Is The ‘Gold IRA’ Market A Bubble About To Burst?

This article - by Jeremy B. Merrill and Hanna Kozlowska - about Gold IRAs by the Washington Post caught my eye... 

Here's the TL;DR: 

The surge in popularity of gold IRAs is largely being driven by companies who advertise heavily on consertive news outlets, with ads for gold coins becoming commonplace, and regulatory action is heating up. 

I write a lot about Gold IRAs (aka Precious Metals IRAs), so this got me thinking: 

Is this entire industry merely being propped up by advertisers who are riding a wave of economic anxiety, fear, and uncertainty? And what happens to these companies when the ad revenue runs dry and economic fears subside? What will happen to these retirement accounts, estimated to be a "billion dollar per year industry" by some?

That's right, bubble = pop. 

Or at the least, many of these companies will dissapear. 

Are Gold IRAs in a Bubble?

Bubbles usually have the following characteristics:

1. Increased Market Activity: More buyers and sellers, and increased trading volumes.
2. High Prices: Asset prices are significantly higher than their intrinsic value. However, the intrinsic value of gold is hard to determine because it's based mostly on sentiment and it does not generate cash flow like a business or bond.
3. Excessive Media Coverage: Increased public interest and excessive coverage in the media.
4. Irrational Exuberance: People are investing because of hype and fear of missing out rather than due diligence and analysis.
5. Availability of Credit: Easy credit and financing increase the number of buyers which pushes prices up.

Let's dig in a bit. 

A quick glance at Google Trends tells me gold retirement accounts are definitely having their moment, and possibly peaked in April, 2023 (I think this run-up correlates with the BRICS news in May, but I'm not 100% sure): 

Oh, look at silver, I guess people don't think it's as worthy as gold to protect their assets.

On top of that, new gold IRA companies are popping up regularly, and going under almost as regularly.

A string of high profile SEC actions, scams, and rugpulls (can I use that phrase outside of Crypto?) has marred the industry, and many have been burned.

Gold prices are of course also having their golden moment in the spotlight, with prices surging back to previous highs:

For Number 3 above, it's not strongly correllated, but the availability of news outlets eager to suck down gold IRA ad revenue - and the subsequent coverage of outlets like WaPo - seems like it fits here.

Number 4 on the list above seems obvious here: people are investing in gold driven by fear of economic collapse, these products are a cottage industry sprung up to serve that need.

As far as lending and availability of credit goes, I have no information to share.

Okay, so not a traditional bubble... these are product classes, not asset classes. 

A better word than Bubble might be a "fad" or "trend", but as anyone knows, trends can move fast. The difference here is that thousands of people have their investments tied up in these products - not great if the "trend" dries up. 

Why Gold Retirement Accounts and Why Now?

Gold tends to shine the brightest during times of:

• Economic Uncertainty: When the economy is performing poorly, or there's a high level of uncertainty (like during a pandemic or recession), investors often turn to gold.
• Inflation: Gold is frequently used as a hedge against inflation. When inflation is high or expected to rise, demand for gold often increases.
• Political Uncertainty or Instability: Geopolitical tensions or domestic political instability can also drive investors to gold as a safe asset.
• Market Volatility: In periods of high volatility in equity or bond markets, investors may move their assets to gold to reduce risk.
• Weakening U.S. Dollar: Gold is typically priced in U.S. dollars. When the dollar weakens against other currencies, it often makes gold cheaper for investors holding other currencies, increasing demand.
• Increased Consumer Demand: Non-investment demand, such as jewelry or technology, can also increase the overall demand for gold.

To add to that, here's some interesting insights from an article by Angela M. Antonelli, at Georgetown EDU:  

"In 2000, there were 35 million Americans age 65 and older. This number grew to 49.2 million in 2016, accounting for 15.2 percent of the population. By 2030, this number will grow to 74 million, according to an analysis of U.S. Census data by the Urban Institute. Average life expectancy is also increasing." 

Got it. 

So fear, uncertainty, and economic anxity is up, and there's more and more retirees coming online every day and every hour, until eventually in the who-knows how far distant or not so distant future, the United States will eventually be swamped by retirees.

They are naturally looking to protect the money they've created during their lifetimes, and they're hooked into their news programs while whiling away the hours in their arm chairs... 

"Biden bad, gold good. Such and such coin company told me to buy these coins and rollover my retirement account, I'm on it."

So will we see the demise of the infamous gold IRA company soon? It's hard to say, and I leave that conclusion up to you, dear reader.

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We are not financial advisors and are not responsible for your investment decisions. Investments carry risk. Always do your due dilligence before making any purchase.