Is Gold Suitable for Your Retirement Needs

Gold prices took a slight hit in the international market during the evening session on 18 September 2019 as the dollar took strength post the announcement of the second rate cut by the United States Federal Reserve (or fed).

The fed chair-Jerome Powell announced the second cut on 18 September 2019 by 25 basis points, which took the federal funds rate to 1.72-2 per cent. Over the announcement, the dollar index climbed by almost half a per cent from its day’s low of 98.19 (on 18 September 2019), which in turn, exerted a slight pressure on the gold prices.

How Sustainable Is the Gold Rally Now?

Gold prices are holding the new base price of US$1,500 per ounce comfortably in the international market as global economies falter. The fall in global currency pair is also propelling the gold prices in the market.

How Sustainable Is the Gold Rally Now

XAU Monthly Chart (Source: Thomson Reuters)

The buying trends from the central banks remained strong in both the first and the second quarter of the year 2019 (1H2019). In August 2019, the buying from the global gold-backed ETFs remained strong, which, in turn, suggests that the fundamentals for gold remain strong.

To Know More, Do Read: Global Gold-Backed ETFs Pushes Gold; ASX-listed Gold Stocks Under Pressure Over Bearish Signs

Another factor, which could contribute towards the sustainability of the gold rally is the intention of central banks to add more gold over the coming quarters ahead.

In a survey, the World Gold Council concluded that about 11 per cent of the central banks from the emerging economies are planning to buy gold over the next twelve months.

To Know More, Do Read: Is the Market Returning To Safe Haven – Gold & Bonds

However, the economic indicators are improving slightly, which could indicate early signs of recovery in the global economic conditions, and if the global economic conditions revive it could be a potential risk for the gold prices ahead over the short- to medium-term.

The gold prices have been in an up-rally from December 2018 and are catching the investors’ eye for the inclusion in their portfolio to safe-guard the investment against the global risk arising in the worldwide stock markets.

The recent escalation in the trade war between the United States and China, along with many other global cues such as fear of no-deal Brexit, Middle East tensions, etc., hampered the performance of the risky assets, which in turn, is now diverting the global investors toward gold.

But let us now take a look at how advantageous it could be to include gold in a portfolio, and would it reap benefit once an investor reaches retirement?

Why include gold in your portfolio?

Historically gold prices have seen drastic upside movement during the economic downturn, be it the recession of the late 1970s or the financial crisis of 2008, which makes gold a perfect hedge for investors against systematic risks.

Gold can spend years in consolidation but, including it in a portfolio safe guards an investor against unforeseen risks. Further, gold is a good hedge against inflation.

However, during the time of consolidation, gold does not pay any dividend or periodic cash flows, so could investing in gold be advantageous or rather strategic by any mean?

Gold for Retirement

Gold at the late stages or around the retirement age could provide various strategic advantage over the traditional risky assets, and to see how? We first need to understand why people plan for retirements.

Upon retirement, a person losses tranche of fixed cash flows or income, and to maintain individual goals or the lifestyle, people plan for retirement. However, with retirement, the risk-taking appetite of an individual decrease or a person becomes more risk-averse.

In such a scenario, investing in gold for the planned retirement could be a smart move as gold is independent of any credit function or economic cycles and offers lower risk.

Another retirement-related concern, i.e. liquidity or the time period to convert an asset into cash could be addressed by allocating a portion of a retirement portfolio in gold.

Gold as a limited natural resource is as liquid as any risky asset, and strategically could be readily converted into cash. So, if gold is ideal for retirement, how much gold should be there in a retiree’s portfolio.

Well, there is no proven allocation to gold, and if someone asks a retirement planner, one will get a range, which could vary from 5 to 20 per cent.

Over risk diversion capability and sufficient liquidity if one decides to include gold in its portfolio, what could be the ideal way of doing that?

One could invest in gold in numerous ways including physical holding, Gold-backed ETFs, mutual funds with gold exposure, gold stocks, etc.; however, every method of investing in the yellow metal has its pros and cons.

The physical possession of the shiny precious method in the form of bars and coins could be an effective way of investing in gold for retirement; however, securing physical gold is often a major concern.

To Know More, Do Read: Smart Ways Of Investing And Storing Gold Amidst Gold Rush

To overcome this issue, a person can build safe storage for parking gold at home or any other place, which could be daunting as liabilities are on the retiree. But there are many storage facility providers, which makes storing gold less intimidating; however, it should be seen that if one can bear the charges of the storage in retirement.

Investing in Gold-backed ETFs is another effective way of holding exposure in gold, as the ETFs holds the precious metal in their possession, which could be delivered at any place once you decide to convert your asset into cash. However, the additional cost of the ETFs managers should not be overlooked.

To Know More, Do Read: Gold-Backed ETFs Vs Gold; A look At Direct And Indirect Investment Approach

Investing in Gold Stocks is another way of investing in gold, and the companies associated in gold mining could provide a person with periodic or non-periodic dividend as well, which in turn, could resolve the non-coupon bearing issue.

However, investing in stocks again bring the investors under the very same systematic and non-systematic risk of the equity asset class.

So, while there are a lot of other ways, a retiree should consider the objective, retirement goals, frequency of cash inflow and outflow, and many other factors while choosing a suitable option.


This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice. 

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