Gold makes an excellent store of value, yet does not generate passive income like stocks or bonds do. Instead, its only source of revenue comes from capital gains upon sale that may be subject to taxes.
There are various methods for investing in physical gold, such as coins, bars and exchange-traded funds. But can these investments be liquidated easily?
Liquidity
Gold is among the world’s most liquid investments, enabling investors to buy and sell at steady prices. Indeed, in 2020 alone 88 per cent of global gold traded hands daily compared with investments such as fine art or baseball cards where buyers and sellers often disagree about its current fair value.
Gold offers investors a hedge against inflation and portfolio diversification. Due to this widespread use, demand is always high for gold coins and bars, making its conversion into cash when needed easier than many illiquid assets such as houses that take an inordinately long time to sell and often incur significant losses when sold. By contrast, purchasing physical gold is relatively quick and affordable compared to house sales which often incur substantial losses over time; storage and security costs may increase initial investment costs slightly; but its low risk profile makes gold an appealing investment choice for private investors.
Taxes
The IRS considers precious metals such as gold bars and coins to be collectibles, similar to art or antiques. If you sell gold for profit, taxes on those profits must be withheld from them and can reach 28% – though there may be ways of minimizing tax liabilities.
Maintain accurate records of all purchases and sales of precious metals. Dealers are required to report any cash payments exceeding $10,000 directly to the IRS in order to monitor large transactions and prevent money laundering.
Selling precious metals after owning them for more than one year may incur lower tax rates than selling them quickly, however it’s wise to consult a tax professional prior to making decisions about gold investments as they can advise you on the optimal strategy to maximize profits while potentially suggesting other forms of investments which might be more tax efficient.
Security
Gold’s reputation as a safe-haven investment makes it an appealing option in times of economic or political unrest. Not only can its intrinsic value and malleability make it great jewelry-making material, but its utility extends even to astronaut visor coating and microcircuit production for modern computers.
Investors have various methods available to them when it comes to buying and selling physical gold, but one of the best ways is working with a reputable precious metals dealer that thoroughly vets its products and offers an attractive return policy. Peer-to-peer sales or meeting strangers for exchange could also work well.
Although these avenues provide you with ample liquidity, they also pose serious risks. Pawn shops or cash-for-gold operations could offer less for your gold than promised and put both your personal safety and tax liabilities at stake.
Investments
Gold has long been considered a reliable investment during times of economic instability. Gold’s record during recessions speaks for itself, and diversifying with gold can provide smoothing risk and increases returns from multi-asset portfolios. But like any investment, there can still be risks involved.
Physical gold poses many disadvantages, most significantly theft and storage/insurance expenses. Furthermore, selling it quickly for what you paid could prove more challenging; you might end up selling to a pawn shop or cash-for-gold operation which offers less-than-ideal prices for such assets.
However, digital gold can help reduce these risks by instantly liquidating investments without incurring storage fees and rolling profits into new precious metal investments without incurring higher capital gains tax rates – an invaluable strategy for investors who wish to maximize tax savings.
