. Inflation results in the devaluing of the dollar and the diminishing of purchasing power. The higher inflation rises, the worse that devaluing gets. Inflation in the US isn’t anywhere close to the levels seen in Weimar Germany, Venezuela, or Zimbabwe yet, but that doesn’t mean it won’t be problematic. Even though the Fed thinks it has inflation under control, its response to the next recession could spur more inflation that could further devalue your dollars. 2. Federal Spending and Debt One of the reasons for our current inflationary mess is the fact that the federal government continues to spend trillions of dollars that it doesn’t have. The federal budget deficit is expected to hit nearly $2 trillion this year. Among the driving factors is the rising cost of servicing the massive $35 trillion national debt. Interest cost on the debt is already over $1 trillion this year, and could continue to rise in the future. High interest rates and a rising national debt are a bad combination, and the higher the national debt grows and the longer interest rates remain elevated, the worse that interest expense gets. Another looming factor that could contribute to a debt crisis is the imminent financial crisis facing Medicare and Social Security. The Social Security trust fund is set to be depleted in 2033, at which point it will only pay out 79 percent of expected benefits. Medicare’s trust fund is expected to be depleted in 2036. When those trust funds are depleted, the government will have to fund Social Security and Medicare benefits from general tax revenue, which it never expected to have to do. That could result in hundreds of billions of dollars of additional expenditures that the federal government wasn’t planning for, further driving up the national debt. As we saw in 2020, when the federal government’s fiscal stimulus was monetized by the Federal Reserve, this monetized debt can be inflationary. So the more money the federal government spends, the higher inflation rises. And the higher inflation rises, the weaker the dollar becomes. 3. International Avoidance More and more countries around the world are trying to wean themselves off dependence on the US dollar. That can be difficult, as the dollar’s use in international oil markets has been one of the reasons the dollar is in such great demand around the world. But an increasing number of countries are beginning to eschew the use of the dollar for oil purchases, or use their own national currencies for bilateral trade. While the dollar remains the dominant world reserve currency today, its importance is declining. There is also the fact that the US government has weaponized the dollar and the US banking system through its international sanctions, which impact far more than just target individuals, entities, or nations. US sanctions require financial institutions around the world to comply, even if those institutions aren’t American. That can dramatically raise the cost of doing business and result in bureaucratic and logistical nightmares. It’s no wonder that many countries have responded to this by dumping the dollar and looking for alternatives. The BRICS countries are at the forefront of this, developing their own payment systems, and possibly even developing their own currencies for bilateral or international trade. There are even rumors that a new BRICS currency could be backed by gold. While it looks right now like it will be a long time before the dollar is dethroned as the world’s reserve currency, developments could accelerate in the coming years. 4. Political Instability Underlying all this is
3 Reasons Gold and Silver Could Continue Climbing
Conventional wisdom has long held that lower interest rates are beneficial for gold and silver prices. Conversely, higher interest rates are supposed to be detrimental to gold and silver prices. Someone forgot to tell that to gold and silver over the past year, as prices continued to rise despite high interest rates. But since the Federal Reserve’s rate cuts last week, gold and silver prices have continued to climb. Gold has continued to set all-time high prices, climbing to over $2,660 an ounce, while silver pushed to over $32 an ounce at one point. Even though gold and silver prices had already made nice gains over the past couple of years, the Fed’s rate cut seems to have given gold and silver a shot in the arm. Here are three reasons gold and silver prices could continue to climb. 1. Further Rate Cuts Both Fed officials and markets expect further rate cuts this year and next year. After a 50 basis point cut last week, the next rate cuts are expected to be 25 basis point cuts. Yields on T-Bills, which had already fallen significantly in the weeks before the Fed’s cut, have fallen even further. Yields on 1-, 2-, 3-, and 4-month T-Bills fell 14, 14, 11, and 11 basis points the day the Fed announced its cuts, and have fallen a further 12, 13, 15, and 12 basis points respectively. The expectation of further rate cuts is starting to be priced into bond markets already, and likely also into stock markets and precious metals markets. The further the Fed cuts rates, the higher gold and silver prices could climb. 