Pensions ‘Cash Negative' By 2016 - ‘Timebomb' Looms

Today’s AM fix was USD 1,264.50, EUR 932.18 and GBP 745.45 per ounce.
Yesterday’s AM fix was USD 1,281.75, EUR 947.34 and GBP 755.35 per ounce.  

Gold fell $5.20 or 0.36% yesterday to $1,271.70/oz. Silver slipped $0.07or 0.41% to $19.63/oz.

After five days of gains, gold fell yesterday and is seeing weakness again today as some traders see the recent move higher as an opportunity to take profits. There is also increased risk appetite as while Asian stocks were mixed, European shares have eked out tentative gains.

Oil prices fell 0.5% but remained near nine month highs as Sunni militants have seized a large part of northern Iraq. U.S. President Barack Obama did an about turn yesterday and has announced that nearly 300 U.S. troops will enter Iraq and base themselves in Baghdad to protect the U.S. embassy and strategic interests. U.S. and Iranian officials held talks to stabilize the region, which has been roiled by the advance of Sunni rebels toward Baghdad.

Russia cut off gas to Ukraine on Monday after not being paid for gas supplied for many months. This could disrupt supplies to the rest of Europe and set back hopes for peace between the former Soviet neighbours and a decrease in tensions between Russia and western powers.

Gold in U.S. Dollars - 5 Years (Thomson Reuters)

The International Monetary Fund (IMF) cut its growth forecast for the United States on Monday and said the economy would not reach full employment until the end of 2017, allowing interest rates to be held near zero for longer than financial markets expect.

We have expected this for some time and it is bullish for gold and should be supportive in the coming weeks and months.

401 (K) Pensions ‘Cash Negative’ By 2016 - ‘Timebomb’ Looms
America's sprawling 401(k) pension system will turn cash flow negative in 2016, threatening disruption for asset managers and selling of equities, according to analysis by Cerulli Associates, a research house.

The $3.5 trillion system attracted fresh contributions of $300 billion in 2012, with $276 billion either withdrawn as cash by retirees or rolled over into individual retirement accounts (IRAs), Cerulli estimated according to the FT. The IRA market is already larger at about $5.4 trillion.

However, by 2016 it forecasts that inflows will be $364 billion and outflows $366 billion, with the deficit only widening year on year after that as the core of the baby-boomer generation retires contributing to the pensions timebomb.

"This has significant implications for asset managers and other financial services providers," said Bing Waldert, a director at Cerulli. "It is going to be a disappointment for a lot of fund managers that have put a lot of effort into the DC [defined contribution pension fund] market.

The largest managers in the 401(k) market are Fidelity Investments; Canada's Power Financial, which owns Great-West Financial and Putnam Investments; TIAA-CREF; Vanguard; ING of the Netherlands and Prudential Financial of the U.S.

Funds run by such managers are typically among 10 to 20 options available to 401(k) savers, but when money is rolled over into an IRA, they face far stronger competition.

In IRAs you do not only have access to expensive funds run by asset managers, you have access to investments globally. There is more freedom and flexibility as there are insurance-based products, ETFs [exchange traded funds] and individual securities. In recent years, there have seen a large increase in allocations to gold in IRAs as investors seek to diversify into the safe haven asset.

The combined value of the U.S. pensions system is some $9 trillion. The total market valuation of the global bond market is now over $100 trillion. By comparison, the total market value of all the gold in world is estimated to be just over $1 trillion.

The decision to apportion retirement savings into gold and other precious metals is being taken by an increasing number of U.S. citizens who understand that the value of the U.S. dollar is being silently eroded by inflation.

Self-directed pensions, including IRAs, permit a wide range of gold investments to be included. SIPPs in the UK and self directed pensions in Ireland also allow allocations to gold.

Although one should be cautious about investing in any paper gold product as it is very different and more high risk than owning allocated and segregated physical gold. Paper gold includes gold futures, gold futures options, some gold ETFs, certain forms of unallocated gold ownership, pool accounts, contracts for difference (CFDs), spread betting contracts, gold stocks and gold options.

Self-directed retirement schemes with a gold and or precious metals allocation are a prudent retirement planning tool. Considering the continuing financial malaise affecting the U.S. and much of the western world, they will continue to protect and grow pension wealth in the coming years.

Pensions throughout the western world are in peril due to the pension Ponzi scheme. Powerful forces of both the inflation caused by 100 years of the Federal Reserve debasing the dollar and a possible deflationary crisis due to massive levels of debt globally will be a double whammy which will hit traditional investments such as stocks, property and bonds. Without an allocation to gold, you are not going to have a comfortable retirement ► Putting Gold Bullion In Your Individual Retirement Account (IRA)