6 Things Gold & Silver Investors Should Focus On

There are no ‘goldbugs’ at; we’re rational people seeking to avoid losses on our hard-earned savings from the destruction of currencies by central bankers. Like us you probably have already figured out compelling reasons to own precious metals. (If you haven’t then check out our recommended list).

There are endless factors to consider when deciding what to buy. Like many important decisions the devil’s in the details. Nevertheless, successful physical gold and silver investing can be boiled down to a handful of key things to focus on.


(1) Know Thyself
Realistically assess your financial position. Beyond the basic strategy applicable to everyone, individual circumstances vary widely. Focus on figuring out what’s best for you and act accordingly. Your country of tax residence matters, a lot. You should at least consider the option of internationalising yourself.

(2) Forget Premiums
And sales taxes. These are simply the price of entry to obtain a tangible piece of wealth. Just don’t pay more than the averages and avoid numismatics. Buy with a laser beam focus on where and how you want to store and eventually sell your metals.


(3) It Depends On…
How much (or little) you pay for storage, and the associated security risks, depends on what items you bought, where you bought them, and where and when you want to sell them. A common dilemma is whether to opt for a safety deposit box or some form of bailment service. When investors compare both options they often favor using bailment for silver and safety deposit box for gold.

(4) Transportation
If you accumulate coins from you local dealer every month, hide them in empty beer cans in your basement, and plan to leave it all to your kids, you can forget about transportation issues. For everyone else it’s a hugely important consideration. The key issue here is whether you will ever need to internationally transport your metals. What if you emigrate, picked up some coins abroad, or decide to store some bars in a safe deposit box in Singapore, or Panama, or wherever?


(5) Exit Strategy
You have one right? It could be a specific price or ratio target. It could be attaining a certain amount of ounces and then slowly spending them down into retirement. Or enough to buy some real estate. Maybe you’re waiting for US 10-year Treasury yields to rise to 15% or something? In any case, without an exit strategy you are foolishly in love with the trade (i.e. a ‘goldbug’).

(6) Capital Gains tax
The biggest concern (by far) for investors upon disposal of precious metals are Capital Gains taxes (CGT). In addition, precious metal unfriendly countries will almost certainly introduce capital controls and windfall gain taxes on gold and silver when their debt crisis hits. The most effective way to legally avoid CGT is to internationalize yourself by changing tax residency to a low/zero CGT jurisdiction. US citizens cannot avoid the IRS so easily but they can re-locate to a precious metal friendly state.

Posted in capital gains tax, international transport, strategy Tagged with: , ,

Looming crisis for Comex spot gold price?

Many goldbugs believe a crisis is brewing at the Comex and eventually one or both of the following are inevitable:

(1) default on delivery of gold (Comex contracts are technically contracts for delivery though rarely exercised as such);
(2) the current spot price or nearest futures price stays higher than the next nearest future contract.

The evidence supporting these predictions is sketchy but the outcome would have far ranging effects. Before delving into the implication of this scenario let’s recap why Comex spot gold price is so important.

Bid/ask spread

Since 1975 futures contracts traded on the Comex in New York (NYMEX) have determined the international spot price of gold. By convention the bid/ask prices at bullion dealers all over the world are set around this price. The bid/ask spread creates a profitable band of premiums around spot for bullion dealers and other professional traders.

There are also taxes on both sides of the bid/ask spread. Investors must pay sales or value-added taxes (VAT) on the buy side and Capital Gains tax (CGT) or inheritance tax and, depending on the tax authority, other surcharges or ‘windfall’ wealth taxes on the sell side.

All of these costs to physical precious metal investors are based on the referenced spot price denominated in US dollars. The bottom line is there is huge dependence on a generally accepted US dollar price for gold.

Comex pricing IS becoming less relevant

The normal state of affairs for commodities such as wheat or oil is for their futures contracts to be in a state of ‘contango’. That is, the spot price or nearest futures price is less than the next nearby futures price. Contango is otherwise known as a positive basis. On the other hand when there is shortage of a commodity the opposite happens. The futures contracts go into ‘backwardation’ or negative basis*.

