No, not the Christmas song. Buying and selling. Couple of questions for those who know:
Is a gain reportable as income for the IRS? i.e. you buy 20K worth of gold and cash it out 5 years later for a nice tidy profit. Have to be reported as income?
How easy is it to sell those precious metals back someday? So sure, they will gladly sell you either with the spot price, but in the above-mentioned cash-out scenario, how willing are they to buy it off you? I may be wrong but I can picture hearing “The economy’s not good now, we can’t afford to buy it back unless you’re willing to take a big hit”.
I’d hate to be stuck with $$$/currency you can’t eat or shoot. Is it then a game for more stable economic times?
Silver is a bit easier to sell than Gold. Industrial uses and all.
There are a lot of scammers out there that will try anything to sell you short.
I would shop around prices and track the market a bit before investing. Get to know the Players in your Local Area or State.
If you are very interested you need to have a chat with someone that owns or works precious medals in one of the bigger Pawn Shops in your area. Learn the ropes a bit find out who they sell to.
Someone told me once that smaller (1/2 Carat or Less) Engagement and Wedding ring diamonds are bought Cheap. They strip the Diamonds to sell for tooling and the Gold for weight.
The taxes are worse than other pedestrian investments like stocks. They are taxed as “collectibles”. Basically, long term gains in gold get taxed like short term gains in stocks or interest. Short term gains in gold get taxed at some crazy level. These treatments are unfavorable. Not sure how that’s enforced if trading physical metal for paper currency……
They’ve had a wild run-up, which is why everyone and their shoe-shine boy are talking about them. Will that continue? Who knows. Parabolic run-ups aren’t always sustained, though. FOMOing in is the classic retail investor trap that causes people to buy high and then sell low. Your second question about ease of selling to take profit has a hint in it. “Exit liquidity” is required, and one connotation of that phrase is “greater fool”. If mean reversion occurs, you could be holding this asset until you die, waiting on a favorable market to return. IF being the key word there. For all I know, there could be much more upside remaining or a plateau.
I hold positions, and have mostly chosen ones with favorable tax treatment, and I’m planning to downsize those positions soon. They’ve given me great returns, because I largely bought before the run-up, by luck. I don’t mess with physical much. If I ever need bullion, I’ll have problems gold can’t solve.
Treat my advice as if it’s coming from an idiot that dropped out of high school and carries a gun for a living.
My buddy just bought ~ $30K in mostly silver and a small amount of gold. He thinks it’s not taxable because it’s one form of currency for another. He didn’t pay sales tax (which of course is state level) when he bought it so he thinks he won’t be taxed should he cash in for a profit. I, being skeptical of .gov and it’s hunger for $$$, thought that sounded too good to be true and alas it is.
I also have concerns about the sell-off for profit, not just the tax side but the willingness of a dealer to buy a large amount of gold/silver back off of you. I suspected that, taxes aside, it wasn’t going to be as easy as just walking in and saying “Okay, I’m here to cash out for big bucks!” First and foremost, they are not obligated to buy it. Secondly, if you think you’re going to get current price without spot on every ounce you have then there’s a bridge to sell in Brooklyn. If prices of precious metals have risen and the economy isn’t spectacular a business isn’t going to readily buy your stuff at what you think the profit should be, spot price be damned. If they had an interest at all in a large amount, games would be played and your hypothetical projected $20K profit wouldn’t be anywhere near that would be my guess.
I’m no expert on precious metal investment, far from it. I hold a little. Some physical, but mostly “paper”. As a long term hedge against inflation/devaluation of the dollar it has some merit. I don’t think there is much advantage to trying to time the market, feel the same way about that as I do other investments. Especially silver, silver is volatile as hell.
Personally I wouldn’t recommend holding more than 5% of your assets in metals. I only have a little through a combination of happenstance and “what the hell” portfolio diversification.
I also believe your friend is in for a rude awakening about the tax issue, but like I said"not an expert".
I also hear what you are saying about the profit taking when you sell. It seems that commodities (including metals) always take a pretty good haircut.
My Dad used to run a side hustle collecting photographic chemicals and extracting the residual silver in the process.