2. Weakening Economic Conditions It is becoming more and more apparent that the US economy is slowing down. Labor market weakness, declining consumer confidence, and high debt levels are weighing down the economy. Looking back at previous Fed rate cut cycles, the first rate cuts came mere months before the economy fell into recession. If that pattern holds this time around, we could be looking at a recession late this year or early next year. As the economy weakens, gold prices tend to climb as safe haven demand picks up. We saw this in 2008, as gold demand and gold prices rose as the economy weakened. Gold prices continued to rise after the 2008 recession, hitting all-time highs in 2011. And the trend over the long term has been for gold to climb ever higher, which is one reason gold has even outperformed stock markets in the 21st century. 3. Rising Demand Gold demand has remained strong for years, and shows no signs of slowing down. And there are a number of reasons for that. First and foremost is investment demand for gold, whether in the form of gold bars or gold coins. Safe haven demand from investors first strengthened in 2020 during the COVID recession. Prices hit all-time highs back then as markets tanked, and even after some pullbacks they never really looked back. Investor demand for gold remained strong over the next few years, which has helped gold hit its all-time highs this year. Central banks have also been big buyers of gold, despite rising prices. Many central banks are building up their reserves, perhaps in preparation for what’s going to be happening in the economy in the coming months. And an underappreciated source of demand for gold has been for Russian firms doing business with China. Due to US sanctions, payments between Russia and China have been disrupted, forcing many Russian firms to buy gold, ship it to Hong Kong, then sell it in order to make payments in China. None of these sources of demand show signs of slowing, with investor demand likely being the strongest in the coming years as the economy heads towards an increasingly likely downturn. Do You Own Gold? Many Americans in 2008 watched in agony as the assets they had built up for years or decades melted away in a matter of months. But while markets fell, gold rose. From October 2007 to March 2009, stock markets lost more than 50% of their value, while gold gained more than 25%. And gold continued to rise, hitting all-time highs in 2011. Gold today is a good $1,000 higher than it was back then, and shows no signs of slowing down or looking back. With further rate cuts in the cards and a potential recession on the way, the stage is being set for gold and silver to repeat their 2008-2011 bull market performance. Thousands of Americans have already taken steps to prepare themselves against what’s coming by buying gold and silver. Have you? Whether you want to buy some silver coins to store at home, or open a gold IRA to help safeguard your retirement savings, there are numerous ways to put precious metals to work for you. Direct cash purchases of gold and silver remain popular, and could gain in popularity as falling interest rates make savings accounts and money market accounts less desirable. For those with retirement savings in 401(k), 403(b), TSP, IRA, and similar accounts, a tax-free rollover from those accounts into a gold IRA or silver IRA can allow you to own physical gold or silver coins and bars in an IRA, enjoying all the same tax advantages of an IRA account while simultaneously benefiting from any gains in gold and silver prices. If you’re worried about the future, whether it’s inflation, recession, or other financial turmoil, maybe it’s time to start thinking about how gold and silver can play a role in your financial planning. Call Goldco today to learn more about how gold and silver can help you secure your financial future.
How Could a CBDC Affect Precious Metals?
One of the pressing hot button issues of our time is the development and implementation of central bank digital currencies (CBDCs). Just a few years ago, the possibility of CBDCs even being developed seemed slim, as many central banks dismissed cryptocurrencies and digital currencies as passing fads. But today CBDCs are increasingly being studied by central banks, as China’s push to adopt its own CBDC has spurred interest from Western countries. But as useful as a CBDC could be, it could also have numerous drawbacks. For Americans who are used to financial privacy and freedom, the existing push to eliminate cash and push transactions to electronic methods is already frustrating. But the push for an American CBDC, an e-dollar, seems like it’s just a step too far. How would you protect your financial privacy if a CBDC were to gain a foothold in this country? And would traditional means of safeguarding