Five fiscally sensible ways to invest in gold


When stock prices begin to plummet, such as in late September, individuals often turn to alternative investments, such as gold and other precious metals. Traditionally, gold has been viewed as a viable “hedge” of stocks, but it comes with its own risks. The gold market in particular can be even more volatile than the stock market, so these types of investments are certainly not for the faint of heart.

However, if you’re still attracted to the glitter of gold, consider the different ways of investing and the tax implications. Here are five possibilities.

1. Physical Gold: If you really want to touch your gold – and maybe even bury your treasure in a “secret place” – you can buy gold bars or bullion. However, this usually incurs costs such as brokerage commissions, insurance, and storage fees. If you sell gold bars, you may have to pay a testing fee as part of the deal.

2. Gold Certificates: If you expect to buy gold regularly, gold certificates can be easier and more expensive than acquiring physical gold. Although you will still have to pay a storage fee for the gold, you will not incur an inspection fee when you sell certificates.

3. Gold ETFs: Essentially, a gold exchanged-traded-traded fund (ETF) functions as a mutual fund, generally tracking an index or reflecting fluctuating gold prices. You can buy and sell shares of gold ETFs through brokers. This offers more liquidity than some other methods.

4. Gold Mining Stocks and Funds: Gold mining stocks are traded on the stock market, so they are subject to the same risks as other equity investments. But mutual funds in gold are generally not as volatile as individual stocks. You can buy stocks just like any other mutual fund.

5. Gold Coins: This option may be more attractive to collectors. For example, several countries issue special coins, including the American Eagle and the Canadian Maple Leaf, for the collectibles market. In general, the charges are the spot market for gold, in addition to a small commission and coin charges.

Note that you generally cannot include collectibles such as gold coins and IRA, but there is a special exception for American Eagle and Canadian Maple Leaf coins.

What are the tax perspectives? There is no current income tax due on an investment in gold while you own it. Instead, you realize a profit or loss when you sell your physical gold or stocks. In general, shares of gold-based assets such as gold mining stocks and mutual funds are taxed at a maximum tax rate of 20% (15% for certain middle-income investors), as with most other capital goods.

However, gold collectibles (eg coins) are taxed at a rate of up to 28%. Keep this important distinction in mind.

Briefly: Make sure you understand all investment and tax implications before investing. Trust your professional advisors for guidance.

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