Lear Capital’s Kevin DeMeritt on the Gold and Silver Safety Factor: Why Physical Precious Metal Investments Are Viewed as Less Volatile — and What Type of Security They Can Actually Provide

When investing, greater risk doesn’t always lead to greater rewards. However, building safeguards into your retirement savings plan can help buffer the impact of any losses, says Kevin DeMeritt, founder and chairman of Los Angeles-based gold and precious metals firm Lear Capital.

Investment options like defined contribution 401(k) and 403(b) plans — which are Americans’ most frequent retirement savings choices, according to a Federal Reserve report — and traditional IRAs can involve investing in the stock market.

While on average, the market has provided an annual return of approximately 10% — essentially 7%, the U.S. Securities and Exchange Commission says, when considering inflation’s effect — that amount isn’t guaranteed, especially in a tumultuous year like 2022. 

In 2021, the stock market added $20 trillion in wealth in the U.S. Last year, by the end of the second quarter, Americans had lost $9 trillion due to the market.

Including physical precious metal-based investments in your portfolio may offer some protection against that type of loss.

“It’s a great diversification tool,” Kevin DeMeritt says. “Gold has outperformed the stock market since 2000. If you would’ve placed $100,000 dollars in stocks, that would be worth about $325,000 today. If you would’ve placed 80% of that in stocks [and] 20% in gold, that’s worth about $385,000 today — you picked up an extra $60,000.”

Precious Metals’ Staying Power

At a 2011 congressional hearing on monetary policy and the economy, former Federal Reserve Chairman Ben Bernanke said investors view gold “as a protection against what we call tail risk, really, really bad outcomes,” so if a major crisis occurred, “then they have gold as a protection.”

Physical precious metal asset-related prices have generally remained steady, if not on the rise, despite economic challenges. In the first year of the 2009 recession, for instance, gold prices increased by nearly 13%, according to the U.S. Bureau of Labor Statistics. During the 15 recessions that have occurred since 1919, premium coins have performed well, according to Lear Capital data.

From 1981 to 1989, a challenging period that included exiting a recession and weathering the 1987 stock market crash, the CU 3000 Rare Coin index — which is compiled by appraisal and certification provider Professional Coin Grading Service and lists collectible coin price-performance information — skyrocketed 660%.

In 1980, when inflation reached a new high point, instead of trending downward, gold’s price leaped 174% and silver shot up 557%, according to a Lear Capital analysis.

“With inflation and [a] recession looming, people should consider precious metals as a hedge against some of that economic uncertainty,” Kevin DeMeritt says. “Gold was up 300%, silver was up 500% the last time we saw inflation this high. [In] the past 60 days, gold is up 10%, silver’s up 18%; it’s a great time to add at least some portion of their portfolio into that asset category.”

If you do decide to invest in precious metals, make sure you have the proper storage to keep it safe.

A Proactive Investment Approach

Inflation can weaken paper currency’s value; in addition to higher prices affecting consumers’ current purchasing power, the amount they’ve saved may not end up being enough when they’re ready to retire.

“People should really think about their retirement accounts — especially if you believe inflation’s going to be a problem over the next five or six years, and you’re close to retirement,” Kevin DeMeritt says. “Because we don’t want your dollar bill to be cut in half in 10 years, and your retirement plans [to] evaporate along with it.”

A 2022 survey found fewer than a quarter (22%) of U.S. workers who are close to retirement age have enough money saved to retire. 

“At today’s inflation rate, at around 7%, in around seven to eight years, your money would almost drop in half,” Kevin DeMeritt says. “Each year that goes by, if I’m losing 7% of the value of my paper money purchasing power, I need something to offset that. Gold is going to be a great alternative because it has an incredible 5000 year history of protecting purchasing power already.  I think over the next five or six years, demand will continue to increase for precious metals as inflation remains high.”

Paper currency’s value can also be affected by production practices. Due to the limited availability of gold and silver, physical precious metal assets tend to retain their value over time, according to Kevin DeMeritt. 

“Every dollar you print, the money that’s already out there becomes worth less and less,” the Lear Capital founder says. “But you can only mine so much gold per year. If you put an increased demand on a fixed supply, the price typically goes up. Paper money, with no fixed supply, is probably going to continue to fall — it has for hundreds of years now — and the price of gold’s probably going to continue to increase as governments print more paper money.”

While, along with physical precious metal assets, investors can also obtain gold mining company-related stocks or exchange-traded funds, those options can involve additional considerations. A company could make business decisions, for instance, Kevin DeMeritt says, that eventually affect its stock’s worth.

“If I’m going to buy a gold mining stock and the CEO messes something up, those things can affect that stock that have nothing to do with the price of gold,” he says. “You have what we call third-party risks that you don’t have with physical gold.”

Conflicts between nations, supply chain issues and economic downturns can all have a marked effect on stock-related investments. Yet despite challenging conditions, physical precious metal-based investments have traditionally fared well in the past.

If you’re hoping to save enough to be able to retire when and how you planned — which more than half of Americans aren’t sure their current savings approach is positioning them to do — having a diversified portfolio can be key.

To view what effect investing in precious metals could potentially have, examine the difference in investment option outcomes Lear Capital’s IRA Portfolio Comparison Calculator produces.

“I can’t tell you when the stock market’s going to fall, or home values are going to fall,” Kevin DeMeritt says. “But it can have a devastating effect on investments — especially if you’re retired [and living] on your assets. The volatility of gold is not going to be the same as what we’ve seen with this inflation situation [or] the stock market. It’s going to give you stability.”