Precious metals

[thrifty++]

Trying to find out a bit more about precious metals investing generally

In the midst of this global situation I am thinking of putting a small sum into precious metals as a back drop safety net. I don't even care about making any money off it. That's what my equities are for. Its just a safety storage device. But at the same time I don't want to lose a shit load of money.

Looking online is totally confusing. Trying to get information. Hopefully from experienced investors.

Coins or bullion? Pros and cons?

Coins. Does it matter what govt is stamped on them and why/ why not? If it does mater what govt stamps are ok?

Where to buy?

Where to sell?

What are typical transaction costs?

A thought in my head is if I go to sell a piece of gold or silver will I get screwed over by some commercial trader? How do you sell? Seems much more difficult than stocks. The seller status is irrelevant more or less for stocks. How do you minimise risk of getting screwed over on transactions? Do you sell at some physical location or through an online platform like stocks?

Any ins and outs/issues or opportunities to be aware of

[Gilberto de Piento]

Transactions:

You pull into the strip mall parking lot in your mint condition diesel F250. The "Don't tread on me" and "United States Marines" decals, combined with your open carried sidearm lets your counterparty know you mean business. The modded ar15 behind the seat in your truck doesn't need to be out in the open, everyone involved knows it's there.

Your cowboy hat keeps the early morning Texas sun out of your eyes as you scan the roof of the Chik Fil A for snipers. You inspect the coins and then the other old veteran counts the hundreds you handed him. The exchange is completed with a nod and a grunt from both parties and everyone shuffles backwards to their truck. You go home and put the silver in one of your basement gun safes. The seller drinks decaf coffee at McDonald's and scrolls Armslist with the cash burning a hole in his pocket.

(No offense to anyone, just having fun thinking about some old guys I've known)

[jacob]

Forget about bars (they're more easily faked). Coins are stamped to ensure authenticity. Collectible coins even come in an untamperable plastic sheath (see PCGS). Collectibles are a different market. One reason to own collectibles is that they may not be confiscable (is that a word?) unlike bullion.

Add: There are also commemorative coins. Unless some event has personal meaning to you (e.g the Queen's birthday), stay away from those.

Think of coins as buying a car. Some cars are more popular than others depending on which country they're from/you're in. Usually the common ones are 1oz Krugerrands (SA made more coins than anyone else) and 1oz whatever YourCountry came up with. For example, in the US, it's krugerrands and double eagles. Some coins have other metals mixed in with the gold to make them more durable (that's not a no-no... they still trade on the gold content, they're just a bit heavier). Others make a virtue of being 100% gold... but then may show bite marks

There's a bid and an ask and therefore a spread (ask-bid). That will tell you the transaction costs. It's about as big as buying/selling real estate. Some coins have higher spreads than others. Krugerrands will have one of the lowest spreads. Different dealers will have different spreads. The spreads are essentially how they make money.

You can buy from a dealer (recommended for gold virgins) and they'll tell you what they are upfront. You won't be haggling. You can buy in person (I'd stay away from pawnshops) or online and have it sent by [very] certified mail. Figure out who the big/reputable dealers are in YourCountry(*). They have no interest in screwing you over. Like cars or houses, you can also trade privately at your own risk... so many different risks to contemplate here.

(*) Buying internationally could trigger all kinds of weird customs/financial/export laws so I wouldn't do that.

There will be tax consequences. And storage consequences. Think about what you're going to do with your treasure when you move. How are you going to transport it? Where are you going to store it? Many banks don't insure their safety/security boxes, so if they get robbed or the bank burns down, the customers are SOL. Think about the hassle involved in selling. So yeah, it's a physical asset, just like a house, or a boat anchor.

If you just want to speculate, buy an ETF. If you absolutely "need" physical gold, you're more of an "international man of mystery" than I am.

Personally, I don't see gold coins as having much value in a TSHTF scenario. The values are too big unless you buy big stuff. "A coin for a gun?" Smaller coins are not that popular. Much better in my opinion would be cash of a major currency (USD). If you want walk-around-gold to trade for groceries, I suggest a gold chain around your neck instead where links can be taken off or added or even wearing multiple thinner chains. It's a cool look!

[basuragomi]

@Gilberto: Thanks for the laugh!

If you don't care about physically touching chunks of metal, you can buy physical gold/silver/U3O8 ETFs. SPDR is the oldest and biggest one, last time I checked.

If you do care about having it physically in your proximity, also get some good bondage tape in case you need to tape gold bars to your thigh to bribe the traffickers.

[Scott 2]

In the US, there are transaction reporting requirements. If attempting to hold physical anonymously, they need to be considered in both your buy and sell strategy.

Buying into metals now seems too late though? Demand had surged when I last looked. Thought it'd be fun to pickup a couple bullion coins just to have and play with.

[giskard]

Buying into metals now seems too late though? Demand had surged when I last looked. Thought it'd be fun to pickup a couple bullion coins just to have and play with.

