Here’s a clear indication of the state of trust in the financial markets today: people are buying gold coins and gold bars and burying them in their back yards. Or, as ranch owners are in Texas, they’re burying them somewhere on the ranch.
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It’s not that they’re no longer investing in gold ETFs or other gold-anchored investments. But the desire to have something tangible that’s of value is growing. Gold is still viewed as a safe hedge against inflation and one of the assets people turn to when markets fail them.
People often buy gold bullion because they think the financial world is coming unglued. Investors who can’t afford to buy bullion can have access through ETFs or other instruments.
But if the banking sector experiences enough stress for counterparties to go bankrupt, where’s the market for such a paper representation?
Since gold is viewed as a safe haven, it makes sense to some investors to also purchase it in its safest form. Some institutions, like Meek Investments LLC, are even starting a fund that allows investors to convert their paper shares into gold bullion.
But there are tax implications of which investors should be aware. The IRS considers gold to be a collectible. As such, it is subject to a 28% capital gains tax. Hiding it in the basement—or on the ranch—could lead to a charge of tax evasion.
Clients also can overexpose themselves to gold—in any form. Even if they think the world is coming to an end, their portfolios should not be overly concentrated in gold.
Although concentration in a single asset—usually a family business—is how many investors become wealthy, it may not always be the best idea for preserving that wealth
for the long term.