wealth, like owning precious metals, even be possible in a post-CBDC world? What Is a CBDC? A central bank digital currency is a cryptocurrency-like digital currency issued by a central bank that is intended to circulate as a medium of exchange and either augment or supplant existing central bank-issued or government-issued currency. The US Federal Reserve System already operates mostly digitally anyway, as the trillions of dollars it creates to purchase assets aren’t actually paper dollar bills printed on a printing press. They’re 1s and 0s created electronically and transferred from a Federal Reserve account to a financial institution’s account. While these digitally created dollars may eventually find their way into the overall financial system, and may eventually end up in an end user’s bank account, they aren’t really intended to replace bank deposits or paper money. A CBDC, on the other hand, could conceivably replace paper money, bank deposits, checks, or even free market cryptocurrencies like Bitcoin. But as a CBDC is still just an item of study, the devil is in the details. How Would a CBDC Work? A CBDC would be issued by a central bank, but aside from that the method of operation could take a number of different forms. Right now China is kind of setting the road map for CBDC operation, so let’s look at how their e-CNY works. Essentially the e-CNY operates as a direct liability of the central bank. The central bank issues the currency and accepts it. Anyone with a mobile phone number can open a digital wallet that can then hold the CBDC. One fear of CBDCs is that they might force banks out of business. But in China, the central bank works with multiple large banks that actually issue and service the digital wallets. Central banks don’t have the expertise or manpower to work directly with consumers, nor do they want to put banks out of business. While the e-CNY is supposed to retain some sort of anonymity, so that a user of the CBDC won’t necessarily be known to a seller who accepts the CBDC, there is no anonymity when it comes to the government. So every transaction can be seen and tracked by the government, including knowing who used how much CBDC, how much was paid, and what was purchased. Do Other Countries Use CBDCs? Aside from China, a handful of other countries also use CBDCs. Nigeria is one of them, with the government there having taken the draconian step of limiting the amount of money that people could withdraw from ATMs in order to try to force acceptance of the CBDC. The Eastern Caribbean Central Bank has also issued its D-Cash CBDC, although it has had its hiccups. But aside from these limited examples, most other central banks are still in the discussion phase, trying to determine what the potential use cases are for a CBDC and what the benefits might be. CBDCs and Privacy Concerns For consumers, privacy concerns are one of the primary potential drawbacks to any CBDC. The fact that the government could track every single transaction is frightening to anyone who values individual liberty. But governments see that aspect of CBDCs as a positive. Former Mexican central bank chief Agustin Carstens summed it up in a speech in 2021, in which he explained how CBDCs could allow central banks absolute control over money. Today, if you use a $20 bill to buy food at the store, no one can trace that transaction to you. If you use a credit card, or Apple Pay, or some other form of electronic payment, there may be an electronic record that is tied to you that the seller or payment processors keep, largely for marketing purposes. But if the government wanted to find out what you bought, it would have to convince a judge to issue a warrant, and would have to have some suspicion of wrongdoing. With a CBDC, however, that transaction would be recorded by the government. Naturally governments try to downplay these privacy concerns, by claiming that CBDCs can crack down on tax evasion, money laundering, and other illegal activity. And if you haven’t done anything wrong, what do you have to hide? But while people willingly give up a little bit of anonymity when using payment methods like Paypal, Zelle, or credit cards online, we still expect records of those transactions to be free from government snooping. And we choose to use those payment methods, we’re not forced into them. The fear with CBDCs is that they’ll be used to replace cash, and that people will be coerced into using the CBDC so that the government can track more and more transactions, collect more taxes, or even crack down on purchases that it doesn’t like. It’s the potential for misuses of CBDCs by governments that has so many people up in arms against CBDCs. CBDCs and Gold If cash is replaced by CBDCs, how can you maintain anonymity when making purchases? That’s an important question, especially as CBDCs may very well also replace Bitcoin and other cryptocurrencies as methods of payment. Could it be that
Central Banks Hold More Gold Than Ever, But Is It Enough?
