Written by Damon Geller
Gold is not something that no one knows about anymore. Having tripled in value since 2001 with an average growth rate of around 15% per year, gold’s return has certainly been worthy of notice. Yet despite breaking through all-time highs, relatively few people are actually buying it. Not physically anyway. Instead, for those who have started to consider gold a viable addition to today’s portfolio, one of the most popular places to “get some exposure to gold" has been the gold ETF, GLD – especially for people looking for gold inside of their retirement accounts. It is inside IRAs and 401k retirement accounts where we see the majority of gold interest shuffled into paper-based “funds.” Unfortunately, funds are the absolute wrong way to invest in gold, and it could prove to be disastrous for your retirement.
What most people do not know is that you can own real physical gold inside of your retirement account. You can own real gold and silver, held by a private vaulting location on your behalf and available to you at anytime. These physical gold-backed IRAs have far-and-away outperformed stock or mutual fund-based IRAs in the last decade. It is very prudent given the current monetary landscape to have some physical gold as we move into uncharted debt territory. If you don’t invest outside of your IRA but have some IRA investments or available funds, a physical gold-backed IRA is a great way to gain some exposure to the actual metal.
Paper IRAs are ALL Held By Investment Banks
Think about it. Who holds your IRA? Charles Schwab, Fidelity, Morgan Stanley, Goldman Sachs or maybe Bank of America? Doesn’t matter. Since the repeal of the Glass-Steagall Act, they all gamble with their depositors money. Which is partly to blame for the 2008 meltdown and very much to blame for JP Morgan's recent multi-billion dollar loss. What are the investments inside your IRA? Stocks? Mutual “funds” (i.e. more stocks)? Or maybe you have a “money market” or CD inside your IRA? The problem is, you are either taking a lot of risk or getting a negative interest rate. If the rate of return on your account is lower than the cost of inflation, your purchasing power will be eroded each year, meaning your “money” is not really money by definition, as it’s given up the “store of value” part of its meaning.
While the bankers have a vested interest in keeping your wealth “in the system” to avoid a banking collapse, you have a vested interested in getting some of your wealth OUT of the system in case “the system” fails. It’s not unpatriotic to buy gold, and it's not unpatriotic to reject a banking system that is not supporting you. It is, however, unpatriotic to run up $16 trillion dollars in debt that will never be paid back, bail out banks that caused this mess, lower interest rates to support the criminals at my fixed-income grandmothers’ expense, and sacrifice the US Dollar so the bank’s balance sheets look inflated but gas is alternatively much higher and we have global food inflation. Your investments should be designed to help your future, not the banking systems’ future.
Huge Paper Risks
Owning the GLD ETF is not the same as buying gold; far from it. Yet when an investor calls their IRA advisor and asks about gold, he or she is usually steered into the GLD ETF. That makes perfect sense to bankers and financial advisors, because if you were to buy real gold you would be removing liquidity from “the system," and bankers don't like that. Bankers and financial advisors have a vested interest in keeping as much liquidity in the system as possible. A study of fractional-banking and a simple look at the Fed's balance sheet will illustrate that. There have been TRILLIONS in printed money injected into the insolvent banking system to keep it on life support. Much of it coming from policies that put the taxpayer (and their children) on the hook for any hiccups and/or inflation risks, such as oil and gasoline.
While owning an IRA can be a decent investment tool, if it is invested in 4 different kinds of “allocated risk funds” – none of which are backed by anything intrinsic – it should not be considered diversified or a “hedge” to a paper-based portfolio. Hedging yourself means spreading around counter-party risk as well as diversifying asset classes. Sure, it may sound great when your adviser says, “Don’t worry, you’re diversified with stocks, bonds, REITS and the ETF GLD.” But the reality is, everything he just listed is a promise on a piece of paper that someone will give you something that is supposed to represent “money” when you ask for it. They're all riddled with counter-party risk. Remember Bear Sterns, Enron, and “MF Global”? On the other hand, when you own real gold, you already have the money – the only unprintable currency on earth. Real savings, not debt-based promises. Compare that to the COMEX, which trades on paper many times the physical gold available. If the COMEX were to default, GLD could fall while the price to acquire a real ounce of gold could be rising fast.
Furthermore, anyone who is considering an investment in gold through an IRA vehicle – but is thinking GLD may be the way to go – needs to read the prospectus. The GLD fine print is littered with county-party risk. Page 10 states “If the Trust’s gold is lost, damaged, stolen or destroyed under circumstances rendering a party liable to the Trust, the responsible party may not have the financial resources sufficient to satisfy the Trust’s claim.” On page 9: “The Trust does not insure its gold.” Further on page 12: “Gold held in the Trust’s unallocated gold account and any Authorized Participant’s unallocated gold account will not be segregated from the Custodian’s assets. If the Custodian becomes insolvent, its assets may not be adequate to satisfy a claim by the Trust or any Authorized Participant. In addition, in the event of the Custodian’s insolvency, there may be a delay and costs incurred in identifying the bullion held in the Trust’s allocated gold account.” Read it, and you wouldn’t invest $5 in GLD. Seriously.
The Hidden Agenda of ETFs
The fact of the matter is that GLD is a banker-invented profit instrument which acts as a gold-price suppression tool. I say this for very good reason. Think about all the folks who own GLD mid- to long-term as a hedge. In other words, they are long GLD. Imagine if they were all putting the same amount of money into real gold instead of GLD. How much higher would the price of gold be if GLD (or any metal ETF) didn’t exist? What would the price of gold be if the bankers had not hidden the money in a black box called GLD, but instead all that money was chasing real gold? We all know gold would be much higher. So GLD acts as a gold-price suppression tool designed to benefit the bankers and financial advisors. And what happens when average investors inevitably lose faith in GLD and move their money into real gold?
Well, that's exactly what's starting to happen. Every day we're getting calls from folks like you who would like to know how to convert those ETF holdings to real physical metals. In this policy-driven market, you want your gold physically where YOU can maintain control over it for better protection from a financial-system meltdown. So to really take advantage of the “wealth preservation” or “protection” that the individual investor is looking for, buying real gold coins is far better than ETFs. Even if you’re simply looking to diversify or hedge your IRA, you can do it more safely by backing your IRA with hard physical gold as opposed to a fund. Simply put, owning physical gold offers greater safety, a better hedge and less counter-party risk than ETFs. Now that you can use IRA funds to purchase physical gold, it’s time to diversify and protect all that paper. And there's no better place to build some protection and insurance than inside your retirement account, IRA or 401k.