September 30, 2010

Five hidden costs of gold

There’s a lot of talk right now about how gold is booming, and how gold bugs who have been stashing bullion under their mattresses over the last decade or so have made a killing.

That may be true if you look at the price of the yellow stuff per ounce. The price of an ounce of gold is up about 30% in the last year, or over 400% in the last 10 years. How does that relate to actual returns for investors?

Higher Taxes

The affinity for gold investing and a dislike of the government seem to go hand in hand, from predictions that massive government debt will render the dollar worthless to conspiracy theories that there will be another Executive Order 6102 in which Uncle Sam loots your safe deposit box and seizes your gold.

But the biggest reason for gold investors to get mad at the feds is their tax bracket. The IRS taxes precious metal investments — including gold ETFs like the SPDR Gold Trust and iShares Silver Trust — as collectibles. That means a long-term capital gains tax of 28% compared with 15% for equities (20% if and when the Bush tax cuts expire next year).

While you may see your gold as a bunker investment, the IRS will treat you the same as if you were hoarding Hummel figurines. And that means a bigger portion of your gold profits go to the tax man.

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