[Last updated February 2014]
The flow diagram below outlines the basic ’round-trip’ strategy for buying, storing and eventually disposing of your physical precious metal investments. None of this is rocket science; minimize expenses and maximize return.
Minimizing buy-side taxes is covered here and minimizing Capital Gains tax here. And for a discussion on finding the lowest premiums see here. Our sections on Internationalizing and Storage cover these important issues as well.
In this section we focus on how to position yourself ahead of time for what we consider are the two biggest strategic threats in the future:
- Capital controls;
- Higher taxes.
In our view, in countries with highly indebted and deficit-prone governments the taxation of precious metals is going to go much higher. As well your ability to buy, move or sell will be curtailed. What’s inevitable may not be imminent. Nevertheless, we reckon it is simply a matter of time before we see much higher Capital Gains tax (CGT) and inheritance taxes, as well as imposition of domestic and international capital controls, and various special levies on precious metals in these countries.
We expect these problems for physical precious metal investors will be particularly acute in the US and UK, but also within the eurozone and in other heavily indebted countries.
Basic Strategy – Physical coin and bullion investments
In this section
There is no single ‘round trip’ strategy encompassing what to buy, where to store and how to eventually sell physical precious metals that will suit all investors at all times. Individual circumstances are simply too variable.
Whatever strategy you employ we believe it must account for the looming debt crises in many countries, the consequences of which (taxes, controls) we believe will be especially harsh for physical precious metal investors. Ergo, we hereby offer the following bits of generalist advice suitable for everyone:
Focus on 1oz bullion gold coins. We’ve never met a physical precious metal investor, whether a millionaire or of more modest means, who didn’t have these. If you can find good premiums on fractional ounce gold bullion coins buy these too. And if you’re a UK tax resident gold Sovereigns are also a good idea. Build the rest of your portfolio around this.
Vary your storage among at least three different storage types and locations. This could mean some home storage plus two safe deposit boxes in two different countries. Or it could mean using an online bailment account registered in your home country, plus a full service bailment service storing ounces in a foreign vault, plus some midnight gardening. Or any other combination so long as it’s at least three distinct unrelated storages.
Break your portfolio up into “sell slowly” and “sell quickly” components. Nobody knows what the future will look like. You may want to barter some silver coins at the weekly farmers market (spend it slowly). You may want to sell your 100oz of gold held in bailment all at once and put the proceeds into a bank account to close a real estate deal (invest it quickly). Make sure you can do both.
Finally, Internationalize. Probably the biggest single threat to your physical precious metal investment strategy is reckless governments. Dilute that threat by internationalizing yourself.
Internationalize while you can
What follows here is a matter of debate and opinions vary. And we stress these are our opinions, and nothing more than that. Nevertheless, we do not see much downside in implementing a strategy of internationalizing oneself, at least in a financial sense.
The benefits from internationally diversifying away from highly indebted and deficit-prone governments cannot be overstated. At present international diversification is quite straightforward, even for US citizens. See our section on Internationalizing for more details.
So, why should citizens and tax residents of highly indebted nations internationalize? Our reasons can be summed up as follows:
- When (not if) these governments face a funding crisis expect strict capital and currency controls. It’s unlikely you will be allowed to take large quantities of precious metals or cash currency abroad;
- Highly indebted governments are almost certain to tax precious metals at very high levels, perhaps even at levels equivalent to confiscation;
- Changing tax residency may not be as easy as it is now. Governments with a funding problem will need to tax you as much as they can;
- With the exception of US citizens owners of physical precious metals can avail of low/zero Capital Gains taxes in many countries around the world;
- Precious metal friendly countries make ownership, storage and transportation easy. These same countries tend to have fiscally responsible governments, citizens with high savings rates, and/or impose little or no taxation on gold and silver;
- It will be easier to convert your precious metals into income producing assets, such as a business or real estate, or even into a local currency deposit account.
Precious metal friendly or not?
Beyond the first few entries the following table is somewhat less than scientific – not to mention incomplete. In our opinion, the UK and US are the most precious metal unfriendly countries due (primarily) to extreme levels of government and citizen indebtedness plus low savings rates. Both also have highly organised and high-control governments. On the other hand Switzerland and Singapore are the most friendly due in part to manageable debts and high savings rates. There are other considerations as well. See our section on comparing precious metal friendly versus un-friendly countries here.
The countries further down the list could be friendly just as easily by coincidence as by design. Argentina’s government policies have been erratic, but Argentines distrust politicians and have a strong affinity for gold and silver. We’ve left the rest of South America off the list, but most countries there would qualify as precious metal friendly. Estonia and Norway are relatively precious metal friendly now but being part of a broader monetary and political union may mean changes in the future. We note the low (or zero) Capital Gains tax (CGT) countries of Central America such as Costa Rica and Panama may be of interest to some readers for alternate reasons such as location and lifestyle.
|Precious metal friendly countries||Precious metal un-friendly countries|
|Switzerland||United States (US)|
|Singapore||United Kingdom (UK)|
UK residents and US citizens
As we stated above, in our view many reckless governments face an inevitable and unavoidable sovereign debt / funding crisis. How this plays out is anyone’s guess. Our list above of “precious metal unfriendly” countries is essentially a compilation of these risky governments.
Furthermore, we believe the two most precious metal unfriendly governments of all are those of the United Kingdom and the United States. Therefore a more detailed discussion of strategies for those subject to taxation in those countries is warranted. For a discussion of strategies tailored for UK residents see here. For US citizens see here.