The Smart Money This Election Season Is on Gold

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Posted by The Savvy Retiree on November 3, 2020 in Save Money

And so it comes down to this—the last day before what, in all likelihood, will be a historic presidential election. Will this end peacefully, with a known winner and a pledge to hand over the reins of government without a fuss? Or will it end…differently?

I can’t say. I won’t venture a guess. Polls point to one outcome…but people lie to pollsters all the time to protect the veneer of decency they’ve built around distasteful thoughts they dare not share. So, really, who knows?

But I do know this: Come Jan. 20, 2021…almost nothing changes in the U.S. And that has financial implications on those of us pushing inexorably toward retirement, and those of us already there.

See, the U.S. has 27 trillion problems that don’t disappear, regardless of who claims the White House. That’s how many dollars Uncle Sam owes his creditors. It’s the equivalent of 137% of the economy. Add in off-balance-sheet obligations for which Uncle Sam is already on the hook—entitlement programs, federal employee and veteran benefits, etc.—and the U.S. really owes more than $155 trillion, or nearly 800% of gross domestic product.

That’s a “failing state” level of debt.

Both Trump and Biden have bold plans to add to this catastrophe in the making. Trump is pledging “the biggest tax cut ever,” while Biden is promising a substantial stimulus package and certain economic policies to help the vast swath of Americans who are out of work and struggling to stay afloat financially. Either one of those platforms would cost trillions of dollars that Treasury doesn’t have…so it’s off the bond market to borrow more money.

All of which means one thing: 2021 is likely going to be a very good year for gold prices. I’ll go a step further and say the next half-decade, at the very least, looks good for gold prices.

Gold, as I have pointed out before, is the anti-dollar. Wall Street categorizes the metal as a commodity, but that implies some kind of industrial/agricultural use. And while gold does have a tiny role to play in some industrial processes, the metal is money, pure and simple. It is an alternative store of value.

And in turn, all of that means you really need exposure to gold in your retirement portfolio to preserve your spending power across the upcoming years. That advice goes against a lot of gibberish that flows from Wall Street pros who pan gold as archaic and who insist gold’s day in the sun is done.

But let me toss out three data points for you:

1. In 1990, the average new car in the U.S. cost right at $15,500. Gold that year was in the neighborhood of $380 per ounce, meaning you needed about 41 ounces of gold to buy a car. Today, the price tag for the average new car is $38,700, but affording it requires just 20 ounces of $1,900 gold.

2. In 1990, the median home value in America was about $98,000, or just under 260 ounces of gold. Today, the median home price has nearly tripled up to about $275,000, yet you’ll only need about half the amount of gold to buy it—just 145 ounces.

3. In 1990, median family income was $54,600, meaning you earned 144 ounces of gold per year. In 2020, median family income is up to $69,000, but now you’re only earning 36 ounces of gold per year. 

The point: A dollar today doesn’t buy what it used to buy 30 years ago because inflation has insidiously eroded the value of a buck. But an ounce of gold…it affords much more than it once did.

This is not a trend that’s going away. Actually, it’s a trend that very likely will amplify.

A big part of the reason for that is the U.S.’s excessive and ballooning debt. At this point in the year in 1990, America owed just $3.1 trillion in debt, an unremarkable and easily manageable 58% of the overall size of the U.S. economy. Today…well, one could legitimately argue that the U.S. is bankrupt. That’s why Federal Reserve Chairman Jerome Powell recently said the Fed will allow inflation to run hot and will not raise interest rates (as it typically would do) to temper that.

That right there is a giant, blinking marquee, with carnival barkers out front imploring passersby to look up and read the sign for their own financial health. That sign is screaming “Own Gold!”

The upcoming years are not likely to be kind to the U.S. dollar. The greenback could rise in value against other fiat currencies such as the euro or the yen (and, personally, I am very hopeful that’s the case because of the impact it has on me earning dollars but living in Europe). When that happens, however, do not mistake that for dollar strength. 

In terms of real purchasing power, our dollars are tied to a rock dropped into a well, the bottom of which no one knows. You’ll know the dollar is weakening in terms of purchasing power because gold prices are rising. 

How high might gold climb? The metal will quite likely test $2,500 in 2021, a 30% gain from its current price. From there…$5,000 is not out of the question by 2025 or 2026, maybe sooner, depending on how the government manages existing debt and future spending.

My heartfelt recommendation: Own physical gold that you keep at home or in a safe-deposit box. Buy it here and there, consistently, on days when the price of gold is down. In your investment account, own shares of major gold-mining companies. How much gold exposure to own depends on your personal comfort level; I have 20% of my retirement account in gold, with much of the rest in the Swiss franc and government bonds. But that’s my comfort level.

No matter what happens in the aftermath of Tuesday, no matter who ultimately sits in the Oval Office, that person is only going to increase U.S. debt. That is a given. 

And that means higher gold prices are ultimately a given, too. Invest and protect yourself accordingly.

By Jeff D. Opdyke