Q&A With the GoldSilver Staff
Lots more great questions this week, which we appreciate very much. It helps us know what your concerns are, and how we can best serve your needs. And sharing them here helps your fellow readers.
Even if we don’t answer you personally, please know that every submission is read.
On to this week’s selections…
In the wake of an economic collapse, who will buy my gold?
Question: A common anti-gold and silver question I often hear is, “Today all world's currency is fiat and most of it is pegged to the dollar, so a US economic collapse is really a world-wide economic collapse. In this scenario who will buy my gold and what will they use to buy it with if their currency is no good?” Thanks for taking our questions, Vadim D.
Answer from Mike Maloney: People will buy your gold with their real estate, businesses, cars, art, and stocks. To quote a few sentences from near the end of my book:
“They will offer you their goods, services, and investments at fire-sale values. By selling your gold and silver when the public needs it the most, the full weight of the wealth transfer will have been completed, and you will have done very, very well.
“Then with your new fortune of real estate, stocks, and other assets, you can ride the next big economic wave up. For now you know the formula. Everything runs in waves and cycles, and history just repeats and repeats.”
[If interested, you can order the completely revised edition of Mike’s book, Guide to Investing in Gold and Silver: Protect Your Financial Future here on Amazon.]
Can I avoid confiscation and taxation of my precious metals holdings?
Question: Hi Jeff, nice to see you are with GoldSilver. I have enjoyed reading your articles with other publications the last few years. I have been accumulating precious metals for the last year and now am studying different strategies to keep it in the future (from extreme taxation or confiscation). I was curious what your thoughts are on that and any strategies you have regarding these concerns. Thanks, Gregg G.
Answer from Jeff Clark: These are big topics and deserve a special report, which I’ll get to sooner or later. But there are a few general strategies one can consider for each of these concerns…
Confiscation: My personal view is that this is unlikely, the main reason being that gold is not part of the monetary system like it was in Roosevelt’s time. But the risk isn’t zero—maybe gold goes to $8,000 like I show in the article above, and the political establishment can’t help but grab a ready source of funds to pay off their decades of recklessness. Wouldn’t be the first time.
We don’t know what form a confiscation would take. It would be a nightmare for the government to try to confiscate private citizen’s gold—so maybe instead they go after the Exchanged-Traded Funds (and Exchange-Traded Notes and Exchange-Traded Receipts), which would be nice big juicy targets. Or maybe they forbid the trading of gold… or tax the heck out of it… or prohibit it from leaving the country. Or maybe they do nothing to gold at all and it’s the main asset involved in the wealth transfer Mike has talked so much about.
There are several strategies to combat confiscation. This is roughly the order I would suggest pursuing them…
- Denominate some of your holdings in a precious metal other than gold, silver being the first obvious choice. We obviously believe that every investor should own some silver, this being only one of many reasons.
- Keep some of your holdings stored in another political jurisdiction. I think a ban on crossing the border with gold is more likely than an outright confiscation, so if you’re going to diversify internationally, now is the time to do it. Many of us here utilize this strategy—check our storage options including international locations.
- Buy bullion jewelry. The advantages are that the mark-up is a lot less than standard jewelry… the primary ingredient is gold… it’s easier to cross borders with it… and of course you can wear it. And if you buy from us, we’ll even buy it back. The drawback is that you will pay more for these products than standard bullion, and depending on the circumstances at the time, you may or may not get back what you paid for them. Still, it’s a valid way to diversify part of your bullion holdings. Here’s what we carry.
- Numismatic (collector) coins. These coins were exempt from the 1933 order, though it doesn’t mean they would be again. The catch with this strategy is that you’ll pay a lot more for a rare coin, and you may or may not recoup that premium (many amateurs don’t; this is a BIG complaint of many investors). You also have a limited customer base; there are far less coin collectors out there than bullion owners. These are some of the reasons GoldSilver doesn’t sell numismatic coins.
What about our “Modern Ancients” series? We don’t know, of course, and these are technically considered a “round,” but it would depend on what exactly falls under the confiscation. I own some of these for the simple reason that they’re a great way to diversify my holdings.
By the way, Alex said to mention that the Ajax coin won’t be available much longer.
These strategies won’t protect you from every scenario of confiscation—they could include silver this time, for example, or all gold coins—but they do put a layer between you and your friendly government bureaucrat.
If you want DEFCON-1 protection, you’ll have to move to Puerto Rico with Alex and Mike (or some other country). Puerto Rico wouldn’t be so bad… I called Alex one Sunday morning on the way to church and he was sipping a margarita on the beach. Even then, however, you’re still a US citizen, and the only solution at that point is to renounce your citizenship, a rather drastic step.
Taxation: First, let’s be clear. If you sell any gold or silver for a profit, you are obligated to report the gain on your income tax return. It doesn’t matter if the dealer is obligated to report your sale or not, where you reside, where you sell it, what form you sold it in, or who you sold it to—if you’re a US citizen and made a profit, you gotta report it to Caesar.
The options to reduce or eliminate your tax liability on gold are limited. Again, you could consider Puerto Rico to reduce your overall tax burden. Another option is to use a Roth IRA, the proceeds of which would not be taxable upon withdrawal. Some of you expressed concern about the government confiscating those, too. How I handle this is to diversify… I use a Roth to take advantage of the tax benefits in case they don’t confiscate retirement accounts, but I also keep a big chunk of my investments outside the Roth in case they do.
My hope would be that we have some warning about a big tax increase on bullion and would be able to sell before then. It’s likely the government wouldn’t target gold until after it has soared in price—and we have taken our profits. We’ll see, but bottom line I think it is wise to put together a plan. Just think twice before allocating all your bullion holdings in such a way that you suffer if there is no confiscation (for example, buying only bullion jewelry).
Is the Canadian Mint Gold Exchange-Traded Receipt a good alternative to a gold ETF?
Question: Hi Jeff, what is your opinion on buying the Canadian Mint Gold Exchange-Traded Receipt (MNT-TO) versus a gold ETF? If things change for the worse for gold ETFs, will the ETRs be more secure? Thanks, Brett M.
Answer: An exchange-traded receipt works similarly to an ETF, except that you have a “receipt” you can exchange for the underlying asset, in this case gold. To answer your question… possibly, but I doubt it. This ETR appears to have a more sound structure than GLD. However, we’re only talking a matter of degree when we discuss different forms of “paper” gold.
In this case, the delivery option comes with restrictions and is not cheap: minimum 10 ounces; can only be made on the 15th of the month; $100 per redemption request, plus 5% of the gold price (or other fees for bars), or a $5,000 minimum fee for a “facilitated” sale… wow! Definitely not cost-effective for the average retail investor. Also, a third party manages the account so it automatically comes with counterparty risk. Last, check out the trading volume of this ETR… scary low.
I'd rather create my own “gold fund” by storing physical metal I own outright, in an account where there's no “redemption” fee other than postage, no counterparty I'm forced to rely upon, and plenty of liquidity.
Submit a question: JeffClark@GoldSilver.com (Note: we cannot answer questions that require personal advice)