Bullion might seem to be a speculative investment to some, but it deserves an opportunity to be part of a retirement portfolio. If history is any indication of the future, governments will continue to print more and more money, pushing up the prices for gold and other bullion, such as silver and platinum.
The history of recessions
Throughout history, Keynesian economics have suggested the rapid inflation of a currency during periods of economy slowdown. This inflation gives a small but quick infusion of cash to keep the business cycle from going bust. In every major recessionary period since 1971, the Federal Reserve has acted by printing more money, issuing more credit, and lowering the interest rate in an effort to spark the economy.
Now as the United States enters a recession again, and Europe faces the same economic troubles, the best investment appears to be in gold bullion. After the run up in price from $600 to $1000 in a matter of months, the price of gold has stayed between $900 and $1000 with each action from the Fed and economic outlook.
Plenty of money to make
Even at these high prices, there may still be plenty of upward potential. The economic stimulus package pushed by Congress, as well as the Fed’s new loan plan to swap mortgage-backed assets for Treasuries, is certain to inflate the money supply and further push down the dollar’s value. Even today, a second “economic stimulus” package is underway that would put more money to rebuilding infrastructure, while putting hundreds of thousands back to work. All of this funding will come from foreign banks or new credit issued by the Fed.
With the current economic outlook in mind, the future retiree should dedicate a portion of his or her investments to a gold or silver backed portfolio. There is an ETF for both gold and silver, with gold being GLD and silver as SLV. A prudent investor may consider dedicating anywhere from 1% – 4% to bullion.
Inflation to continue
Gold and the US Dollar have an inverse relationship. If the government continues to fund up social programs and stimulus programs, the value of gold will go up as the value of the dollar drops. Iran’s talks with OPEC to move oil sales to the Euro and out of the US Dollar will also bring down the value of the dollar, while pushing gold values up.
At this point, gold looks like a great investment to maintain your standard of living. Think of gold as that of an insurance policy; if the world turns back to gold and loses favor with fiat currencies, you’ll have something to show for your investment.