Gold Climbs to November High on Slipping Dollar – Gold Still a Long-term Buy

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Last Updated on: 26th January 2015, 04:50 pm

The U.S. Dollar has experienced a temporary resurgence in 2014, buoyed by a troubled European Union and longer-than-expected delays in the impact of years of quantitative easing from the Federal Reserve. Add in a decline in commodity prices and corresponding drops in gold and silver, and the dollar's appeal as a hedge was at its strongest in half a decade.

After trading closed on Tuesday, gold prices had reached a high for the month and the dollar slipped nearly a third of a percent. Most indicators seem to show that the gold market is still sideways, however. Trading for precious metals has been choppy for most of the year, after several bull years preceded a disappointing 2013. Indecision about the value of the metal is understandable, given the pending reductions in gold production next year, changes in India and Switzerland's gold policies, and sluggish economic growth around most of the developed world.

After reading several stories in financial publications about the nature of current metals movements, it became apparent that the discussion surrounding gold investment is all wrong. It has been since the recession hit, when too many speculative traders began treating gold as though it were an equity fund.

Gold is the Safety Net, not the Ladder

The unfortunate reality about retirement investing is that the dollar is going to lose a lot of value over time. Inflation is here, and it's here to stay so long as bureaucrats and Keynesian technicians control the flow of legal tender. To reach retirement, most people need to save income and hope for a 7-9% annual rate of return over several decades. This is historically feasible when using real estate and equities, and why so many 401(k)s and IRAs are dominated by mutual funds. In a way, these instruments make up the rungs on your own retirement ladder.

This strategy isn't foolproof, as savers across the world found out over the past decade. If you happen to mistime getting older, the market just might crash before you have a chance to recover. You can fall off of the ladder. Or, rather, mismanaged macroeconomic policy can push you off of the ladder.

The other inherent risk is that the ladder itself might not be built out of good material. Nearly all retirement assets are denominated in fiat government currency. If (when) the government ruins a currency, the whole thing can come tumbling down. This is the very fear that so many experts expressed when the Fed started printing new money at record levels.

Gold isn't like those other retirement assets. Gold can't be “created” with a printing press or by typing in new number into a central bank's computers. It has a track record that dates back thousands of years, and it has thus far out-performed every other form of currency that has ever been created in monetary history.

Having a portion of your retirement allocated to real gold is like adding a safety net underneath your retirement ladder.

Those prescient enough to invest in gold before the financial crisis (or immediately thereafter) experienced a remarkable appreciation in the value of their asset. The safety net worked. It really worked. Unfortunately, too many people mistook this to mean that gold should be a new ladder.

It hasn't worked out that way. The day-to-day and month-to-month pattern for gold performance right now is very congested. Technical market analysts call this a period of “consolidation.” The 5-year trend line for gold is volatile: large peaks followed by a fairly rapid retracement in 2013. And, unless you are right near retirement age and have a disproportionately large amount of gold in your portfolio, these trend lines don't matter to you.

What does matter are the 10-year trend lines, the 25-year trend lines, and beyond. Gold appreciates in value. It has always appreciated in value over time. It has always retained its worth. It predated the U.S. dollar and will prove to be valuable commodity long after the U.S. dollar has disappeared. That is why we hold gold. Because nothing else can act as that kind of stable safety net over the course of your working life.

Adding Gold to Your Retirement Account

A safe, tax-advantaged way to take advantage of the power of physical gold in your retirement account is to open a self-directed Gold IRA.