Once net sellers of gold, central banks in recent years have become net buyers of gold. In fact, by some estimates central banks around the world now hold more gold than ever. But why are they buying so much gold? And have the purchases they have made in recent years been enough to protect them against the problems and dangers they foresee? Conducting Monetary Policy As powerful as central banks can be within their own economies, not all of them have significant amounts of power. As Americans, our perceptions of central banks and central banking are shaped by the behavior of the Federal Reserve, arguably the world’s most important and most powerful central bank. The Fed has the unique status of being the issuer of the world’s reserve currency, the US dollar. That gives the Fed a tremendous amount of power not just domestically but internationally as well. Most other central banks around the world are forced to react to the moves the Fed makes. If the Fed is an aircraft carrier coming into port, other central banks are like fishing boats trying not to get swamped as they navigate through the Fed’s wake. As the issuer of the world’s reserve currency, the Fed is in a unique position. The entire world demands its currency and uses it for international trade or for foreign exchange reserves. But that’s a double edged sword as well for those central banks. The more the Fed inflates the money supply and devalues the dollar, the less valuable the dollar holdings of foreign central banks become. Those central banks also have to, in many cases, mirror the Fed’s actions in order to keep their own national currencies from appreciating too strongly. And that requires them often to react to monetary policy rather than acting first. Central Banks and Gold One of the ways that these other central banks can try to protect themselves is by buying and holding gold. After all, the long-term trend in the gold price is for the gold price to rise, just like the long-term trend for the value of the US dollar is to fall. Since the Fed’s creation in 1913, the US dollar has lost 97% of its purchasing power, while the price of an ounce of gold has risen over 9,000%. Since 1971, when President Nixon closed the gold window and severed the last official link between the dollar and gold, the dollar has lost 87% of its purchasing power, while the price of gold has risen over 5,000%. If you’re a central bank looking at the long-term strength and health of your balance sheet, not to mention looking at the current economic climate, which would you choose to buy more of: dollars or gold? While holding dollars is a necessity to engage in foreign exchange and currency stabilization, when it comes to long-term maintenance of value, it’s hard to beat gold. And that is probably one of many reasons that central banks around the world are continuing to buy gold. Another reason is that central banks are at the forefront of combating recessions. And the recession that seems to be on the way could end up being a doozy. Central banks want to ensure that they are in a position to protect themselves and their currencies in the event of recession. Unlike the Fed, which can create dollars out of nothing and find a ready market for them, most central banks don’t have the luxury of printing their way out of trouble. They need ready assets that are valuable, liquid, stable in price and, most importantly, in demand by others. Gold fits that bill. The Advantages of Gold Gold has been treasured as a safe haven asset and store of wealth for centuries. Its ability to maintain its value over time continues to make it a safe haven choice not just for central banks but for individuals too. While central banks may be buying gold at a record pace, gold demand from individuals is growing as well. Just like central banks, individuals are looking to protect their financial well-being with gold. Many Americans remember the 2008 financial crisis, and how badly their assets lost value. Many undoubtedly also remember how badly their investment portfolios fared. Markets lost more than 50% of their value, eroding the value of savings that had taken years or decades to build up. The years after the market crash weren’t much better, with markets struggling to regain their footing. While all that was going on, however, gold was going on a tear. During the same period that markets lost more than 50% of their value (October 2007 to March 2009), the gold price rose 25%. And from its 2008 lows, the gold price nearly tripled in price by 2011, setting an all-time high. Gold set new all-time highs in 2020, and flirted with them again this year. Right now the gold price is pushing back to the $2,000 mark as economic headwinds press against the economy. With recession seemingly becoming ever more likely each month, could the gold price end up pushing significantly higher as gold’s safe haven status spurs further demand? We’re in a time of great uncertainty and fear, with bank failures, inflation, and war stoking unease about the future. That’s why the certainty and stability that gold offers is so enticing to so many people today. Today there are more options than ever to buy gold, from opening a gold IRA to protect your tax-advantaged retirement savings, to making direct cash purchases of gold coins or bars to store at home. No matter which way you choose to buy gold, Goldco has options available for you. With over $2 billion in precious metals placements and thousands of satisfied customers, Goldco has spent years becoming one of the biggest and most trusted names in the precious metals industry. Our specialists can answer your questions about how gold IRAs work, how IRA rollovers work, the various types of gold coins and bars you can buy, and
Governments Around the World Continue to Go For Gold