Comex gold futures contracts have gradually traded with smaller and smaller positive basis. And since gold prices peaked in September 2011 contango has decreased to the point that the gold futures market now goes into and out of backwardation. There’s much debate but very little agreement as to why this is happening.

Shrinking gold basis

The incredible shrinking gold contango (source:


The ever shrinking contango shown on the chart above is an indicator of growing demand for immediate delivery of gold relative to future delivery. Without a demand for futures contracts Comex pricing becomes irrelevant. Eventually there may be no futures market for gold. Persistent backwardation on the Comex could be triggered by a crisis such as failure to deliver gold (default).

No Comex price; what would happen?

Default and/or persistent backwardation on the Comex would have enormous implications. Persistent backwardation implies futures traders have high expectation that contracts will end up in “failure to deliver” or default. So, in the event of persistent backwardation the Comex dollar spot price of gold would face an existential crisis.

Alternative reference prices for gold-to-dollars do exist (Shanghai, new LBMA) and would fill the price discovery vacuum. Other pricing mechanisms would emerge in short order (crypto currencies, barter). But in any case dealers would be foolish to rely on Comex spot price to establish bid/ask premiums. And retail buyers would be equally foolish to accept them.

In the extreme case where no amount of US dollars purchases even 1oz of gold how would government assess taxes. For example, how could the IRS force someone to pay taxes in US dollars for something that has no price in US dollars?

Alas we suspect we know what the IRS would do. They would invent their own US dollar price of gold, wouldn’t they?

*Backwardation also defined as futures contract price being lower than the expected spot price at contract maturity

Posted in Comex, gold price

US capital gains tax

The US Internal Revenue Service (IRS) levies up to 28% tax on capital gains from precious metal investments. State and local taxes can increase this further to almost 40%.

Physical gold and silver in any form is considered the same as artwork, wine, and classic cars, that is, it’s a “collectible”. Hence the higher top rate of 28% rather than the normal top rate of 23.8%. (The normal top rate is made up of 20% plus an additional 3.8% to fund the Affordable Care Act).

The chart below from the Tax Foundation is based on the normal capital gains rates, but it gives a pretty good indication which US states are best for precious metal investors to pay their taxes in (hint: the greener the better).

Combined State & Federal normal Capital Gains rate (top bracket)

Combined State & Federal normal Capital Gains rate (top bracket)

(click to enlarge)

The bottom line is US residents pay probably the highest overall Capital Gains tax (CGT) rate on precious metal investments in the world. Moreover this situation is unlikely to get any better any time soon. For more details see US capital gains and liability.

No indexing

But wait, it gets worse.

In 1981 President Reagan introduced personal income tax indexing in the US and it’s still in effect today. This means tax brackets automatically move up in line with general inflation. So higher pay awarded to counteract inflation doesn’t mean workers fall into higher tax brackets – the brackets move up too.

Sadly capital gains enjoy no such protection. So during periods of high inflation people end up owing taxes on inflated gains, sometimes even if they have suffered real losses. Research by the Tax Foundation shows an awful lot of capital gains tax is owed on this illusory “gain”. For more details on this see Inflation – the biggest tax of all.

How to avoid CGT

US citizens have several options to legally minimize CGT on their precious metal investments. They can put precious metals into a self-directed IRA, re-locate to a lower tax state, or take their precious metals abroad and hold them “directly” as per FATCA rules. And finally, there is the nuclear option of obtaining a foreign passport and revoking US citizenship.

For most people the most realistic option(s) are the first two. With a self-directed IRA we recommend only keeping coins and storing them privately yourself. See here for more details.

Relocating to a different state is a very popular option. For example, a Massachusetts resident could escape that state’s 12% levy on gains on collectibles by selling her precious metals after she moves to Florida. Puerto Rico offers interesting tax incentives (namely Act 20 and Act 22) and is another option for US citizens seeking to legally avoid CGT.

