In this section
What is a physical precious metal investment?
Let’s address this right off the bat. At PRECIOUSMETALTAX.com we define physical precious metals investments as coin or bullion gold and silver items:
- in your immediate possession or reasonably deliverable possession;
- in storage services where title to your metal never transfers to a custodian or trustee.
This means an electronic traded fund/product (ETF/P) or a brokers certificate is not in – our opinion – a physical precious metal investment. Jewellery unless it is simple of form and 20 carat or better is not. Neither is a metal deposit account at a bank. When you deposit precious metals into such an account title transfers to the bank and it becomes a deposit liability on the banks balance sheet. Force majeure can relieve the bank of their obligation to return this metal to you. Similarly, any “pooled account” or “unallocated account” does not count since direct title transfers away from you.
The key factors here are legal title and immediate or reasonably deliverable possession. If you don’t have both it is simply not a physical precious metal investment in our view. What you have is a legal claim on precious metal from a counter-party. This doesn’t mean it’s necessarily a bad thing, it’s just not what this website is all about.
If you think we’re being a bit fussy, or perhaps paranoid, we suggest you talk to someone who had their precious metals deposited at MF Global when they went bust.
Information you’ll find on this website…
Minimize taxes & premiums
Gold coins and bullion items (bars, rounds and ingots) are generally purchased free of sales tax or value-added tax (VAT). Exceptions are sales taxes in some USA states and in Canada and Australia where items below a certain percentage gold content attract sales tax.
Silver is another story. Many countries levy a substantial VAT on silver purchases.
The real concern for investors arises upon disposal of precious metals. Capital Gains taxes (CGT) are a killer. We cover everything you need to know about taxes here.
In certain countries, specific gold and silver coins are legal tender and thus do not attract CGT upon disposal. This is an important point covered in our Strategies section. It may be worth paying the buy-side taxes and extra premiums to have these in your portfolio.
Buying items with the absolute lowest premium is not always the best strategy. Smaller or lower content gold coins have larger premiums but are more portable and easier to use for small transactions. And the chances of loss or theft are reduced by having your total gold and silver ounces divided across different sized pieces.
For silver, premiums vary hugely. A large 1,000oz bar can have a very low premium but later on you may not wish to dispose of 1,000oz all at once. On the other hand, a thousand 1oz silver coins will cost more in premiums but will be far more liquid.
Did you know that a 1679 Two Guinea gold coin sold for $42,000 at auction recently.
Do you care? Well as a physical precious metals investor you shouldn’t.
Unless you are a professional trader or an expert hobbyist we suggest avoiding collectible coins (numismatics). Profits can be made from buying the right coin at the right time at the right auction but this is a different proposition than investing in coins solely for their gold and silver content.
You may be fortunate enough to be tax resident in a country with laws favourable to physical gold and silver investment. Singapore for example is an excellent place to buy, store and sell precious metals. Within the eurozone Germany is quite friendly towards precious metals investing.
Nevertheless, laws can change and it’s prudent to have a strategy to internationalize your financial self. Many ‘goldbugs’ warn of a repeat of Roosevelt’s 1933 confiscation of gold in the USA. We think a far more likely scenario is higher Capital Gains taxes (CGT), changes to international treaties, special levies, and tighter control of international capital flows. It is already a requirement when travelling to/from the European Union to report to customs any quantities of precious metals that exceed EUR10,000.
Owning foreign real estate, having dual citizenship, storing metals globally, and changing tax residency are all important factors for the savvy investor to legally re-arrange their tax obligations. We cover these issues in greater detail here.
Allocated metals held locally and internationally in bailment services or more directly stored in privately run vaults is covered here. Many precious metal investors adopt a diversified strategy to storage sometimes including a spot of so-called ‘midnight gardening’ (discreetly burying). Clearly a few coins close at hand is a fine idea, but we suggest employing a range of storage approaches as a sound strategy.
Because of silvers smaller value-to-weight ratio it poses a greater storage problem than gold. Bailment storage services will often have very low premiums to buy silver, but these services come with their own special considerations.
Due to the unsustainable debt situation of many governments we believe taxation of precious metals will inevitably head much higher. In addition your ability to buy, move or sell or perhaps take possession of your metals will be diminished. Your ability to retain the most after-tax equity from your metals at time of sale will depend largely on what government you pay tax to.
We believe it is simply a matter of time before we see much higher Capital Gains tax (CGT) and special levies, as well as imposition of domestic and international capital controls, and other barriers between you and your metals. In our Strategies section we outline ways to get ahead of the curve.
We expect problems for physical precious metal investors to be focused in the heavily indebted (mostly) Western countries but the problems will be particularly acute in the US and UK. Therefore we discuss specific strategies for UK residents and US citizens.