One of the peculiarities of the gold market is that it seems that gold demand rises as the price gets higher, and falls when the price gets lower. No one seems to want to buy gold when it’s “on sale,” but everyone wants to jump on the bandwagon when gold soars. Since 2020 gold has stayed at relatively high prices, hitting an all-time high price late last year, and it remains over $2,000 an ounce. Part of the reason for that is continued safe haven buying from investors around the world, while another part of it is continued interest from central banks and governments. Just like individuals, governments and central banks want the sense of stability and security that gold can give. And the popularity of gold with governments and central banks shows no signs of wavering. Arizona Jumps on the Gold Train A committee in the Arizona state legislature recently moved legislation that would establish a state gold depository and pave the way for a gold- and silver-backed currency. The idea of a state bullion depository isn’t a new one, with Texas having already paved the way in recent years. But the fact that this idea is gaining traction, and the fact that the idea of specie-backed currency is gaining renewed attention, is another sign that gold isn’t having any problems retaining its popularity today. As more and more states warm to the idea of starting gold depositories or incentivizing the use of gold- and silver-backed currencies, it could bring renewed attention to the benefits of gold ownership and the use of sound money. Zimbabwe Pushing Gold-Backed Currency It isn’t just US states thinking about gold-backed currency. Zimbabwe is thinking about introducing a gold-backed currency too. Yes, that Zimbabwe, the one whose legendary hyperinflation about 15 years ago made it and its currency the butt of millions (or quadrillions) of jokes. Having failed in the interim to achieve monetary stability, the Zimbabwean government is now discussing the idea of introducing a gold-backed currency. The devil, of course, is in the details. Since the country’s notorious hyperinflationary episode, Zimbabwe has gone through a number of different currency crises. At one point foreign currencies such as the US dollar and South African rand were the dominant currencies in use. Zimbabwe eventually reintroduced its own currency a decade ago, but the same problems that beset the old currency plagued the new one, with overprinting and declining public trust eroding the currency’s value. Since then the Zimbabwean government has started limited production of gold coins, a welcome start towards sound money. But whatever gold-backed currency scheme it intends to start will have to overcome issues of trust. If Zimbabweans can trust that the government actually backs its currency with gold, and that the currency can be exchanged for gold at the nominal exchange rate, then the scheme could be successful. But if the government tries to print more money than it has gold backing, and if it limits conversion of currency into gold, the whole idea could go down in flames. China Continues to Accumulate Gold China has purchased gold for the 15th consecutive month, bringing its total gold holdings to over 2,200 tonnes. That places it solidly in 6th place behind Russia on the list of the world’s largest gold holders, and only a couple hundred tonnes behind third-place Italy. There have been rumors for years that China’s gold accumulation is part of a plan to introduce a gold-backed currency to replace the dollar. Whether that’s feasible or not is debatable, but there’s probably a reason China continues to add to its gold reserves. It’s not alone in doing that, however, as central banks around the world continue to add gold to their official gold reserves. In 2023, central banks added 1,037 tonnes of gold to their coffers, the second highest level on record and only 45 tonnes less than the record set in 2022. Gold demand in 2023 was driven in large part by economic uncertainty and fear of war, neither of which look to abate in 2024. So this year could once again be a year of strong gold demand. Are You Protecting Yourself With Gold? Central banks and governments aren’t doing anything unusual by building up their gold reserves. They’re merely doing the same things that many people around the world have been doing for years. Gold’s ability to act as a safe haven, as a store of value, and a hedge against inflation make it a popular asset to hold, particularly during times of economic uncertainty and financial turmoil. With fear of recession in the US growing, and with countries like Germany and Japan already in recession, safe haven demand for gold could continue to grow this year. Between rising investment demand from individuals on the one hand and growing demand from central banks on the other, that rising demand could continue to put upward pressure on the gold price, which at over $2,000 an ounce remains just shy of last year’s all-time highs. Many analysts are predicting gold to continue to rise this year, and if a particularly severe recession hits the US, and gold demand increases even more than forecast, even those price forecasts could end up looking conservative in hindsight. If you’re looking to protect your financial well-being, now is the time to start doing so. And if gold is on your list of potential options, now is the time to start thinking about how you want to start protecting yourself with gold. Whether you plan to protect your tax-advantaged retirement savings with a gold IRA or just want to make a direct cash purchase of gold coins or gold bars to store at home, Goldco has options available for you. Goldco has worked hard to become one of the best and most trusted gold IRA companies in the industry. With over $2 billion in precious metals placements and over 5,000 5-star reviews, we go the extra mile to bring our customers quality gold products and stellar customer service. Don’t let your hard-earned wealth