For more on the benefits of moving your metals outside the US, a discussion of FATCA reporting rules, as well as obtaining a new citizenship see our section on strategies for US citizens

Posted in capital gains tax, inflation, US Tagged with: , , , , ,

Australia: taxation of gold and silver

Now that the two main drivers supporting the Australia economy have stumbled (property and mining) – and the Australian dollar taken a beating – there is renewed interest in precious metals Down Under. Australian gold investors are having a fantastic 2015 so far.

Gold price in Australian dollars

Gold price in Australian dollars


The taxation of gold and silver in Australia is similar to the US or UK: There is a buy-side tax (Goods and Services Tax), a sell-side tax (Capital Gains) and the metals can be included in a self-directed retirement scheme, called a Self-Management Super Fund (SMSF). In other words precious metals are de-monetized and treated just like shares, bonds, or real estate.

Like Canada, Australia falls into an ambiguous category of being neither precious metal friendly nor unfriendly. Despite the harsh tax treatment, gold and silver is mined in great quantities, retail premiums are low and ideals of free-markets and transparent government are deeply ingrained in the populace

Goods and Services tax (GST)

Gold bars or coins 0.995 or more fine and silver bars or coins 0.999 or more fine are deemed to be ‘investment grade’ and are exempt from GST. Since gold Sovereigns, Krugerrands and American Eagles (US 50 dollars) and pre-2013 Silver Britannia’s are not ‘investment grade’ they are subject to GST. Understandably these are not hugely popular coins with Australian investors. Notably any gold or silver coin with numismatic value is also not ‘investment grade’ and thus subject to GST regardless of fineness.

Australian tax payers can void GST entirely by buying privately from non GST-registered sellers, ie. the majority of infrequent or one-off traders. You can find these on eBay and Silver Stackers. Visitors to Australia (ie. non- tax residents) can get GST costs refunded as explained here.

Identification is required by bullion dealers for trades worth A$5,000 or more. Cash transactions greater than A$10,000 must be also reported. Check out our Premiums section for information on gold and silver premiums at Australian bullion dealers.

Capital Gains tax (CGT)

CGT rules in Australia are similar to those in US/UK/EU. Capital losses can be offset against capital gains, and net capital losses may be carried forward indefinitely. One key difference is a 50% discount on CGT if assets are held more than one year. There’s also a tax free threshold of nearly A$20,000.

By spreading net capital gains over several years, using the 50% discount and staying near the threshold Australian tax payers can avoid significant CGT upon disposal of physical precious metals. It’s also worth noting that collectables less than A$500 have no CGT. The Australian Taxation Office may deem your numismatic coin(s) as being collectible(s). Best check with a competent tax accountant.

Self-Managed Super Fund (SMSF)

We are suspicious of all tax shelters because of the uncertainty around who exactly has direct title and physical ownership of the metals. Please see What is a physical precious investment? for more about our views on this subject.

Australian SMSFs in this regard are no different from IRA (US) or SIPP (UK) schemes. Nevertheless, a SMSF does allow for physical gold and silver to be included. Two reputable companies worth further investigation are FirstGold and Guardian Gold.

Duties and import tax

There is no limit to the amount of monetary instruments you can travel with in or out of Australia. The issue is you must declare amounts over A$10,000. Depending on your visa your personal affects (owned for more than a year) can enter Australia free of duty and taxes. Your precious metals may or may be deemed personal affects and there’s a serious chance you must pay GST on precious metals brought in Australia. We highly recommend asking Australian Customs and Border Protection (ACBP) about your specific importation before arriving in Australia.

There is no Australian tax or duty on the import or export of so-called investment grade gold and silver items as per Australian Taxation Office (ATO) definitions. See Goods and Services tax (GST) above or check out GSTR2003/10. However, ACBP have been known to slap the GST on imports of precious metals with a tax-now-refund-later approach. In some cases, the items have been seized before an assessment is made.

If your items meet the ATO definition of investment grade, and thus exempt from GST, we suggest you bring along a copy of GSTR2003/10 to show to the ACBP officer. Alternatively you can obtain in advance something called a “private binding ruling” for your importation directly from the ATO. This is a legal document that ACBP must abide by.

See our section on Internationally transporting precious metals for more details about travelling with precious metals generally.