Looking at JM Bullion, the premium over spot price is insane. The more I think about it, in a real SHTF scenario I think guns and ammo are more useful.

In a currency collapse / hyper inflation situation I would think that shares in ETFs and gold miners should be fine. And Bitcoin is much easier to work with than physical metals.

But, I see nothing wrong with buying a little bullion just for fun.

[Cheepnis]

I've been thinking about buying a small stake in a gold etf for some small inflation hedge. However I'm reluctant because the 1099 transactions seem like they'd be a pain come tax time and my taxes are currently very simple, which I like.

Also, due to the high tax rate on collectibles it seems like buying gold is a long-horizon move. I've been wondering what a draw-down strategy looks like for someone rocking the PP or Golden Butterfly. The PP has piqued my interest as of late* but holding that much gold does not seem to adhere to the low expenses/low taxes rule of thumb of the only investment strategy I'd claim to have any understanding of. 'm putting the cart before the horse because if I were to buy any gold now I wouldn't have any plans for it other than holding it for decades.

*gee who woulda thought

[classical_Liberal]

I've been wondering what a draw-down strategy looks like for someone rocking the PP or Golden Butterfly.

From a US standpoint, It takes some planning. You hold as much gold in tax advantaged accounts as possible. This way you can sell to rebalance tax free, while drawing down the other asset classes you own post tax. Withdrawals from the tax advantage account are taxed as ordinary income no matter what you liquidated, so the taxes directly due to gold gains are no different than others. Roth is similar in that you never pay the gains after the correct age.

[jacob]

I've been thinking about buying a small stake in a gold etf for some small inflation hedge. However I'm reluctant because the 1099 transactions seem like they'd be a pain come tax time and my taxes are currently very simple, which I like.

Therefore gold ETFs belong in IRAs which eliminates that problem. If it's outside a tax-deferred account, whether physical bullion or ETFs it's taxed as a collectible at a flat 28%.

[slsdly]

I did not realize in the USA that gold was taxed differently. In Canada, it is a normal capital gain or loss with all of the associated rules. Currently that is 50% of your marginal rate. Might want to check how New Zealand treats it. I have my ETF holdings split between my taxable and RRSP accounts.

[Cheepnis]

@c_L and @Jacob, thanks for the information. It's pretty easy to run out of room in those IRAs!

I had been doing a little research into collectible tax rates and even the IRS website didn't give a definitively clear explanation on what "maximum 28% tax rate" meant. Finding this 3 year old thread (viewtopic.php?t=9162) settled it for me, though the information there is opposite what Jacob just laid out. Did that change with the Tax Cuts and Jobs Act?

[jacob]

I could be wrong here. I've kept gold in tax deferred accounts so I didn't have to worry about those details.

[thrifty++]

I did not realize in the USA that gold was taxed differently. In Canada, it is a normal capital gain or loss with all of the associated rules. Currently that is 50% of your marginal rate. Might want to check how New Zealand treats it. I have my ETF holdings split between my taxable and RRSP accounts.

NZ has no capital gains tax. It does have an interesting tax rule though: the "intention test". If you buy something with the primary intention of reselling it.

So its possible any gain on later sale could be subject to income tax, rather than capital gains tax. Income being what you made off of it. Although I think its grey as I am not sure my intention would be to sell it. It would be to retain it indefinitely as a store of value until such time as I ever need it in a SHTF scenario (which may or may not happen).

[classical_Liberal]

Did that change with the Tax Cuts and Jobs Act?

I haven't personally sold any gold post tax, but I don't think it's changed. Gains would be taxed as ordinary income up to 28%. Still, 0% cap gains (in lower income brackets) is better than ordinary income. It all depends on your specific situation though. Holding the gold in tax shelter accounts during accumulation is more to make rebalance moves as needed. I'd hate to have to pay ordinary income taxes on gold gains if I was in a higher tax bracket, It makes it not worthwhile to adjust your AA in significant market movements like the recent COVID month of hell, when new savings can't keep up with the movements.

It's pretty easy to run out of room in those IRAs!

Yeah, particularly if you can't use company 401K space for things like gold (due to plan limitations) and can't roll it to an IRA while still employed (most plans). It's almost worth it to switch employers occasionally for this reason alone! My rules have been to use the extra IRA space for gold and REIT's only...it does start to add up over time.

Edit not directly related to gold: Since I am who I am, I would feel remiss if I didn't point out all the tax advantages semi-ERE gives. Any year a semi-ERE'er has enough earned income, they can max out a roth. Then, you'll never pay taxes on the gains from those funds, no matter future tax brackets. You can always withdraw the principal from the prior years contribution to live off if you want to even it out. Let any gains pile up, neat little trick.

[Tyler9000]

I've been thinking about buying a small stake in a gold etf for some small inflation hedge. However I'm reluctant because the 1099 transactions seem like they'd be a pain come tax time and my taxes are currently very simple, which I like.

