Trump Buys Gold, Should You?
Former President Donald Trump is not only a keen investor in gold, but also a vocal supporter of returning the nation to the gold standard. His financial holdings have shown several thousand in gold buying investments. Famous for his business savviness, many new investors started to follow in Trump’s footsteps.
Today gold buying remains a popular topic among investors as the US dollar plummets in value. Inflation has exponentially increased over the years but especially in the last two. The Consumer Price Index (CPI), a measure the government uses to gauge inflation, reached its highest rate in 40 years last year.
With consumers feeling most hit by fuel and grocery prices, anxiety in the country has reached an all-time high. Given such a bleak economic outlook, you may be asking yourself: “should I invest in gold”? The truth is that deciding to invest in gold may be worthwhile. Here’s why.
The Origins of The Gold Market
Gold and other precious metals have been an integral part of human history for a long time. However, it wasn’t until approximately 600 BC that gold became a form of currency.
The ancient kingdom of Lydia (modern-day Turkey) was the first recorded place to implement a monetary system using precious metals. By combining silver and gold to create a type of alloy, the kingdom produced the first metal coins as legal tender.
Other nations soon followed suit. King Darius I of Persia created a coin of over 90% gold. For several centuries, other nations including the Roman Empire would continue using gold coins as money.
The Gold Standard
Technological innovations eventually led to more efficient gold production. By the start of the 17th century, royal mints held a monopoly over gold storage. The harsh royal restrictions on storing gold thus resulted in traders and merchants turning to private goldsmiths.
The private gold trading system began issuing receipts that reflected ownership. Later this process was replaced by trading and re-lending ownership receipts for lower rates. This system brought the world one step closer to modern-day banknotes and banking.
In the United States, the 1792 Coinage Act was responsible for creating a national mint and the US dollar. The introduction of the Classic Gold Standard occurred almost a century later in 1879. Under the classic gold standard system, countries would back the national currency on a fixed amount of physical gold.
Throughout the 20th century, world powers would systematically leave the gold standard to finance wars. Starting in the Great Depression, the Federal government gradually corroded the gold standard. By 1971, the United States had abandoned it completely.
Today, several central banks hold gold reserves. Despite this, no country currently backs its currency with gold.
Why The Rich Are Buying Gold
The modern rush for gold is in large part due to avoiding sanctions and wealth taxes. If you buy physical gold and keep it in a vault, it will presumably be more difficult for the government to access. Thus, one of the main reasons people like Donald Trump buy physical gold is to help mitigate political risks.
As the global political climate continues heading into uncertainty, it’s no wonder the wealthy want to protect their assets at all costs. Global anxiety about the future is exacerbated by the recent dramatic economic downturns. The more inflation we face, the more people want to prepare for the worst.
The price of gold also reflects a rise in the cost of living. That makes gold an excellent way to protect yourself from inflationary policies. During times of high inflation and poor economic growth, gold prices surge while fiat currency loses value.
Because the country is currently facing one of the worst inflationary periods people are more encouraged to invest in gold. Ultimately, buying gold is insurance against losing money as the US dollar falls.
Paper Gold vs Physical Gold
Many wealthy investors buy a mix of paper gold stocks and physical gold. Typically, someone who buys paper gold stocks is looking to diversify their investment portfolio. A solid portfolio should consist of a wide variety of stocks including precious metals. The more diverse, the more secure it is in financially hard times.
On the other hand, physical gold protects your purchasing power as a consumer. You have control over where to physically hold it. That makes it a more solid investment than buying paper gold stocks.
With paper gold, you’re at the mercy of the company you’re buying from. You have to trust that the shares or stocks you own will continue to do well.
While you may own the stock, you don’t physically own the gold. It merely represents ownership. Paper gold is thus a riskier investment than physical gold during economic hardship.
A gold IRA is an individual retirement account through which you can hold gold. As an investor with a gold IRA, you obtain physical control over your gold. These can be in the form of coins or bullions.
If you decide to hold a gold IRA, you must keep it separate from other types of IRAs. And unlike a conventional IRA, you can’t go through a traditional broker. You will need a specialty firm or custodian.
In addition, the IRS (Internal Revenue Service) must approve the facility you choose to hold your gold in. These places include banks or depositories.
There is another pesky IRS rule to keep in mind. The IRS views keeping gold in your home as a withdrawal from a bank or other entity. That means you will be expected to pay taxes on it. Because of this, your only alternative to keeping gold in a depository is to hold it with an approved third party.
Historically, gold has been instrumental in implementing monetary systems and remains a valuable commodity. While in ancient times gold mints were royal in nature, today anyone can own gold. In the modern world, wealthy people are especially keen on buying precious metals.
Currently, the country is facing an imminent economic collapse which is driving demand for gold – and not just for the wealthy. In these volatile times, purchasing gold is a rational investment.
Megan Lee uses her life experience in investing to write about business, finance, economic news, family trusts, retirement planning, precious metals and cryptocurrencies. She has personal experience with buying gold for the past 20 years and recently learned to successfully invest in Crypto. Megan graduated with a master’s degree in Humanities from Wesleyan University, has lived and worked in 12 countries, and currently resides in Portugal.