Posted in Australia, capital gains tax, GST Tagged with: , ,

Internationally transporting your gold and silver

Maybe you have re-located and changed your country of tax residency, or maybe you picked up some coins abroad, or perhaps you decided to store some coins in a safe deposit box in Singapore, or Panama, or wherever.

Whatever the reason, now you need to transport your precious metals across an international border. What are your options?

We’ve created this handy infographic to neatly summarise the key points. For the more finer details go to Transporting metals internationally – yes the devil’s in the details when it comes to customs rules and border checks.

(click to enlarge)

Or download the pdf version.

Posted in customs duty, import tax, international shipping, international transport Tagged with: , , ,

How to avoid VAT on silver coins

Precious metal investors within the European Union (EU) may pay a value-added tax (VAT) on silver bar and coin purchases. However there is little uniformity in VAT rates or how this tax is applied. Confusing things further is the existence of trade agreements with non-EU countries (e.g. Norway, Switzerland) and non-fiscal territories inside the EU itself (e.g. Channel Islands).

All this noise creates straightforward and perfectly legal ways to avoid VAT.

The table below shows VAT rates in selected EU and European Free Trade Association (EFTA) countries. Switzerland has a separate trade agreement with the EU. You can see why some EU residents are understandably keen to avoid VAT rates of 20% or more on their silver coin purchases.

Value-added tax (VAT) rates on silver coins

Value-added tax (VAT) rates on silver coins


We deliberately omitted two high-VAT countries the Netherlands (21%) and Germany (19%) from the table. That’s because these countries apply a very favourable method of calculating VAT on certain silver coins. This is called a margin or differential VAT scheme, and we discuss it below.

In our section Minimizing buy taxes we present several ways to avoid sales and value-added taxes. In this blogpost we focus on two approaches specifically for EU residents; originating country delivery and the margin or differential schemes.

For the charts below we checked the market-close price at eight different online dealers for orders of one hundred 1oz silver coins; UK Britannia, Austrian Philharmoniker, Canadian Maple Leaf, and US Eagle. Silver was €15.15/oz and we used mid-day exchange rates to convert to euros. Payment assumed by cash or bank transfer


Delivery within originating country

Some dealers, notably Estonian, use an EU guideline that says if goods are sold and delivered locally then local VAT applies even if the goods are forwarded on later. This gets around EU rules which say destination country VAT is applicable for distance selling.

We compared what it would cost to have one hundred 1oz silver coins delivered to a UK address by dealers in the UK, Germany, and Estonia. The UK and German dealers applied VAT as required. The Estonia dealers charge Estonian VAT (0%) as they deliver to a local courier who then forwards the metals to a UK address.

(click to enlarge)(click to enlarge)

You can see that for UK buyers for most types of coins the Estonia option was cheapest. The 1oz Canadian Maple Leaf was €19.16 each (comprised €15.15 spot plus €3.31 premium and €0.70 shipping). Interestingly, 1oz Britannia’s worked out cheapest from Germany at €20.55 each even though the dealer applied VAT. The UK is known for it’s high VAT rate and high premiums on silver, sadly this was confirmed here.

Check out this Estonia dealer for more details about the delivered-in-Estonia approach.

Margin or differential VAT schemes

Next we looked at travelling and picking up the coins in person. This not only bypasses distance selling tax rules it also allows you to avail of the favourable German and Dutch approach to VAT.

In Germany and the Netherlands the 19% and 21% VAT rates respectively on silver coins is applied to the dealers profit margin. The Germans call it ‘differential taxation’ and it’s for non-EU coins only. This makes retail level VAT essentially zero. In the chart below we also include Norway. We found one dealer in Bergen, Norway who takes foreign orders and allows for local pick up. Norway has zero VAT on silver coins.

(click to enlarge)

You can see that for UK buyers wanting to avoid VAT – and willing to do some legwork – Estonia with its 0% VAT on silver still remains overall the cheapest option. Although for the Maple Leaf and Eagle coins German dealers were competitive. In Estonia Maple Leafs could be had for €18.46 each. The Norway dealer wasn’t bad either; €19.01 per coin.

The dealers surveyed in these comparison tests are listed here.

