Social Security Looks Bad; Gold Looks Good

Paul Winkler: Welcome to the next hour of “The Investor Coaching Show.” I’m Paul Winkler, along with Evan Barnard.

The Future of Social Security

Yeah. So, talk about Social Security this week. When it comes to Social Security and Medicare, this is what the nation’s top experts on aging worry about.

Isn’t it funny how people are always worried? “This is what I worry about. This is what scares me”?

When I hear people say that on TV, I say, “You are just baiting people to listen to you, aren’t you?” “This is what I’m worried about,” and I just go, “Blah.”

People sit around and worry all the time. I think, “Ugh, come on. Really?” The reality of it is, how long have you gone through life and just seen that somehow things seem to work out? And you’re still worried and still fearful.

Evan Barnard: Well, it’s much easier to worry than to change your behavior.

PW: Yeah. Isn’t that the truth?

EB: I can worry about gaining weight, and eating doughnuts doesn’t actually change the equation all that much.

PW: Yeah. It’s like when we have anxiety and worry about something, it’s like our brain is telling us we have to prepare for something, and if I just worry about the future enough that I will actually be able to somehow fix whatever’s coming, rather than just doing the best you can and just making sure you’ve done everything you can do. When we talk about how to invest, that’s really it.

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When you engineer an investment portfolio, you literally want to engineer it in such a way that no matter what happens, you have something that’s okay. 

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Right. Now when it comes to Social Security, a lot of people are going, “Oh my goodness.” They’re wringing their hands on it. And as I’ve said over and over again, it’s a political landmine.

Who on earth wants to go and change Social Security, knowing that that’s going to be your last time in office? It’s basically going to be. You’re going to be done.

So they said in the most recent annual conference on American Society on Aging, the topic on the minds of the nation’s leading experts on aging was the future of Social Security, Medicare, and Medicaid in the current political environment. There we go. I’m getting my mords wixed.

Their insights, which are vitally important to anyone in or near retirement, mostly ranged from dour to downright bleak. “This is nothing like anyone’s ever seen before. Oh my goodness. There’s an incredible amount of disruption.”

Anxiety-filled On Aging conference came near. Now you think, what does that mean? That means it’s over. It’s going away.

And they’re saying, for the first time in a long time, Congress is looking to cut some of those mandatory programs, says one person.

What Will Get Cut?

PW: Now, if you went further down in the article, though, which is what I like to do, read the fine print in the whole article, right?

EB: Paul Harvey.

PW: Yes, “The Rest of the Story.”

EB: “Now you know the rest of the story.”

PW: There’s a sliver of good news about Social Security.

EB: Oh.

PW: Yeah, yeah, yeah. None of the experts I heard believe benefits will be cut anytime soon, or current beneficiaries or people close to claiming Social Security, which is what I’ve said all along. If they’re going to cut it, they’re going to cut it on some 26-year-old.

EB: Right.

PW: That’s what I’ve been saying the whole time.

EB: Or move the age to 72 or something.

PW: Yeah. Nor did they think the president or Congress would raise the full retirement age from the current age of 67. They agree the changes will be needed at some point, but it’s just like, when?

But not for current people. And that’s what I’ve been saying all along.

But if you read the headline only on this thing, you’d be just going, “Oh my goodness, it’s just time to just pack it in. The world is ending. And this is terrible.”

And then they had to pick on the DOGE thing, that they had to shut some Social Security offices. So that was really what they’re hand-wringing about. As you really get into the article, that’s what all the hand-wringing was about: that they were closing some offices and they were trying to automate some services and that was the big thing.

But one of the things that really caught my attention in here, as I was reading the article on the plane coming in, is SHIP. We have representatives from SHIP …

EB: The health insurance. Yeah.

PW: … the health insurance program here. And we teach on Medicare on the website, on paulwinkler.com, we have the workshops that we do every single year on Medicare and how the internal workings go.

They’re actually, they were talking about that that may be an area that gets cut, and we don’t know. They said maybe not this year, but they’re talking about in the possibility in the future that that would be cut. Because a lot of people look at that as a source of information.

I think that there’s a school of thought out there that a lot of times people that are selling the health insurance products, they want somebody outside the sales process. And that is something that we have always said that we do as a firm.

I didn’t want anybody at our firm selling insurance products simply because it’s someplace you can go and you just know that nobody at our firm sells health insurance. We don’t sell life insurance. We don’t sell any of these products.

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It’s just a feeling that maybe I’m getting information that isn’t biased by the commission, and that’s what SHIP was for people. 

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SHIP was a place that they could go, and that’s a possibility that that might be taken away from them for Medicare. So I don’t know if that’ll land that way, but we’ll see. That was one thing.

Recent Run-Up in Gold

PW: Another thing that was being talked about this week is, of course, you have gold. As we always talk about, gold is not an investment. Half the gold ever mined, I saw that statistic one day, and it just blows my mind, half of the gold ever mined in all of history — as much as we’ve talked about gold — was mined since 1970, which is mind-blowing to think about that. But you’ve had this recent run-up in gold.

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Gold will go up, and then it’ll come crashing down, and you just don’t know when it’s going to happen. 

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Its rate of return has been basically the inflation rate with the standard deviation or the level of risk of the stock market, so the level of volatility of the stock market. But why? Why have we recently had this little jump in the price of gold? What’s going on here that the price of gold has jumped some?

Now, it’s nowhere near the return, you take the past 50 years, not even close, not even the ballpark of the stock market. But why has it just jumped in recent history a bit? What’s going on?