Central Bank Gold Purchases Double Despite Record High Gold Prices
The law of supply and demand is one of the bedrocks of economics. And for most goods the higher the price of the good, the less quantity of that good is demanded. We’re seeing that through much of the economy today, as higher prices for food, gas, clothing, etc. are dampening consumer demand. But sometimes higher prices seem to actually stimulate demand for certain goods. Goods with a certain cachet or luxury appeal may actually see an increase in demand when prices rise. And gold today seems to be one of them. When gold was trading around $1,200 an ounce a few years ago, gold demand was relatively subdued. But today with the gold price more than twice as high and at all-time highs, gold demand is much stronger. And while that higher gold price has certainly dampened demand in certain sectors of the gold industry, it hasn’t damped demand in many others. Central Banks Remain Strong Gold Buyers Central banks in July doubled their overall gold purchases versus the previous month, with the 37 tonnes purchased making for the largest overall month of purchases since January, and the second consecutive month of increasing purchases. While high gold prices had seemed to dampen central bank gold demand earlier in the year, demand is once again on the upswing as central banks continue to buy gold. Of course, not all central banks are gold buyers, and some have been sellers, perhaps hoping to take advantage of the record high gold prices. But overall, central bank gold buying has far outweighed central bank gold selling. The irony is that when gold was more reasonably priced, central banks didn’t want it. That was particularly true 20-30 years ago, when central banks colluded to sell off their gold holdings. The UK was a particular egregious example of that, with Chancellor of the Exchequer Gordon Brown selling off half of the UK’s gold reserves. That gold, sold at an average price of about $275 per ounce, would now be worth more than nine times as much. Central banks have learned their lesson since that time, and in recent years central banks have been record purchasers of gold. That has helped to buoy gold demand and gold prices, but it isn’t the only source of gold demand. Is Russian Gold Demand Helping Support Gold Prices? One aspect of gold markets that hasn’t received a lot of attention is the purchasing and selling of gold by Russian firms. A recent Reuters article highlighted the difficulties Russian firms are having in dealing with China. Secondary sanctions threatened by the US government against banks and firms dealing with Russia have led Chinese banks to take a much harsher stance against cross-border transactions with Russia. As a result, payments between Russia and China have almost ground to a halt. And while workarounds have been found, it has significantly lengthened the time of the payment process and has led trade to nearly come to a standstill. One of the workarounds was for Russian firms to buy gold, ship it to Hong Kong and sell it there, and then deposit the cash into a bank account in Hong Kong. It’s a bit of a circuitous means of making payment, but if it works, it works. That highlights the continuing importance of gold in international trade, and one of its potential use cases that could be helping in some small way to keep gold demand high. Investment Demand for Gold Remains Strong Gold demand from investors remains strong as well. Even though Q2 bar and coin demand saw small decreases from a year ago, a significant increase in OTC gold demand helped push overall gold demand higher. This is a positive sign that higher gold prices haven’t dampened gold demand. While demand from the jewelry industry has of course fallen, as gold is just an input in jewelry making, that has been more than made up for by investment demand and central bank gold demand. When gold starts to rise like this, the attention on the gold price tends to make gold a little more popular, and people begin to start thinking a little harder about making gold a part of their investment portfolio. And if gold really takes off in the coming years like it did post-2008, that could spur even more gold demand. Is Gold Part of Your Portfolio? Buying gold to add to your financial portfolio can be done relatively easily, no matter which way you decide to buy gold. Direct cash purchases of gold coins and gold bars remain a popular option, but there’s also the option of a gold IRA. Gold IRAs have been rising in popularity recently, as they allow you to protect your existing retirement savings with physical gold. You can fund a gold IRA with a tax-free rollover from your 401(k), 403(b), TSP, IRA, or similar account into your gold IRA. That allows you to purchase gold coins or gold bars to be held by your gold IRA, which then enjoys all the same tax advantages of any other IRA account. Your gains accrue tax-free, you only pay taxes when you take a distribution, and you can take a distribution either in cash or in gold. If you’re looking for a way to protect your hard-earned wealth in the face of potential recession, gold can be one way of doing that. Just like central banks have added to their gold holdings in order to weather the coming storm, you too can add gold to your holdings. Goldco has helped thousands of customers secure their financial future by owning gold, and our more than 6,000 5-star reviews are a testament to our devotion to quality precious metals products and outstanding customer service. If you want to learn more about how owning gold can help benefit you, call Goldco today.