Every brokerage may be different, but Fidelity automatically tracks all of those little transactions and reports the proceeds to Turbotax just like any other sale. So depending on your setup it may not be any extra effort.

Therefore gold ETFs belong in IRAs which eliminates that problem. If it's outside a tax-deferred account, whether physical bullion or ETFs it's taxed as a collectible at a flat 28%.

That's a common misconception. Although to be fair, there's a ton of misleading info out there (even from tax professionals) so I get why it's confusing. Collectibles are taxed as ordinary income with a cap of 28%. So depending on your income, gold proceeds are taxed anywhere between 10% and 28%. And that's assuming you haven't used tax loss harvesting to offset the capital gains altogether.

Here's a relatively clear explanation: http://www.atm-cpa.com/article_10-14_b.htm

[bryan]

I've always figured I would use any physical precious metals as raw materials for smithing, crafting. I haven't looked into what the tax implications of one day selling those goods would be..

[Mister Imperceptible]

You are going to pay a high premium now for physical that reflects supply and demand. The only major selling in the precious metals markets is forced selling in the futures markets on broad market sell offs- every dip is heavily bought. The last time premiums went this high was 2008. In the next three years, premiums on physical did not come down to reflect the lower paper prices, but rather paper prices advanced to reflect physical reality.

You can get better prices from coin dealers sitting behind the “Closed” signs on their non-essential shops compared to online dealers, but it might help if you already know them.

I would hate to be having to establish a position in physical at this time. 1 ounce gold coins are going for 10% premiums around 1850-1900 USD and silver is at 60-80% premiums. Physical gold was reliably had for 2% over spot the last few years. In February I bought junk silver at 18 USD an ounce for 2% under spot. Now at 15 spot they are asking for 24 USD an ounce. At these premiums, the miners present a much better risk/reward profile, although they are susceptible to broad market sell offs and counterparty risk.

The gold-silver ratio is 113 if you are using the paper prices. It is below 80 using the street price.

Long GDXJ, SIL, SILJ, SGDM, SGDJ, and a lot of miners via participation in actively managed funds.

[nomadscientist]

Here is a warning: holding SPDR GLD in taxable creates annoying junk reporting requirements for US federal taxes (and state taxes sometime). I sort of enjoyed writing a python script to produce the necessary report but if I fairly value my time it wiped out all my gains on the investment.

On the other hand, the legal structure that results in this treatment (grantor trust) means that you actually own the gold. As in, if the trust goes bankrupt you are the #1 creditor and have an actual bit of gold with your actual name on it that will ultimately be sent to you in the mail. It's much safer than some synthetic ETF that may not even own any gold at all and arguably safer than having the gold under your bed*.

* The vault is located in London and maybe you believe that in some very extreme situation the British state will totally bilk you but experience gives reason for hope.

[giskard]

I figured I would come back to add to this thread a little bit since I've been doing a lot of research and investing in this space. I too have reservations about investing the gold tracking ETFs for numerous reasons. And also, physical is difficult to acquire now, so I've turned my attention to the miners.

Over the last year I had been anticipating a recession so I started to nibble at the gold miners, going into this I had about 10% of my portfolio in GDX, GDXJ, and various individual mining stocks. Basically only buying the large miners, nothing very speculative (Newmont, Barrick, stuff like that).

Since the March turbulence I've increased the allocation of my portfolio to about 20% in gold mining and precious metal streamers. I just read a couple of books on gold mining and read the annual reports of 4 big streamers: FNV, WPM, RGLD, and SAND.

For those of you that don't know, these royalty / streaming companies basically provide financing for mining projects in return for royalties on the mine outputs. Streaming agreements are a little different, they lock in a price of a certain percentage of mining output the streamer will be entitled to.

My conclusion is that although these streamers are trading at pretty high prices now, they are exposed very well to the upside of the price of gold and they are exposed very little to the downside of mining operations issues due to Covid, or other labor issues.

Franco Nevada (FNV) I don't like that much because they are trading high and they also derived 17% of their revenue from some shale energy projects last year. That might be close to zero this year, I don't know why they decided to get into energy. Royal Gold (RGLD) I like the most, they have little exposure to frightening places (mostly Canada, US, DR and Chile). Sandstorm (SAND) I also like, but they have some mining projects in Africa and Turkey and I think could present some risk. Wheaton I also don't like because most of their revenue comes from a single mine in Brazil, they also have a ton of Silver exposure which I'm less bullish on.

[FrugalPatat]

I've just started reading about gold stocks as well but am wondering now:
1) What about the impact of decreasing mining yields in the sector?
2) It seems obvious that low oil prices imply increased profits but when I looked at the charts there seems to be a high correlation between gold prices and oil prices as well (https://www.macrotrends.net/1334/gold-p ... orrelation)? Are we sure the price of gold will not be coming down?
3) A lot of these companies seem to be not only mining gold but also copper and other metals. Is increased profitability for gold sufficient to offset potential decreased profits from other metals?