Sara Eisen: I think we have to step back and look for the reason why gold has rallied so much. Isn’t it because the reaction to the tariffs is weaker to U.S. dollar?

PW: Okay, so is it because of tariffs? Is it because of fears? Possibly.

EB: Could be.

PW: You could have some more demand because people are a little bit worried about where this is going to land. If you set a tariff on another country and that country gets upset with you, maybe it’s as she was talking about, the devaluation of the dollar.

What are we going to use as a reserve currency if it’s not the dollar? Maybe we’re going to use gold. Maybe we use some kind of a crypto. Maybe that’s what’s going on.

But the reality of it is that this can change in a heartbeat. And we’ve seen where, hey, we got what we wanted negotiating-wise, and all of a sudden, now all the impetus to buy is gone because the reason for buying has basically dried up.

Do Central Banks Drive Investing?

PW: But she goes on.

SE: Isn’t that the primary reason that gold shot up?

Samantha Dart: Partly, yes. You have the central bank buying as a big structural driver, but you’re right, the other component that has supported gold is a lot of growth in ETF positioning.

PW: Okay, so back up. Listen to what she just said there. So you have central banks.

Now, we look at central banks and we go, “How good are central banks at investing?” They’re not, that’s not their purpose.

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The purpose of a central bank is really twofold: to have some stability in their currency and employment. 

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If you look at the United States Central Bank, especially the Fed, their whole thing is that “We’ve got to have stability in employment. We’re looking at the unemployment numbers and we want stability in the currency.” “We want to control inflation,” in other words.

So the reason that other central banks around the world might be buying isn’t because they’re going to make a big return investment-wise. That’s not the way they do things. They’re more concerned about having a currency that holds value, and they may look at it that way.

So if you look at it in that term, and let’s say that in the short run, they’re concerned about the U.S. dollar as the reserve currency, they might do that. And of course, gold would go up versus that because they’re not going to buy dollars, they’re going to buy gold, which drives the price of dollars down, which is, as we’re saying, the weakening of the dollar, right?

EB: Mm-hmm.

PW: And then you have the strengthening of gold in this particular instance. But if you look at the history of currencies and currency fluctuations versus each other, it’s striking how fast those two things can reverse, like the dollar strengthening versus the yen or the dollar or the yen strengthening versus the dollar or the euro versus the dollar and the dollar versus the euro. It can be back and forth. That can come back to bite you in a really big, profound way when that reverses.

Growth in ETF Positioning

PW: But listen to the last reason she gives for gold going up.

SD: … that has supported gold is a lot of growth in ETF positioning. And ETFs, they usually respond to a drop in real rates, but when you start to see an increased risk of recession, that positioning grows even more.

PW: What is it about ETFs, exchange-traded funds, investing in gold that would make gold go up? Could it just be that you have an easier access or an easier ability to buy and satiate that demand that somebody has, “Hey, I kind of want gold, but it’s kind of a pain in the neck because I got to store it”?

And they don’t think about the fact that the ETF that they buy has to store it, and there’s cost for storage built into that, and there’s expenses built into that, and the ETFs making money off of them, and they’re marketing it to them as a really easy way to satiate your demand or your desire to go and speculate in this way with your money. So it can be the very thing that drives.

And “Oh, you know what? You can just easily put your IRA in this gold. It’s a very easy way to get it.”

And you think, well, What if all of a sudden now that starts to reverse? Have you ever seen it where all of a sudden there’s a reversal in the demand for anything? What happens to its price?

EB: It drops.

PW: Like a rock. And that is exactly what I thought was so interesting about that little clip.

EB: Well, and it’s what we had talked about earlier, and frankly every week.

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Just because the industry has made it easier to trade something, doesn’t mean it’s a good idea.

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PW: That’s the truth. Commodities.

EB: Yeah.

PW: Look at commodities.

Fund Companies Jumping on the Bandwagon

EB: If you at least have to drive down to the coin store and “Okay, here’s this ounce of bullion,” and get cash, or it’s a capital gains on a commodity, it’s a pain. But now I can speculate with ETFs and “It’s only $7 a trade,” and I’ll grind my net worth to a pulp that way.

PW: Yeah, you weren’t getting 30 years ago, “Go and buy lumber futures.” It was because it was a pain in the neck to do it. But then you have the 2008, 2009 mess that happens, and then you have commodities jump in value temporarily, and then you have all these huge mutual fund companies, and they’re jumping on the bandwagon.

And the fund companies like Fidelity, I’ll talk about how they had that target date fund. It was their number one holding in their target date funds in 2009. It wasn’t the number one holding until after it had gone up.

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Then it became the number one holding in their portfolio, and then all of a sudden, you couldn’t give this stuff away.

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It just went down and down and down and down and down. Now I think it’s, the last I looked, it was like the number 22nd holding or something like that.

EB: Oh, really?

PW: Oh yeah. It’s just dropped way down.

EB: I’m sure they’ve added international small this quarter.

PW: Oh, of course. Of course.

EB: That’ll be fun to track.

PW: Well, the horse gets out of the barn, you better shut the door. Let’s make sure that we do this. We’ve got to be prudent, shouldn’t we?

EB: Yeah.

PW: It’s a hoot. Well, it’d be a hoot if it weren’t so sad that they engage in this type of stuff. But anyway, I digress.

Advisory services offered through Paul Winkler, Inc an SEC registered investment advisor. The opinions voiced and information provided in this material are for general informational purposes only and not intended to provide specific advice or recommendations for any individual. To determine what investments are appropriate for you, please consult with a financial advisor. PWI does not provide tax or legal advice. Please consult your tax or legal advisor regarding your particular situation.