Needless to say there was a bit of silver around. I know he sold his silver in New Mexico where some of it was being used by jewelry makers.
Knowing the old Man none of it was selling at “Market Price” and no one reported anything to the IRS.
I have never invested in it, I was always a bit hesitant to do so and now my days of investing are pretty much over, I’m on cruise control living off my investments now.
I don’t think I would do it because selling isn’t easy, Paying Taxes on it sounds like a pain and you have to haul the heavy stuff around.
Agreed. Good as a diversifier, rather than the main effort. Assuming one’s investment thesis favors diversification or hedges.
When I bought into gold-related investments, my expectations were underperformance and opportunity cost being likely, and slight outperformance as a possibility. An asset that sometimes (but not always!) skips across dips and drawdowns. I got lucky, probably due to catalysts I didn’t even think about at the time.
I agree that attempting to time the market usually results in sub-par outcomes. My belief that this time is a poor time to buy is based on historic underperformance and mean reversion, but I could just as easily be wrong. I’m eyeing selling down my positions simply because they’ve outgrown my desired allocations.
The following pics are just backwards-looking benchmark comparisons.
I’m a big fan of silver and gold. I’ve been buying and accumulating silver coins since 2008. Mostly American Eagles but also have some random Chinese Pandas, Aussie Kuccaberra, and Canada Maple Leafs. I may eventually move into gold and silver bars.
I buy most of my coins from either Provident Metals or Gainesville Coins:
Highly recommend both as fast shippers and easy to buy from. I’ve never sold back to them, so no idea how that works.
I have never sold any…I just stack them in the safe. I cannot understand how taxes play a part. I plan on simply passing all my coins on to heirs.
I also invest in silver and gold in my Schwab brokerage Roth IRA by buying the ETF’s that track the commodity, GLD and SLV. I also buy the silver and gold mining ETF’s and have done very well with them. I like the SPROTT ETFs.
If you look at how much of both silver and gold national banks are buying (China, India, US, etc.), you might come to the conclusion it’s not just a bubble.
Just stating what I’m doing…not trying to offer any advice.
I use metals and miner stocks and ETFs (including uranium and rare earth minerals) as a portion of my investments to diversify into a critical and growing sector of the economy.
I consider my physical silver/gold coins as an heirloom asset that will likely be passed on like a nice handgun or rifle or any other physical asset I can simply give to an heir.
The more I look into AI, robotics, and the evolution of our society, the more of these physical assets we will need.
Finally, in addition to these assets, AI data centers will be HUGE energy users, so look at oil/gas/nuclear energy to expand exponentially.
I also expect gold and silver to underperform the S&P 500 and NASDAQ 100, but I also think it’s still a critical piece of an overall strategy to build assets and wealth.
To a lot of People it is an investment, but to buy and sell leaves a heck of a paper trail and a tax liability.
To sell might mean you’ll have to travel to and from, One way with precious metals and possibly back with cash.
Depending on the size of your investment and Silver -vs- Gold you might need to adjust the size, i.e. Cut the bar.
I appreciate what your doing, but honestly I can get buy with some pre 64 Halves and Quarters and get most of what I need done.
I’m not investing so much as carrying a small amount in case of an emergency.
I agree that it’s really not conducive to trade the physical assets. And I’m not really into 90% or less silver hard coins. All my coins are 99.99% silver.
WRT the tax implications, I only invest and/or trade in my Roth IRA’s so zero tax consequences. Both my wife and I converted all our retirement accounts into ROTH beginning at 59.5 years and while we paid a lot of tax on the conversions, I’ve since made it back way over what I paid.
I do pay cash for coins, and store them in the safe. I don’t really see how Uncle Sam can tax me on them since I’ve bought periodically from different places, and I’ve never received any type of tax statement or form.
I do know if I were to sell coins (which I probably won’t), based on local places Ive been to, it’s a simple transaction and little records if any…
Can you please explain to me how the silver/gold is taxed? How do they determine the basis? Who actually keeps track? What if you are given a stack of silver eagles? How do you know what they cost? Timeframe held?