The bottom line

EU residents can easily avoid VAT on silver coins, and save money overall, by ordering from dealers in Germany, Estonia and Norway.

Other conclusions:

  • For UK buyers silver Britannia coins are exempt from UK Capital Gains tax (CGT). Don’t underestimate this benefit. Over-paying slightly for these coins upfront seems like a sound strategy to us;
  • We noticed dealers are wise to any tax advantages and adjust their premiums accordingly;
  • In Germany, the VAT margin scheme applies to non-EU silver coins only. So the 1oz Canadian Maple Leafs and US Eagles looked attractively priced, but not the Philharmoniker or Britannia coins.

Finally, there shouldn’t be any issue bringing back to another EU/EFTA country 100 or so silver coins bought on a visit to Tallinn, Oslo, or Amsterdam etc. Check out our Transporting metals internationally for details.

In the interests of brevity we’ve omitted some other details, otherwise this would be a far longer blogpost! So feel free to ask questions or make a comment below.

Posted in Estonia, EU, silver coins, UK, VAT Tagged with: , , , , ,

Inflation – the biggest tax of all

It’s pretty obvious that printing money destroys its purchasing power. If the currency you use as money is being debased, a unit of it buys less and less stuff over time. What previously cost 1,000 now costs 100,000 etc. So you must spend more just to stand still.

Since the early 70s when money printing started people have coped using two strategies:

  • Earn higher amounts of currency from wages, rents, or dividends etc;
  • Put savings in non-currency assets such as real estate, equities, and precious metals.

Up until recently these two strategies worked. Or at least worked well enough for most people. For many years the majority of us have seen our salaries, house values, and investments rise offsetting the underlying effect of money printing.

Until the so-called Great Recession of 2007-2008 that is.


Wealth inequality has been growing in the US since the early 80s. But the middle class resoundingly lost the struggle against money printing circa 2007-2008. The trillions in fresh new money created by the US Federal Reserve went first to those closest to the spigot, as well as to those fortunate enough to already own real estate, equities, precious metals and other tangible assets. These segments of society, the 90th and 95th percentile of households in the chart above, literally scooped up purchasing power by getting their hands on the new money first.

Inflating the quantity of currency has always been a tax on the ordinary person. Joe Six Pack is last in line to get the new money well after it has already caused prices to rise. Occasionally the poverty created by this ‘inflation tax’ causes revolution. But it usually ends with the currency hyperinflating to zero purchasing power, then politicians have a big meeting and something else emerges as the new currency.

But I’ve Hedged with Gold!

Great, but not so fast Tonto. You’ll have to pay Capital Gains tax (CGT) on your gold and this is where the inflation tax really starts to bite.

You see, tax rates and tax bands never adjust to align with the loss of purchasing power of the currency. The government doesn’t accept the new reality that 100,000 now buys what 1,000 used to buy.

Let’s say the Lone Ranger buys one 1oz gold coin for 1,000 currency units. Tonto his friend doesn’t. Instead he keeps the 1,000 in the bank. Then the Wild West Central Bank inflates and now it takes 100,000 currency units to buy 1oz of gold and 1,000 buys only 1/100th what it did before. The table below shows the Lone Ranger, despite being hedged in gold, has only preserved 50% of his original purchasing power (lost 50% to CGT).

Wild West Central Bank

Wild West inflation with 50% CGT


OK you say, well preserving 50% is better than Tonto, who’s lost basically everything in the inflation. But what if a 90% “windfall tax” on gold investors is introduced in response to the economic crisis brought about by the government’s collapsing currency (this is exactly what James Rickards suggests in his book Currency Wars).

Wild West inflation with 90% CGT

Wild West inflation with 90% CGT


So although being hedged, the government ignores the loss of purchasing power and taxes most of the ‘gains’ you made trying to protect yourself. The key takeaway point here is the importance of avoiding, within the bounds of the law, as much Capital Gains tax as possible.

Fortunately, there are ways to legally avoid much if not all Capital Gains taxes. A good starting place to find out more is our section on Minimizing capital gains tax.

Posted in capital gains tax, currency printing, inflation Tagged with: , , ,

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