Gyroscopic Investing

One idea for someone not in the drawdown phase of their PP would be to hold 50% of their gold allocation in GTU and 50% in IAU (I'm assuming both are in tax deferred accounts).  Over time, this 50/50 balance would shift as the GTU premium rose or fell.  You could set up 45/55 rebalancing bands within the gold portion of the PP and thereby capture the GTU premium when it appeared and buy into the discount when it appeared.  You would simply restore the gold allocation to 50/50 GTU/IAU when you rebalanced (completely apart from whatever the rest of the portfolio might be doing).

If adding new money to the gold piece, buy IAU if there is a GTU premium and buy GTU if there is a discount.

It seems like a pretty simple PP hack that could work pretty well.

steve wrote:
If anyone knows  a better way I am interested.

No perfect solution that I know of. For myself, I worry most about the possibility (likelihood?) of at some point in the next 30-50 years forgetting to send in the forms.

6 Iron wrote:For myself, I worry most about the possibility (likelihood?) of at some point in the next 30-50 years forgetting to send in the forms.

And your potential beneficiaries would need to remember as well.

I'm not an expert on this matter — so please don't take my word for it — but GTU has certain responsibilities and obligations they have to fulfill as well for their taxable investors, in order to remain a PFIC. If they were to screw something up, or didn't file their regulatory forms properly, GTU investors could face potentially tax penalties even if all of one's individual tax forms were sent in on time each year.

6 Iron wrote:

steve wrote:
If anyone knows  a better way I am interested.

No perfect solution that I know of. For myself, I worry most about the possibility (likelihood?) of at some point in the next 30-50 years forgetting to send in the forms.

My Mother has a cigar box of junk silver that she collected when the silver coins were phased out of circulation in the mid 1960s.

Those coins have slept quietly for over 45 years, no forms required.

steve wrote: Every investor has to decide what they think is best. I like holding both real Gold bullion and GTU. For me there is nothing complex about GTU, It is easy to buy and sell, the annual  paper work for the FORM 8621 and required ATTACHMENT TO FORM 8621 and PFIC ANNUAL INFORMATION STATEMENT is not complicated at all. It can all be done in less then 5 minutes. When an individual buys Gold bullion there is almost always a premium. The premium is rarely recoverd on sale, the spread is how dealers make their money.
If anyone knows  a better way I am interested.

That's good to know, because I have no room for gold in my tax-deferred space. I have IAU, PHYS and GTU, and it's all in taxable.
Haven't had the pleasure of selling yet.

Just a quick note ,  as far as I know the paper work needs to be sent in with your tax return every year beginning when you first buy. 
The first year is when you make the QEF election, That is how I do it but you need to consult with your tax advisor before you do anything to make sure that it is right for you.

FORM 8621 and required ATTACHMENT TO FORM 8621 and PFIC ANNUAL INFORMATION STATEMENT thats it about 5 minutes of time. The one disadvantage I found but it does not bother me is that you cant e file you have to mail it in.

steve wrote: Just a quick note ,  as far as I know the paper work needs to be sent in with your tax return every year beginning when you first buy.

You mean first tax year, right? I bought my first GTU a few months ago (Feb 2011). I'm sure I have to submit the form next time, but that should be the first time, right?

On Form 8621:

Who Must Use This Form?

It is not mandatory to file this form unless there is a distribution of income from a passive foreign investment company (PFICs) in which a U.S. person is a shareholder or a disposition of the shares of a PFIC by gift, death and most types of otherwise tax free exchanges or redemtptions. However, taxpayers or preparers will not find a statement to this effect anywhere in the instructions to the form or in the applicable IRS regulations. 

The form must be filed to compute the tax due on any "excess distributions" from or dispositions of a PFIC. Generally, an "excess distribution" is a distribution (after the first year) that exceeds 125% of the average distribution in the previous three years.  All dispositions appear to be treated as excess distributions and are treated the same as distributions in excess of 125% of the average distributions. 

In most cases, a U.S. person that has a direct or an indirect ownership interest in a PFIC is required to file this form if there are excess distributions or if the taxpayer wants to elect a current method of taxation. Indirect ownership would include a partner in any partnership that owns any shares of any PFIC and a beneficiary of any trust or estate that owns any shares of any PFIC. 


