Retirement investors turning to precious metals
By Tim Grant
Mining via APIt used to be that an IRA could be
funded with only cash, stocks or bonds, but
Congress has expanded the rules governing
individual retirement accounts to include gold
and silver bars and coins. And more investors
who are concerned about turbulence in the U.S.
and global economies are taking advantage of
"When you get into very volatile markets and
people are afraid of stocks and bonds, they look
for safe havens, and gold has always been a safe
haven," said Nadav Baum, managing director of
investments at BPU Investment Group, Downtown.
Transactions for precious metals IRAs have
increased 523 percent in the past eight months
at GoldStar Trust Co., a leading custodian for
self-directed IRA accounts, based in Canyon,
Texas, said Trey Hightower, a precious metals
GoldStar's IRAs allow investments in gold,
silver, platinum and palladium bullion bars and
coins. Its precious metal assets under
management were valued at $312 million as of
Dec. 31, 2007.
"The economy and the weak dollar is driving a
lot of people into precious metals," Mr.
Traditional and Roth IRAs that contain precious
metals operate under the same rules as
conventional retirement accounts. The metals
cannot be withdrawn from the account without
penalty until the investor reaches 59 1/2 years
old and withdrawals are required starting at age
But the roundabout process of setting up a
precious metals IRA is where the similarities
Investors must contact a self-directed IRA
custodian who handles precious metals accounts.
Once that account is open and funded with cash,
the customer then contacts a coin dealer and
locks in a price for the metals.
The IRA custodian issues a purchase order to the
coin dealer and the metals are shipped to a
depository, such as HSBC Bank in New York. Once
the custodian gets confirmation from the
depository that the metals have arrived, the
custodian documents it into the IRA account and
pays the coin dealer.
"The customer never holds the metals while
they're in the IRA," Mr. Hightower said. "But
they can sell the metals within the IRA and take
a cash distribution or take the metals out as a
The combination of dollar weakness, falling
interest rates and rising inflation has created
an ideal environment for rising precious metals
prices. Gold, which recently traded above $1,000
a troy ounce, is known as a crisis commodity. It
tends to appreciate in value under the worse
In 1997, gold and silver bullion were approved
for IRAs. But only gold coins having a purity of
24 karat are allowed in the retirement accounts,
with the exception of the 22 karat U.S. Gold
Eagle. The South African Krugerrand is not
permitted in an IRA because it is a 22 karat
David Morgan, a world renowned silver expert and
founder of silver-investor.com in Spokane,
Wash., said he was familiar with the handful of
IRA custodians who handle precious metals and
was not aware of any problems with any of them.
"I'm not advocating you put all your IRA money
into gold and silver," Mr. Morgan said. "There
are a lot of people whose main savings is an IRA
account, and therefore they should put at least
10 percent in precious metals."
One of the most innovative ways to buy and sell
precious metals in an IRA was recently
introduced by the Entrust Group, based in Reno,
Nev. Through its partnership with GoldMoney.com,
investors can buy and sell digital gold, which
allows the movement of physical gold bullion in
their IRAs from one account to another online.
James Turk, founder of GoldMoney.com, based in
the British Channel Islands, said he believed
that the trend in gold would continue upward
until problems related to the U.S. dollar have
"Gold, as we know, is an inflation hedge," he
said. "But people are starting to understand its
other attribute, which is a catastrophe hedge.
Gold is a tangible asset which is not dependant
on someone else's promise."
Mr. Turk said GoldMoney is an online bank
account that is denominated in gold grams and
mills rather than dollars and cents. The
precious metals in GoldMoney accounts are stored
in Zurich, Switzerland. Investors can always
sell their gold and have the proceeds sent to an
IRA custodian in the United States.
The downside of holding precious metals in an
IRA is the account owner must pay storage fees
to the depository where the metals are held. And
there are often big spreads in the buying and
selling exchange rates.
Those fees can make bars and coins an expensive
way to diversify a low-balance portfolio, which
is why many financial advisers prefer to put
clients into gold and silver exchange traded
funds, which are traded on the stock market.
"There's not much advantage and a lot of
disadvantages in having physical bullion," said
Bruce Fenton, president of Atlantic Financial in
Boston. "What happens if it's stolen or it
melts? You don't have to worry about that if
it's electronically protected."
Donald Gould, president of Gould Asset
Management in Claremont, Calif., said it makes
sense to own gold as part of a diversified
portfolio, but that it doesn't make sense to
hold gold bullion in an IRA.
"An IRA is a tax-deferred vehicle," he said. "It
makes sense to put [assets] in there that have
high current taxable income. Gold pays no
interest or dividends.
So therefore, using your IRA to buy gold is an
inefficient use of [the IRA] from a tax
Whether or not it's a good time to be buying
gold is debatable, said Paul Burkemper,
president and founder of Burkemper Group in St.
He thinks gold could be overpriced in the
current environment. There will be an
adjustment, and prices tend to fall faster than
"My concern is a lot of people will jump into
gold chasing returns, thinking it won't go
down," said Mr. Burkemper, whose firm
specializes in IRA and retirement planning and
distribution. "We thought home prices wouldn't
go down, and we got a rude awakening."
Given all the factors that influence the price
of gold and what's happening in the economy,
James DiGeorgia, author of "The New Bull Market
In Gold," is predicting gold will trade at
$2,500 a troy ounce in three to five years.
Silver will trade in the $30 an ounce range, and
platinum will top $5,000 an ounce, he said.
Craig Smith, CEO of Swiss American Trust, a full
service brokerage firm for early American coins
in Phoenix, said customers who prefer to own the
physical metal have a different psyche than
those who want paper assets.
"Your physical gold is your asset and no one
else's liability," Mr. Smith said. "You don't
have to depend on anyone else to perform, and
that's what we like about gold.
"When people plan for retirement they want to be
sure the money they put away will be enough to
maintain their standard of living, and gold
always maintains its buying power."
Tim Grant can be reached at email@example.com