I’m not trying to argue…I genuinely don’t understand who’s keeping track and how the IRS would know…
I imagine it would come down to the vendor who was buying it from you. If he was Larry-Law-Abiding and kept records (like I’m sure he’s supposed to) then you’d know because he’d ask for ID. If he said “I’ll give you XXX for your metals” and pulled out a wad of cash you’re probably GTG.
I only know (ish) how it’s supposed to be taxed. Whether taxes on physical are well enforced, I don’t really know. A business that is compliant in its accounting would account for taxes in how much it’s willing to buy or sell for, though. So even if the tax is invisible to a guy that buys and sells a few coins or goldbacks with green folding money or BTC, he’s likely indirectly exposed to the tax drag via businesses building it into their pricing models. So, a dilated bid-ask spread and/or administrative fees. They’re not just eating it.
As a possible example, I just went to a popular site where one could buy a non-currency collectible 1oz gold coin. Random year, so unknown amortization of minting cost. They update prices every few minutes, so they are live and tracking spot. There was a countdown timer until the next price update. Price was 5.2% above spot, and when I added it to my cart it said no taxes or shippping. Neat. So, before the timer ran out, I made a quick anonymized virtual card under a pseudonym and proceeded through checkout. When I got to “review order”, the price was now 9.9% above spot, and the price countdown timer had not reached zero. The page still showed no tax or shipping cost. So, there is a hidden ~10% expense baked into this purchase.
The bid-ask spread on spot at this time was 0.04% and the price was descending as I checked.
I’m sure if I try to sell a gold coin, the opposite will occur.
Did some quick napkin math. Lets say you want to buy a physical gold object from me (a business) with a weight that gave it a $1000 value at the time I bought it, and that’s what I paid. I determine that 5.2% is what I need as a margin to cover my overhead and feed my kids. $52. Then I consider tax. Lets say I’m in a high-ish bracket, maybe because I’m killing it in the gold trade this year. 32%. Maybe at checkout, I mark the product up to 9.9% to cover the unit transaction. After taxes, I have a profit of ~$67, because I had a “profit” of $99. That leaves me $15 to cover shipping for this unit transaction. If I had a higher bracket, which is completely plausible, that $15 surplus will shrink, fast. And I still have to pay state taxes on my $99 transaction “profit”. And if the transaction is via credit card, I also owe $33 in transaction fees. At which point, I’m not making much…I need spot price growth to make money, and that, too will be taxed.
You get a gold doodad for $1099, and you’ll assume that the extra cost is because a face and date are stamped on it. Hopefully a cool latin slogan. But in reality, that doodad has changed hands x times since it had a face stamped in it….the premium to spot price is accounting for some other expense.
In other words, the jump in price in my last post’s checkout experiment is completely explainable by taxation being quietly passed on to the customer. It is not a coincidence that the premium over spot is in the same neighborhood as the tax burden on the business. But the target audience for purchasing gold doesn’t want to believe in the tax drag, because they are trying to gain exposure to a commodity or currency that they hope is invisible to the gov. So it is nominally listed as zero in a car trade-in style accounting sleight of hand.
This article discusses the weird-ass tax situation with collectibles:
Thanks. A lot of great info in this article. I guess I’ll have to come up with some way to figure out and record a basis for some of my older coins. I also thought the silver/gold ETF tax issue was quirky…
I wouldn’t worry too much about calculating a basis for your coins as an individual. I’m saying that I suspect taxes are priced into business to individual transactions, not that it is realistic for you to keep a ledger as an individual. How you declare your profit or what you declare your profit to be, is between you, God, and the tax man’s degree of interest in you.
Uncle Sam will pry his cut from the bid/ask spread anyway.
On taxation of ETFs, miner ETFs can get someone metals exposure with the tax treatment of stocks.
According to the article you linked, silver/gold tracking ETF’s are taxed as “collectibles”, not typical stocks.
“Buying and selling gold or silver, or gold and silver exchange-traded funds (ETFs) will be taxed as a collectible since gold and silver are considered collectibles.”
I don’t trade them in a taxable account so no idea how the brokerage house accounts for them but I assume they identify trades separately per IRS guidance.
Definitely a good reason to trade the “mining stocks or ETF’s“ versus the commodity tracking ETF. Miners typically have better returns as well…