How to Move Your 401(k) to Gold Without Penalty
How to Move Your 401(k) to Gold Without Penalty Retirement planning isn’t something that you start doing when you’re a few years away from retirement. It’s something you start as early in your career as you can. There’s no substitute for time in the market when it comes to building up your retirement savings. As you get older, you may start looking into more ways to protect the money you’ve already put aside for retirement. If you have a 401(k) from a previous employer that is sitting idle, or if your current 401(k) options don’t leave you enthused, a 401(k) to IRA rollover could offer you more investment options to put your money to better use. One popular 401(k) rollover option is to roll over 401(k) assets into a gold IRA.The rollover process can allow you to move your 401(k) into gold tax-free and penalty-free. A gold IRA is a type of self-directed IRA, an IRA that allows you to take greater control over your assets. Moving retirement savings into a self-directed IRA can give you the potential for more investment options like real estate, private bonds, private equity, and precious metals like gold and silver. Investing in precious metals is a popular option because gold and silver have been used as a time-tested means of storing wealth that can weather numerous economic changes, giving your portfolio diversity and stability. The price of precious metals often increases even in tough economic times, meaning that your portfolio can still get a boost even during the worst throes of a financial crisis. Like all 401(k) and other retirement plans, a gold IRA has rules and regulations that you need to be aware of. The last thing you want to do is decide to roll over your 401(k) and be hit with taxes and penalties because you didn’t do things correctly. So, how do you move your 401(k) to gold without penalty? This guide will help you understand what a 401(k) is, how it works, its benefits, and how to effectively roll over your 401(k) to gold without incurring taxes and penalties What Is a 401(k) Plan? Section 401(k) of the Internal Revenue Code allows individuals to make contributions to a retirement account in a tax-deferred manner. This means that they will not be taxed on that contribution until they take a distribution (at age 59½ or later). The following guidelines about 401(k)s are set forth by the IRS: Employer matching is a valuable way for individuals to save additional money for retirement if an employer offers that plan, and some even refer to it as “free money.” If you’ve worked for multiple employers, you may have multiple accounts that aren’t being actively managed. Very often these orphaned accounts are automatically invested in “safe” investments that don’t make much money. It’s also important to remember that management fees and fund fees can still be taken out of your 401(k) even when you aren’t actively contributing. One way to avoid these situations is through a 401(k) rollover, in which you move assets from your 401(k) to an IRA. That has the added benefit of potentially broadening your investment choices. Like most IRAs, 401(k)s are subject to required minimum distributions (RMDs), which require investors aged 73 and older to take a specific amount in distributions each year. Without dedicated planning, RMDs could cause you to pull more money from your retirement accounts than you want, which could subject you to more taxes than you would like. What Are the Benefits of a 401(k) Plan? There are many more benefits to a 401(k) plan that include: To add to these benefits, you can consider a gold IRA rollover. Knowing how to roll over your 401(k) into a gold IRA means keeping all the great benefits of a tax-advantaged retirement account, plus the peace of mind of knowing that your assets can be secured with precious metals. Who Can Invest in an IRA? Anyone with earned income, and their spouses if married filing jointly, can start and contribute money to an IRA.You can contribute to an IRA even if you have a 401(k) or similar retirement plan at work. The only limit is to how much money you are able to contribute to your accounts. Types of IRA Accounts If you are eligible to start an IRA, there are numerous types of IRAs available. These include: Because these accounts provide tax benefits for retirement savings, there are an abundance of IRA investment rules that must be followed. These rules include requirements for contributions, withdrawals, and the types of assets that can be included in your portfolio. We’ll start off with some general IRA rules and then focus more specifically on self-directed IRAs and the gold IRA rules that you need to know to make the most of your investments. General IRA Contribution Rules The IRS sets contribution limits on IRAs, which must be followed in order to avoid penalties. The following guidelines will help you understand contribution limits for IRAs: IRA Penalties The IRS sets forth penalties for not following regulations dealing with retirement accounts. Here are a few IRA investing rules to be mindful of so you know how to move a 401(k) to a gold IRA without any penalties: Gold IRA Rules Investing in gold can be a great way to keep your portfolio diversified, but to take advantage of it and maximize your savings, you should be aware of the self-directed and gold IRA rules. First, it’s important to understand the rules that govern self-directed IRAs and acceptable investments as a whole. These include subsection 408(m) of the US tax code, which prohibits IRA accounts from acquiring collectibles and defines collectibles as: There are, however, exceptions made for some coins and bullion in subsection 408(m)(3), namely: In addition, If you already own gold, you cannot add that gold to your IRA. But you can open a gold IRA and purchase new gold to add to your IRA. Learn More About Diversifying Your Savings With The Ultimate Gold & Silver Guide Request
What Are the Benefits of a Gold IRA?
