Where do you buy gold & silver?

[raja]

Re: Where do you buy gold & silver?

I finally purchased a bit of actual gold and silver. The best I can do with it, as I see the probablilites, is exchange it for paper dollars and pay the spread and hopefully a capital gains tax of 28%, might come to a total of 32% on the gains. What is wrong with CEF (50% gold, 50% silver--vaulted) or GTU (100% vaulted gold) when to my understanding the capital gains on these are treated as regular capital gains. Except for some nearly unimagineable crisis, these two closed end funds are no brainers. CEF usually sells at a premium (currently 13.76%, which is the highest I remember), and GTU currently 3.02%, but GTU is very thinly traded and usually has a 1% or so spread. But in either case the capital gains treatment makes both seem preferable to me than the buy and sell spreads on physical metals and the capital gains (assuming we all get them some day).

I agree with you on CEF and GTU.
I also own some GLD, because one time I wanted to buy and the premium was high on CEF. I plan to sell it within a year to avoid the 28% collectibles tax and buy more CEF and GTU.

My only concern is that being thinly traded may make GTU difficult to sell quickly if one were trying to bail out at the top, when that time comes.

Also, I would like to point out to others that it's necessary to file a form with the IRS in the year you buy CEF and GTU in order to get the 15% tax rate. I believe details are available on their site, or by googling.

One thing I don't understand is the premium . . . .
What does it mean and how is it determined? Is it the amount in price over spot?

[Jim Nickerson]

Re: Where do you buy gold & silver?

I agree with you on CEF and GTU.
I also own some GLD, because one time I wanted to buy and the premium was high on CEF. I plan to sell it within a year to avoid the 28% collectibles tax and buy more CEF and GTU.

My only concern is that being thinly traded may make GTU difficult to sell quickly if one were trying to bail out at the top, when that time comes.

Also, I would like to point out to others that it's necessary to file a form with the IRS in the year you buy CEF and GTU in order to get the 15% tax rate. I believe details are available on their site, or by googling.

One thing I don't understand is the premium . . . .
What does it mean and how is it determined? Is it the amount in price over spot?

Raja,

Not everyone, or actually many at all, ever sell anything exactly at a top. Bernard Baruch said the made his money by selling too soon. I think it is wise to stop thinking in terms of selling anything at "the top." It is also possible that as time progresses GTU's daily volumes will increase. As a fact, CEF is not so actively traded either but just much more than GTU.

Premiums arise on closed end mutual funds because people are willing to pay more than the underlying value of the assets within the fund. Get yourself a Barron's and look at the closed end fund listing and you'll see a lot of the popular closed end funds have either premiums or discounts.

If one sold CEF on Friday, then the value received would have been 13% more than the underlying value of the gold and silver.

I have GLD and SLV in IRA accounts and CEF and GTU in personal accounts--I presume that is the way most people handle it.

I think you must sell your GLD and SLV and then wait a month before buying similar instruments, otherwise the IRS does not consider that the sale of the firsts was a liquidation for short-term gains. I'm not an accountant either.

[raja]

Re: Where do you buy gold & silver?

Raja,

Not everyone, or actually many at all, ever sell anything exactly at a top. Bernard Baruch said the made his money by selling too soon. I think it is wise to stop thinking in terms of selling anything at "the top." It is also possible that as time progresses GTU's daily volumes will increase. As a fact, CEF is not so actively traded either but just much more than GTU.

Jim, thanks for your response.

I agree about selling at the top. I am one of those who tend to sell too soon . . . sometimes to my detriment.
However, my fear with gold is that it's going to bubble, and some day it will be time to sell, and there may be a rush for the door. It's at those times that thinly traded can work against one . . . . That's part of my concern about BuillionVault.

Premiums arise on closed end mutual funds because people are willing to pay more than the underlying value of the assets within the fund. Get yourself a Barron's and look at the closed end fund listing and you'll see a lot of the popular closed end funds have either premiums or discounts.
If one sold CEF on Friday, then the value received would have been 13% more than the underlying value of the gold and silver.

I still don't understand the premium. . . I think because I don't understand the mechanism that makes it rise or fall.

