Gold is sinking. Don't look!

[notsheigetz]

Finally succeed at what?

In "kickstarting" the economy, of course. Arousing the animal spirits. All that stuff!

Personally, my main goal right now is converting a lot of my ETF gold to physical. Since gold is down it seems like a good opportunity to get out of the ETFs without capital gains.

Is it possible to declare a capital loss on the sale of GLD, GTU, or gold?

Interesting question. I just assumed that you could. If it's an ETF or mutual fund, why not? I only had a small loss selling the portion I'm converting so it's not really going to be a big deal either way.

I suppose another question, if you're going to have a loss, would be whether the 30-day wash sale rule applied. I would think not.

[notsheigetz]

If you swap IAU or GLD for GTU, or vice-versa: no wash sale. If you swap GLD for IAU, that would probably be considered 'substantially identical' if you got audited.

I was swapping ETF gold for physical. Is that 'substantially identical'? An interesting question. Like I said, I suspect not but I haven't read all the fine print. Even if it is, how would they know?

[portart]

25% gold is a MAJOR insurance policy. So much so, that if it's not moving up or going down, you are going to be treading water. You can't make a portfolio go up with on one quarter of it in equities, even in a bull market. The only way PP makes money is to have gold hold it's own or rise while equities also move forward. The portfolio is designed to protect, not out pace. The idea is that over time, all of the components will move up while avoiding major moves down while the numbers work themselves out.

We have just finished a ten year major move in gold and so you looked like genius being in PP during this time. Gold is exhausted and could really do anything for awhile, going as low as 1100. or maybe hanging around 1500 if the gov keeps printing. If you have made your money for retirement, it's best to stay with PP because you won't lose it or much of it. If you haven't made it by now, then you have two choices. 1) Make it by working your job and adding to PP at different prices so your portfolio will grow and not give back much or 2) play the overweighting game in either gold or equities, whichever you believe in more and hope you get lucky with your timing.

[sophie]

That's the point:  we don't know.  If gold goes down to 1100, almost certainly something else will be going up, probably stocks.  Are you sure you're not just letting the recent price changes influence your asset allocation?  Right now, stocks look great and I'm sure lots of people are running out to buy them.  Which could very well mean they're buying at a peak, as stocks could easily go on another downswing tomorrow.

I personally think gold is on sale, but whether I'm right or wrong, I'm buying as part of my regular contribution.  Trying out Goldmart for the first time, as they definitely have the best price and I can't argue with free shipping.  I used Gainesville coins and Colorado gold in the past, which were both great to deal with.  The minimum purchase for Colorado Gold, though, means I won't be using them much unless I get a sudden windfall (most unlikely).  I liked Gainesville because you pay a small portion on your credit card, and the 1% cash back covers part of the shipping costs.  Just remember to set up the bank wire BEFORE you buy.

[dualstow]

We have just finished a ten year major move in gold and so you looked like genius being in PP during this time. Gold is exhausted and could really do anything for awhile, going as low as 1100.

I don't know where gold is going but with all respect, is ten years some kind of magic number, or just a number that humans cling to because we have ten digits on our two hands? Gold could go well below 1100, or it could go up. Or it could stay the same. And, the stock market could go down, too. I mean if stocks were the answer, we'd own 100% stocks, right?

[notsheigetz]

They likely wouldn't know, except that you just told them [who knows what 'they' read; paranoia at it's finest  ]. And even if they found out, you could certainly make a reasonable case that an ETF that holds physical gold is not the same as actual gold, the same way SPY, IVV and VOO are not exactly the same.

My understanding is that the wash sale rules only apply to securities so I don't think it is applicable. It is always possible that I didn't read section 123, paragraph A of Publication XYZ where it says that in certain cases spelled out in incomprehensible language that it might apply but if you're with the IRS and you're reading this I plead ignorance.

[sophie]

They likely wouldn't know, except that you just told them [who knows what 'they' read; paranoia at it's finest  ]. And even if they found out, you could certainly make a reasonable case that an ETF that holds physical gold is not the same as actual gold, the same way SPY, IVV and VOO are not exactly the same.

My understanding is that the wash sale rules only apply to securities so I don't think it is applicable. It is always possible that I didn't read section 123, paragraph A of Publication XYZ where it says that in certain cases spelled out in incomprehensible language that it might apply but if you're with the IRS and you're reading this I plead ignorance.

+1.  I'm not a tax expert, but the IRS can't have it both ways:  if a "collectible" doesn't get the same preferential tax treatment as a security for long term gains, then it's hard to argue that it's subject to wash sale rules which apply to "securities".  That seems to be the internet consensus as well.  All the same, if you sell a gold ETF or fund in order to buy bullion (or vice versa), you might want to consider whether it's worth the headache to explain all this the the friendly IRS agent if you happen to get audited.

