Right now, more people than ever are worried about their retirement due to factors such as political instability, inflation, and rising healthcare costs. In fact, life insurance company Allianz reported that 64% of Americans were more worried about running out of money in retirement than dying.
However, what if the solution to building this long-term sustainable wealth is right before our eyes? Banks are beginning to turn their attention to physical assets such as gold and silver, and it might be time for advisors to point their clients in the same direction.
Why People Are Turning Away From The U.S. Dollar
One of the main culprits behind this shift is geopolitical tension, from the United States’ ongoing trade conflicts and tariffs to inflation that has spurred what some call an “affordability crisis.” These issues have caused confidence in the US dollar — once a bastion of international trade — to wane significantly. As a result, many large financial institutions, including the central banks, are beginning to diversify their portfolios away from USD and USD-backed assets.
Even global governments are beginning to shift their national reserves away from the USD. Seeking financial independence from the increasingly volatile nature of the United States economy, these countries have begun to turn to other international currencies, such as the Chinese Yuan and the Euro, as well as physical assets, thereby creating a stronger, more diversified financial system.
Fortunately, precious metals such as gold and silver are often seen as a hedge against socioeconomic factors, including international conflict. Fiat currencies, such as the USD, are inherently tied to the economy of the issuing country. If the United States faces an economic crisis, the value of the US dollar will decrease. On the other hand, the value of precious metals is not tied to any one country, meaning their prices are resistant to effects from conditions such as inflation and sometimes even increase during those periods.
How Gold And Silver Might Be The Solution To Concerns Over The U.S. Dollar
According to the World Gold Council, central banks have accumulated over 1,000 tonnes of gold in each of the past three years, an increase from the average of 400-500 tonnes in the decade prior. This increase in gold purchases reflects the position of central banks, some of the foremost financial decision-makers in the economy, in supporting the value of gold during times of crisis, thanks to its ability to diversify portfolios and hedge against inflation.
This trend is not just good for the banks; it is also good for the precious metals market as a whole. It’s important to note that, unlike traditional currencies, precious metals like gold and silver have a fixed supply. It’s not possible to simply mine more gold on a whim, so when demand for precious metals increases, as it has in recent years, it causes an increase in prices because the supply cannot keep up with the demand.
Now, we are beginning to see an increase in individual investors following these institutional trends, purchasing gold, silver, and other precious metals as part of their investment or retirement strategies. As with any investment, it is important for advisors to inform their clients of the risks and benefits of investing in precious metals, as well as how institutional trends will affect their investments and the broader market.
Following The Lead Of Institutional Investors
It can be wise for less experienced investors to follow the lead of institutional decision-makers, as these institutions use data-driven insights to guide their investments. Individual traders and even financial “gurus” who give investment advice on platforms like social media tend to make emotional decisions that are exceedingly risky. Institutions, on the other hand, prioritize qualities like diversification, stability, and asset protection based on extensive data and research.
The biggest difference between institutional investors and individual investors is that institutional investors tend to favor long-term security over short-term gains. Depending on a client’s goals, this approach may or may not align with their investment strategy. If a client is looking for short-term gains, gold and silver are unlikely to be the best options for them. However, if your client desires to accumulate long-term wealth that can be passed down in the form of physical assets, precious metals could offer that freedom.
Indeed, while precious metals — like any investment — carry risks that investors must be aware of, it is becoming increasingly clear that an overreliance on fiat currencies, even the US dollar, carries its own risks. For clients who are looking to diversify their portfolios, following the steps of institutional investors who are betting big on gold and silver could be the way to go, potentially giving them (and their portfolios) the long-term stability they seek.