What Are the Benefits of a Gold IRA? If you’ve ever read mainstream financial media, you’ll notice that gold doesn’t seem to get mentioned all that often as a major investment asset. When the gold price takes off, of course, then the media is full of articles about how great gold is doing, but that’s too late for most people who could have benefited from gold’s price growth. Because writing about gold doesn’t bring in as many clicks or as much ad revenue as writing about the next hot growth stock, gold too often gets short shrift. But while many advisors and financial pundits may ignore gold, that could mean missing out on the many advantages that investing in gold can bring. As you work towards building a well-diversified investment portfolio, it can help to make sure you know all your options, especially when it comes to gold. Whether you’re interested in rolling over existing retirement savings into a gold IRA or just making direct cash purchases of gold, we’re here to clear up any mystery around the benefits of investing in gold. Precious metals like gold have numerous advantages as part of a well-diversified portfolio, and tax-advantaged retirement accounts do too. Putting the two together can result in a powerful tool to help you achieve your financial and investment goals. 5 Advantages of a Gold IRA Gold IRAs have numerous advantages for savers, both those nearing retirement and those earlier in their careers. The diversification that gold gives you may help you adjust the risk profile of your portfolio and may help you minimize losses. Investors who put gold into their portfolios during the 2008 financial crisis saw their investments strongly outperform those who kept their assets solely in stocks. And those portfolios that held gold continued to grow stronger after the crisis hit its lowest point, in many cases for years afterward. Let’s take a more detailed look at the advantages of a gold IRA. 1. Gold Can Help Portfolio Diversification A diversified portfolio may mean thinking outside the box of investing in stocks and bonds, which is what many Americans are most familiar with. Concentrating your investments in one place also concentrates your risk. Ever heard the saying, “Don’t put all of your eggs in one basket”? “Don’t put all of your eggs in on basket”? By diversifying your portfolio with gold, you can ensure that your assets aren’t completely at the mercy of Wall Street for their performance. If financial markets take a downturn, if bond markets become illiquid, if stock markets crash, those traditional investment assets may all perform poorly. Alternatives like gold IRA investing can leave a portion of your portfolio protected during challenging economic times, helping you diversify and shift risk away from financial assets and leaving a portion of your portfolio protected during those times when the stock market experiences weakness. Very often, the weaker the stock market and the economy perform, the better precious metals perform, potentially making them ideal assets to protect your portfolio when a recession is on the horizon. 2. Protection Against Market Fluctuations and Volatility Physical gold acts as a hedge against dips in volatile markets. The boom and bust of the business cycle is all but a certainty, with stock market crashes and recessions occurring with unfortunate regularity. Gold has acted as a hedge against other assets. Unlike paper assets like stocks and bonds that can become worthless as the companies that issue them fail, gold has always been worth something, and has remained in demand for thousands of years. 3. More Control Over Your Investments Investing in a gold IRA also can provide you with a greater element of control over your assets. For many people who may save for retirement through an employer-sponsored 401(k) plan, the options available to them are often limited. That’s why so many people roll over assets from a 401(k) account to an IRA account, because IRAs generally offer more investment options. And with a gold IRA, the options for IRA investing become even greater. By opening a gold IRA, you can gain an extra element of control over your investment portfolio, as you are the one who determines what types of gold or silver you invest in. A great advantage of having a gold IRA is that assets can be transferred easily and without tax consequences among retirement accounts. So someone who wants to roll over a portion of a 401(k) account into a gold IRA can do so relatively easily. And if that person decides in the future to sell some of those precious metals assets to buy into stocks or bonds, that type of transaction can be done too. With the control over your investments that you get from a gold IRA you can: Learn More About Diversifying Your Savings With The Ultimate Gold & Silver Guide Request Your Free Guide 4. Potential for Gold Price Growth There’s a dirty little secret that mainstream financial firms don’t want you to know about: Gold is the best performing asset of the 21st century. In fact, it’s grown significantly more than stock markets have. But you’ll still see stocks recommended for asset growth rather than gold. Why? Well, there are two potential reasons: Financial advisors and stockbrokers want to be able to charge for each trade, plus take a small management fee every year for each type of asset you own. But if you own gold for years and years, they can’t charge you trading fees because your assets are safe, secure, and not moving. While gold investment may be bad for some financial firms, it’s good for you because your gains aren’t being nickeled and dimed to death through fees. With a gold IRA you’ll generally end up paying a few hundred dollars a year in custodial and storage fees. But compare that to the 1-2% annual fee you would likely pay to a financial advisor to manage your assets, which is on top of all your other expense ratios, and you see