If any of you hold GLD, SGOL, IAU etc in a taxable account, you might want to take advantage of the recent price drop to get rid of it.  I hadn't realized this, but if you incur a long term gain with one of those funds and your tax bracket is 25% or below (which would be the case if you're retired), you could actually end up paying more than your marginal tax rate since the 28% collectibles tax would apply.  I think that would also apply to physical gold. 

I definitely wouldn't want to be rebalancing out of gold in a taxable account post retirement.  Harry Browne didn't seem to be overly bothered by this, but there's an argument to be made for keeping at least 1/3 - 1/2 of the gold allocation in tax deferred accounts plus CEFs, like GTU.  The counter-argument would be that swallowing the collectibles rate could be better than paying GTU's expense ratio, which is like a long, slow tax that adds up over the years.

[notsheigetz]

If any of you hold GLD, SGOL, IAU etc in a taxable account, you might want to take advantage of the recent price drop to get rid of it.  I hadn't realized this, but if you incur a long term gain with one of those funds and your tax bracket is 25% or below (which would be the case if you're retired), you could actually end up paying more than your marginal tax rate since the 28% collectibles tax would apply.  I think that would also apply to physical gold. 

This has been kicked around on the forum before and I could be wrong but my understanding was that we decided that the 28% figure is actually a cap representing the maximum percentage you will be required to pay. If you are in a higher bracket this would actually be to your advantage and if your marginal rate is lower, that is the percentage you will pay - not the 28% rate.

Somebody please correct me if I'm wrong.

[dragoncar]

Any idea what gtu expense ratio actually is?  They just dilute the stock over time right?

[whatchamacallit]

This has been kicked around on the forum before and I could be wrong but my understanding was that we decided that the 28% figure is actually a cap representing the maximum percentage you will be required to pay. If you are in a higher bracket this would actually be to your advantage and if your marginal rate is lower, that is the percentage you will pay - not the 28% rate.

Somebody please correct me if I'm wrong.

This is correct but I didn't know this since I have never sold gold. Thank you. That is good to know.

http://www.irs.gov/publications/p17/ch16.html#d0e56153

Capital Gain Tax Rates

The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. These lower rates are called the maximum capital gain rates.

Example.

All of your net capital gain is from selling collectibles, so the capital gain rate would be 28%. Because you are single and your taxable income is $25,000, none of your taxable income will be taxed above the 15% rate. The 28% rate does not apply.

[sophie]

This has been kicked around on the forum before and I could be wrong but my understanding was that we decided that the 28% figure is actually a cap representing the maximum percentage you will be required to pay. If you are in a higher bracket this would actually be to your advantage and if your marginal rate is lower, that is the percentage you will pay - not the 28% rate.

Somebody please correct me if I'm wrong.

This is correct but I didn't know this since I have never sold gold. Thank you. That is good to know.

http://www.irs.gov/publications/p17/ch16.html#d0e56153

Capital Gain Tax Rates

The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. These lower rates are called the maximum capital gain rates.

Example.

All of your net capital gain is from selling collectibles, so the capital gain rate would be 28%. Because you are single and your taxable income is $25,000, none of your taxable income will be taxed above the 15% rate. The 28% rate does not apply.

Interestingly, opinions on this seem to be divided.  This sentence in the above IRS pub, though, is reassuring:

If you figure your tax using the maximum capital gain rate and the regular tax computation results in a lower tax, the regular tax computation applies.

Regarding expense ratios....of necessity, gold ETFs or funds must sell some gold to pay expenses, so the amount of gold per share has to drop over time.

[notsheigetz]

All of your net capital gain is from selling collectibles, so the capital gain rate would be 28%. Because you are single and your taxable income is $25,000, none of your taxable income will be taxed above the 15% rate. The 28% rate does not apply.

If I was writing IRS publications I would write them to say that "income from collectibles will be taxed at the ordinary income tax rate but at a rate not exceeding 28%" and be done with it.

That is my understanding and I do believe it is correct once you sort though all the mumbo-jumbo.

[vnatale]

That's the point:  we don't know.  If gold goes down to 1100, almost certainly something else will be going up, probably stocks.  Are you sure you're not just letting the recent price changes influence your asset allocation?  Right now, stocks look great and I'm sure lots of people are running out to buy them.  Which could very well mean they're buying at a peak, as stocks could easily go on another downswing tomorrow.

With the benefit of great hindsight one can note that our in-house Prophetess, Sophie, offered here yet more of her unending wisdom!

Vinny