If investors believe that gold is going to rise in the near future, they are willing to pay more for a share, and that extra amount over the underlying value of the commodity is called the premium.
If they think it's going to tank, then there are not many buyers, so the price can fall into a negative premium because people are paying less for a share.

Does that mean that the premium changes each time someone buys a share, if they are paying a higher or lower price that the person who bought the share just before them?
If that's so, it's confusing to me, because it seems that as the share price rises over time, as CEF and GTU have, the premium should continually rise.
Can you shed some light on this for me?

I think you must sell your GLD and SLV and then wait a month before buying similar instruments, otherwise the IRS does not consider that the sale of the firsts was a liquidation for short-term gains. I'm not an accountant either.

I wasn't aware of the one-month waiting requirement. Of course, if one switches to CEF or GTU, it's not a "similar instrument".

[Jim Nickerson]

Re: Where do you buy gold & silver?

Jim, thanks for your response.

I agree about selling at the top. I am one of those who tend to sell too soon . . . sometimes to my detriment.
However, my fear with gold is that it's going to bubble, and some day it will be time to sell, and there may be a rush for the door. It's at those times that thinly traded can work against one . . . . That's part of my concern about BuillionVault.

I still don't understand the premium. . . I think because I don't understand the mechanism that makes it rise or fall.

If investors believe that gold is going to rise in the near future, they are willing to pay more for a share, and that extra amount over the underlying value of the commodity is called the premium.
If they think it's going to tank, then there are not many buyers, so the price can fall into a negative premium because people are paying less for a share.

Does that mean that the premium changes each time someone buys a share, if they are paying a higher or lower price that the person who bought the share just before them?
If that's so, it's confusing to me, because it seems that as the share price rises over time, as CEF and GTU have, the premium should continually rise.
Can you shed some light on this for me?


I wasn't aware of the one-month waiting requirement. Of course, if one switches to CEF or GTU, it's not a "similar instrument".

I believe it was jk who thinks that CEF has a premium because of its tax treatment.

The premium/discount would rise and fall throughout the day, but I don't know of anyway to track that on a minute-to-minute basis.

The premium will continue to rise over time if people are continually willing to pay more to own the instrument than is the NAV of the holdings. I think I have seen things selling for 25% or more premiums, when people were panicking to buy, maybe TRF did that once. Look at that on etfconnect.com and you'll see the prem/disc has widened and narrowed over time.

I think GTU would be considered a similar instrument to GLD. Heavens know how IRS would handle a switch from GLD to CEF or SLV to CEF.

One could sell GLD, buy GDX and then after a month sell GDX and buy GTU, or just sell and wait 30 days.

I guess you use etfconnect.com--why not follow CEF there and see how its prem behaves.

[Basil]

Re: Where do you buy gold & silver?

Let me put it this way:

So far the IRS reviews on gold sales have not been extremely thorough.

But unless the dealer is willing to pay more taxes, I can guarantee you the dealers record and report (at least in sum) the true value of what they buy and sell.

Should the transaction be over the counter and in cash and not that large an amount ($2K or less), then it is likely your name isn't involved - just an anonymous receipt.

However, if you use a credit card, write a check, do a wire transfer, or any other form of payment other than a big suitcase, your name IS involved.

Furthermore, if the sum is quite large: over $2.5K, there is a record of the withdrawal as well.

And note: if you've EVER done one of the actions linking your name to that dealer, that is retrievable with about 10 minutes and a Homeland Security database. Another 10 minutes to pull up the legally mandated money laundering records (i.e. $2K or more deposited in cash with 1 transaction; $10K or more of anything deposited; not sure on withdrawal amounts but likely similar).

How much more effort do you really think it would be for the IRS and/or Department of Treasury to start linking names with gold transactions?

Let's say you want to buy $1M in coins anonymously.

If your name is linked to one dealer, then 20 minutes would be enough to bring up your bank transactions - now all that's needed is the dealers records.

$10K x 100 trips would be pretty glaringly obvious no?

Or how about $2K x 500 trips?

Sure, if you're buying 5 kruggerands, once, no problem.

But don't assume you're safe if substantially more is involved.

Exactly, it takes time to do it, but can be done. ;) Visiting different shops to pick up small quantities can be another part of the equation. Of course this was much easier when Gold was cheaper.