Your personal retirement account is exactly that — personal
No two IRAs are alike. Between options like Traditional IRAs, Roth IRAs, SEP IRAs and others, investment accounts come in all shapes and sizes. Variety allows savers to take into consideration their qualifications, needs, and wants in order to make the best investment choices for their retirement accounts.
A precious metals IRA is a popular IRA option that gives investors exposure to tangible assets like gold and silver. Let’s look at the benefits, drawbacks, and features of these precious metals IRAs.
Defining Gold and Silver IRAs
A precious metals IRA is a retirement account in which precious metals like gold and silver are usually held in custody for the account owner. Gold and silver are the most common choices, and a gold IRA or a silver IRA allows you to diversify your nest egg into these metals on a tax-deferred basis.
The aim of a precious metals IRA is not for the investor to establish a personal coin collection, but to benefit from a long-term investment in physical gold or silver.
Self-directed and Conventional Options
IRAs can be either self-directed, allowing the account holder to make a wide variety of investment decisions, or conventional, which come with limited investment options. Additionally, retirement savers must choose their custodian for their IRA account.
All IRAs are required to have a custodian to handle paperwork, tax adherence, and to execute transactions. For a self-directed IRA, that’s an even more important role.
Since self-directed IRAs offer a larger range of investment options, making sure each is bought, held, and sold in accordance with IRS rules regarding IRA investments is crucial to staying above the line in terms of tax adherence.
For precious metals IRAs, custodians take on yet another important rule.
Gold has been used as a store of value and a means of exchange for thousands of years. With a finite supply and a fairly predictable rate of production, gold is seen as a respectable asset.
Historically, many national currencies were tied to the price of gold and until the 20th century, the cost of gold remained quite stable. In 1971, The U.S. decoupled the dollar from the gold standard, leading to higher levels of inflation and causing gold prices to move much higher.
Since the 1970s, the gold price has fluctuated, with a notable decrease from 1979 to 2008, but overall the price of gold has trended upward. In times of recession, gold prices often see upward momentum as traders attempt to hedge against losses incurred from other investments.
- From January 1990 to January 2005, gold prices moved from $410.49 to $424.03, showing a level of stability that was certainly not present in the overall economy at that time.
- From January 2005 to January 2020, gold prices rose from $424.03 to $1,580.85, a 272% increase. This shows that along with stability, gold offers tremendous growth opportunities as well.
This combination of long-term stability and high-growth potential weighs in gold’s favor compared to other assets. The economy may make major upward and downward movements, whereas gold typically moves at a less volatile pace. Yet, that doesn’t mean gold is necessarily underperforming when times are good.
Gold’s biggest trough from 2000 to 2010 was between March and October of 2008, when the metal fell 24.5% from $968.43 to $730.75.
Gold’s growth during economic downturns, along with its relative stability over time, offers the clearest picture of why the metal is so highly valued as a long-term safe haven from volatility.
How to Own Gold Inside of an IRA
Because gold acts as a safe haven against volatility, inflation, and other economic risks, its appeal as a retirement investment has grown over the years.
And because investors sought more control and options for their retirement accounts, Congress expanded what can be eligible in IRAs to include precious metals through the Taxpayer Relief Act of 1997.
IRA account holders have multiple options when it comes to owning gold inside an IRA.
- Bullion Coins: Gold coins minted by a government mint with a minimum purity of 99.5%. (American Gold Eagles are also eligible)
- Proof Coins: Gold proofs minted by a government mint with a minimum purity of 99.5% and encapsulated in original packaging in mint condition.
- Bars and Rounds: Other gold bullion that meet the minimum purity level and are produced at a NYMEX, COMEX-accredited/certified refiner, assayer, or manufacturer
Compared to gold, silver has more industrial applications in addition to being a store of value. Industrial demand causes the spot price of silver to fluctuate more than gold, which will affect silver IRAs. Non-investment demand for silver can also impact its price. For example, silver was once commonly used in photographic film, but demand for silver reduced when digital cameras became popular.
Silver has been used as a form of money throughout history, and for the first 40 years or so after the formation of the United States, silver coins were more commonly used than gold. The U.S. adopted a silver standard in 1785 and operated on a bimetallic standard throughout the 19th century before demonetizing silver in 1873.
Silver prices tend to correlate with gold on a long-term basis but fluctuate more in the short term.
- From January 1990 to January 2005, silver prices fell 13.7%. Compared to gold during this period, which rose 3.2%, however…
- Silver rose from $6.75 in January 2005 to $18.01 in January 2020, a 166% increase. From January 2005 to April 2011, silver rose 660% to $48.60. For comparison gold rose 272%.
Gold and silver prices tend to move in cycles, and typically, gold price cycles are longer than those of silver. But as you can see above, silver’s peaks can be far larger.
A University of Navarro study stated that “as far as the cyclical behavior of gold and silver prices is concerned, we find that cycles have a higher periodicity for gold (around seven years) than for silver (four to five years).”
Benefits and Features of Silver
Like gold, silver is a safe haven against economic uncertainties and volatility in the economy. However, over 56% of silver goes to industrial use, making it subject to shifting industrial demand. Investors would be wise to consider the current market for the industrial uses of silver when investing.
IRA account holders have multiple options when it comes to owning silver inside an IRA.
You can use your IRA to invest in:
- Bullion Coins: Silver coins minted by a government mint with a minimum purity of 99.9%.
- Proof Coins: Silver proofs minted by a government mint with a minimum purity of 99.9% and encapsulated in original packaging in mint condition.
- Bars and Rounds: Other silver bullion that meet the minimum purity level and are produced at a NYMEX, COMEX-accredited/certified refiner, assayer, or manufacturer
What Gold and Silver IRA Options Do You Have?
The Taxpayer Relief Act of 1997 introduced the first precious metals IRAs with certain conditions attached. To qualify as an asset for a precious metals IRA, gold must be 99.5% pure (except American gold eagle coins), and silver must be 99.9% pure.
Only certain refiners or mints can produce gold and silver eligible for a precious metals IRA. These producers must be certified or accredited by ISO 9000, NYMEX, NYSE/Liffe, LME, COMEX, LBMA, LPPM, TOCOM, or national government mint.
Specific gold coins eligible for an IRA:
- American Eagle Coins (Bullion & Proof)
- American Buffalo
- Canadian Maple Leaf
- Austrian Philharmonic
- Australian Nugget / Kangaroo
- Other rounds from approved mints & refiners
Specific silver coins eligible for an IRA:
- American Eagle (Bullion and Proof)
- Canadian Maple Leaf and Twin Maple Leaf (2 oz)
- Austrian Philharmonic
- Australian Kookaburra
- Mexican Libertad
- Other rounds from approved mints & refiners
Gold IRA vs. Silver IRA
As we can see, both metals have varying features that may appeal to different account holders. Gold’s lower volatility might make it a better choice for some investors. On the other hand, the industrial demand for silver in a robust and productive economy can create opportunities for savvy self-directed savers.
With silver costing so much less than gold, storage is often a consideration for physical holders of the metals. But since both Gold and Silver IRAs require precious metals to be stored through a depository, this is no longer a factor in deciding which metal to pick.
So which precious metal is the “best” one to choose for your IRA?
The contrasting advantages offered from gold and silver IRAs give savers options based on their individual preferences. When setting up your precious metal IRA, consider the level of risk you are willing to take, the specific precious metal products that appeal to you, and future market projections before making a decision.
Learn more about how a gold IRA or silver IRA would fit into your retirement savings plan by calling Birch Gold Group today at (800) 355-2116, or read on for more information on investing in a precious metals IRA.