The Demographic Case for Investing in Gold

In the minds of financial market bulls, financial assets will always go up in value. After all, they always have, at least in nominal terms. In real terms they’ve often increased in value too, especially stocks. But what happens if, for a period of years or even decades, stocks and bonds decline in value?

The thought of that occurring is inconceivable to many, but it’s not outside the realm of possibility. Remember that many of the gains investors have made so far are only on paper. Those gains aren’t realized until a sale is made. And in order for a sale to be made, there has to be a buyer and a seller. What happens when everyone wants to sell their assets, but there aren’t enough buyers?

For decades, investors have been sure in the knowledge that there will always be buyers for their assets. Growing populations and rising economic well-being have helped drive the prices of stocks and bonds ever higher. But demographic changes throughout the developed world mean that population growth is slowing, and there may not be enough younger buyers of assets to enable current investors and retirees to sell their assets at the prices they hope to achieve.

This demographic problem isn’t a new one, and it isn’t coming by surprise. Its effects won’t be seen instantly, but for those who will be affected by it, it could leave them with far less income in retirement than they expected.

Social Security

The number one source of retirement income threatened by the demographic shift is Social Security. This isn’t a new problem, either, as over the course of Social Security’s existence, the number of workers supporting each retiree has steadily decreased. Even with millennials now making up the largest demographic cohort, the sheer number of retirees means that there are fewer workers today supporting each Social Security recipient.

While official figures claim that Social Security’s trust fund will run out of money in 2034, recent strains to the system could mean that the fund will run out much sooner than expected. By the end of the decade, Social Security recipients may very well find that they’ll be receiving at most 75-80% of their expected benefits.


There are numerous bond analysts who claim that bonds have benefited from a near 40-year bull market. Certainly, looking at the gradual fall in interest rates over that period of time, that case can be made. But the bull market won’t last forever. With interest rates having been at historic lows for over a decade, they’ll eventually rebound, leading to falling bond prices.

Investors who hold bonds and expect to be able to sell them for income in retirement have to deal with the fact that bond markets are becoming increasingly exhausted with the huge amounts of debt that continue to be created. The federal government alone has created over $3 trillion of unexpected new debt this year, while corporations continue to pile on more and more debt.

The overall quality of most corporate debt has been decreasing over the past 40 years too, with more and more corporate debt being graded only a level or two above junk status. With corporate debt levels having exploded by over 50% since the 2008 financial crisis, and with governments set to spend massive amounts of money on coronavirus recovery, there’s a very real possibility that bond markets could get overwhelmed. The fact that the Federal Reserve has had to monetize much of the US government’s debt-fueled spending is one indicator of that.

Imagine that 5-10 years from now you find yourself in need of some extra retirement income and you look to sell bonds to do that. You may find that the number of willing buyers of those bonds is far smaller than you expected, forcing you to accept a lower price than you expected. After all, not only is the pool of buyers potentially smaller due to demographic shifts, but you’re also competing against new issuance of bonds from corporations and governments, and potential buyers are themselves going to be more indebted than ever.

In short, a bond market that’s characterized by significantly greater supply and less demand is not a great one for investors and retirees. Since so many investors follow conventional investing wisdom by increasing the size of their bond holdings as they approach retirement, they could get hit hard by the coming debt flood.


Stocks won’t be exempt from changes due to demographics either. In order for investors to reap gains from their equity investments, they’ll have to find willing buyers. And with both millennials and younger generations starting off their careers heavily burdened by student debt, their ability to buy stocks will be limited more than Baby Boomers and Gen X-ers were.

Who then will current and future retirees sell to? The expectation is that retirees in their 60s and 70s will sell stocks to those in their 30s and 40s. But if those younger generations are still carrying student debt, and are taking on mortgages that are far larger in terms of percentage of income than previous generations did, there might not be as many of those younger investors able and willing to buy the stocks that are being sold.

Here too, retirees are facing a demographic crunch. Those retiring today began their investing careers when the pool of stock buyers was large and growing, while the pool of sellers was smaller. Today, the pool of potential sellers is growing larger, while the pool of potential buyers is growing smaller, which could put downward pressure on stock prices for quite some time.

How Does Gold Benefit?

Gold isn’t as widely held as stocks and bonds, which plays to its benefit. Because the pool of retirees selling gold will likely be smaller than of those selling stocks and bonds, and the market for gold is larger due to gold’s status as an internationally-demanded asset, gold might not face the same demographic pressure that stocks and bonds will.

Secondly, because stock and bond prices could face downward pressure due to the large number of retirees selling off their assets, that could further dampen demand for those assets due to a negative feedback loop. As one of the top alternative assets to stocks and bonds, gold could benefit from increased demand as investors in the future look for assets to protect themselves even further against falling stock and bond prices.

Investors have already seen this year how gold can protect them against stock market crashes. When stock markets crashed nearly 35% earlier this year, gold didn’t fall nearly as much, and when it recovered, it rebounded to set new record highs. With the outlook for stocks this year continuing to look negative as the economy faces weakness and uncertainty, more and more investors are turning to gold to protect their assets.

If you’re expecting to sell retirement assets in the next few years to raise retirement income, isn’t it time to think about what kind of market you’re going to be selling into? Shouldn’t you be thinking about protecting the value of your assets, so that you’re not disappointed with insufficient income in retirement? If that’s the case, then it’s time to start learning more about investing in gold today.

The experts at Goldco have helped thousands of people just like you benefit from investing in gold. Give Goldco a call today to find out how to make gold a part of your investment portfolio.

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