PENTALTIES:

Where there are no distributions to the shareholders, there are no explicit penalties for a failure to file the form. Generally, it is to the advantage of a U.S. taxpayer to file this form and to make an election to pay taxes on the current income of the PFIC. If an election is not made to pay taxes on the current income of the PFIC, then any future distributions may be subject to the punitive tax on excess distributions. In addition, the QEF election may permit the taxpayer to retain the benefits of the lower tax rate on long term capital gains realized by the PFIC.

dualstow wrote:

steve wrote: Just a quick note ,  as far as I know the paper work needs to be sent in with your tax return every year beginning when you first buy.

You mean first tax year, right? I bought my first GTU a few months ago (Feb 2011). I'm sure I have to submit the form next time, but that should be the first time, right?

If you bought your first shares of GTU in 2011  As far as I know you would file the forms with your 2011 income tax return so yes you are right.

That's a relief. Thanks!

On Form 8621:

Sorry if this has been covered elsewhere, but no forms are necessary for GTU in tax-deferred accounts, right?

seems GTU deviates from the its NAV quite a lot and quite often (large premium changes)
I checked today's valuation,
based on the new york spot price at 5:00pm ($1506/oz), the GTU is trading with a discount of 0.65%
https://spreadsheets.google.com/spreads ... true&gid=0

however, on the fund's website, the nav is calculated with london fix price $1489.50/oz, therefore the GTU is trading at a premium of 0.5%.

how likely is there a big price difference between the london and NY? I wonder if that's part of the reason of the high variability.

how likely is there a big price difference between the london and NY? I wonder if that's part of the reason of the high variability.

The premium/discount in closed-end funds is mostly a supply-demand issue.  With ETFs the premium/discount can be minimized through creation/destruction of units, but that isn't an option for closed-end funds.  With GTU when demand for gold is high, the premium can get bid up, and conversely when demand drops a discount to NAV can ensue.  I've read various reasons for the closed-end premium/discount (i.e. liquidity issues with underlying assets, etc.) but none of them really make much sense, except for basic supply/demand issues.  I would expect that with the advent of GLD, IAU, etc. the premium/discount range of GTU might be reduced.

Since we know the number of gold ounces held by GTU, how much cash they have, and how many shares there are, you can calculate a near real-time premium/discount by using the current spot price of gold and the current share price of GTU. 

WildAboutHarry wrote:

On Form 8621:

Sorry if this has been covered elsewhere, but no forms are necessary for GTU in tax-deferred accounts, right?

That is my understanding.  Since the space is tax-sheltered regardless of what I hold in it--and I can hold anything... anything at all--there is no need to fill this form out.  In fact, have you ever claimed anything held in tax-sheltered space on your taxes before?

SmallPotatoes wrote:

WildAboutHarry wrote:

On Form 8621:

Sorry if this has been covered elsewhere, but no forms are necessary for GTU in tax-deferred accounts, right?

That is my understanding.  Since the space is tax-sheltered regardless of what I hold in it--and I can hold anything... anything at all--there is no need to fill this form out.  In fact, have you ever claimed anything held in tax-sheltered space on your taxes before?

I think what you are saying is generally correct with respect to GTU, but there are financial instruments that can create taxable income inside an IRA, including MLPs and certain leveraged ETFs that create so-called "UBTI" (unrelated business taxable income).

MediumTex wrote:there are financial instruments that can create taxable income inside an IRA, including MLPs and certain leveraged ETFs that create so-called "UBTI"

I never even considered the possibility of a "taxable" investment in an IRA.  Learn something new every day.

Yes, you can have taxable income inside an IRA.  If your IRA holds real estate, for example, and there is a (non-recourse) mortgage on the real estate, rental income will be subject to an "unrelated business taxable income" tax.

MediumTex wrote:

SmallPotatoes wrote:

WildAboutHarry wrote: Sorry if this has been covered elsewhere, but no forms are necessary for GTU in tax-deferred accounts, right?

That is my understanding.  Since the space is tax-sheltered regardless of what I hold in it--and I can hold anything... anything at all--there is no need to fill this form out.  In fact, have you ever claimed anything held in tax-sheltered space on your taxes before?

I think what you are saying is generally correct with respect to GTU, but there are financial instruments that can create taxable income inside an IRA, including MLPs and certain leveraged ETFs that create so-called "UBTI" (unrelated business taxable income).

Now that is interesting.