Inflation hit its highest level in more than two decades in mid-2022 and remained elevated throughout the year — and a number of investors are concerned this will continue in 2023, according to Kevin DeMeritt, founder and chairman of Los Angeles-based precious metals firm Lear Capital.
Although inflation has receded somewhat from its June 9.1% high, the current 7.1% level is far from the 2% goal the Federal Reserve has repeatedly mentioned this year.
As the Fed, in recent months, repeatedly raised the federal funds rate target range in its effort to reduce inflation, fears that the U.S. might soon be working its way through some significant economic pain points — including a possible recession — have grown.
“A lot of people are waking up to higher interest rates,” Kevin DeMeritt says. “They’re used to 3.5%, 4% mortgage rates, and then it goes up to 7% or 8% — at some point, you’re going to want a new car, and the interest rate is going to be higher there as well. Slowly but surely, purchasing power drops through higher interest payments; your bills go up, everything else is going up. That’s why they’re saying 2023 is going to be the year of the recession.”
Addressing an Uncertain Future
Even if the U.S. is able to avoid a recession, factors such as continued supply chain issues and robust consumer spending could mean inflation won’t be reduced quickly in the coming year, posing potential further economic troubles in the coming year — including more stock market uncertainty.
In June, the central bank upped its prediction for the interest rate level for 2022 to ultimately range from between 3.25% to 3.5% to 4.4%, and published an interest rate projection of 4.6% for 2023.
Exiting the longest U.S. inflationary period on record — which was prompted by an OPEC embargo-influenced oil price spike and reduced oil production in the Middle East, lasted from April 1973 to October 1982 — resulted in an increase in unemployment and the country sliding into a 16-month recession.
“It’s been a long time since we’ve had this kind of inflation,” Kevin DeMeritt says. “We’re starting to see more and more people become concerned about the volatility in the stock market, which happens when you have high inflation. We may only be halfway to the top with interest rates, if inflation plays out like it did in the ’80s. Inflation could be worse, actually, because the supply chain part of the inflation equation is broken.”
With anticipation of a potential recession looming, savvy investors may now be thinking about what proactive moves they can make to try to safeguard their savings from losing value due to inflation — and enhance the likelihood they’ll earn favorable returns, Kevin DeMeritt says.
“People should really take another look at that, especially if you believe inflation’s going to be a problem over the next five or six years and you’re close to retirement,” the Lear Capital chairman says. “We don’t want your dollar bill to be cut in half in 10 years, and your retirement or vacation plans to evaporate along with it. How you protect that retirement plan is more important today than it was 10 or 20 years ago.”
What’s Gold and Goes Up May Not Come Down
Along with weakened current-day purchasing power, inflation can also cause consumers to have to increase the total amount of money they need to save for retirement to be able to maintain their desired standard of living later in life — which could mean long-term spending reductions and possibly remaining in the workforce longer than they’d planned.
“At today’s rate, around 7%, in seven to eight years, your money would drop almost in half,” Kevin DeMeritt says. “Each year that goes by, if I’m losing 7% of the value of my money’s purchasing power, I need something to offset that — and gold is going to be a great alternative.”
While the stock market can experience notable rises and falls, historically, gold prices have been fairly steady — including during periods of economic difficulty. In past recessions, premium coins have performed particularly well in terms of price, according to Lear Capital research.
“[It’s] a misconception that if interest rates go up, the gold market is going to fall because it doesn’t generate any interest,” Kevin DeMeritt says. “Gold [went] from $50 an ounce in 1974 to $850 an ounce at the peak of inflation in 1980. You’re going to continue to see, over the next five or six years, demand will continue to increase for precious metals.”
That may, DeMeritt says, include an increased interest in physical precious metal asset-related investments. Consumers can utilize gold, silver, and platinum coins and bars as investments through a self-directed precious metals IRA: You own any related gold or other assets that are involved, which are kept remotely in an IRS-approved, insured private storage facility until you reach the age when you’re able to take a mandatory distribution.
“If you look at gold by itself, it’s dramatically outproduced the stock market,” Kevin DeMeritt says. “No one really talks about it. From the year 2000, if you invested $100,000 in stocks, it would be worth around $320,000 today. But if you invested $80,000 in stock and $20,000 in gold, it would be worth $385,000 today. You picked up an extra $65,000 in your bank account with just 20% of your assets diversified in gold.”
By September of this year, stock market volatility had expunged more than $9 trillion in U.S. household wealth, according to CNBC. Gold’s value, however, generally rose in 2022 — with investors showing a growing interest in the precious metal, according to U.S. News & World Report, and the global price for 1 troy ounce of gold surpassing $2,000 in March.
“One of the biggest misconceptions is that gold is this relic and doesn’t have [a] great performance record,” Lear Capital’s Kevin DeMeritt says. “It’s been around for 5,000 years; if something’s been around that long, [it’s perceived as] maybe old and just no longer useful. The misconception that gold can’t produce profits for people, and it’s just more of a safety asset, is completely incorrect.”
