On Oct 2, 2:47*pm, John Smith wrote:
there is only one rule that you need to know, and that is those that
own the gold, write the rules. cash is king in a deflating economy.
oh the irony:gold bugs are getting screwed by the private sector that
is selling debased coins:They include false gradings on the quality of
the coins, the use of cheaper alloys instead of pure gold and even
brazen scams where you don't actually even own the gold that you buy
gee, i thought gold based money could not be debased,
SNICKER!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!
thank god for conservatives/libertarians/fascists, without their
stupidity in the market place, the con artists would starve
http://finance.yahoo.com/banking-bud...d=bb-budgeting
Five Hidden Costs of Gold
by Jeff Reeves
Wednesday, September 29, 2010
Commentary: Investing in gold isn't as easy as it looks
There's a lot of talk right now about how gold is booming, and how
gold bugs who have been stashing bullion under their mattresses over
the last decade or so have made a killing.
That may be true if you look at the price of the yellow stuff per
ounce. The price of an ounce of gold is up about 30% in the last year,
or over 400% in the last 10 years. How does that relate to actual
returns for investors?
The truth is that gold has steep hidden costs, and that looking at the
numbers on paper doesn't tell the whole story. Here are big costs many
investors overlook.
Higher taxes
The affinity for gold investing and a dislike of the government seem
to go hand in hand, from predictions that massive government debt will
render the dollar worthless to conspiracy theories that there will be
another Executive Order 6102 in which Uncle Sam loots your safe
deposit box and seizes your gold.
But the biggest reason for gold investors to get mad at the feds is
their tax bracket. The IRS taxes precious metal investments —
including gold ETFs like the SPDR Gold Trust (NYSE: GLD - News) and
iShares Silver Trust (SLV - News) — as collectibles. That means a long-
term capital gains tax of 28% compared with 15% for equities (20% if
and when the Bush tax cuts expire next year).
While you may see your gold as a bunker investment, the IRS will treat
you the same as if you were hoarding Hummel figurines. And that means
a bigger portion of your gold profits go to the tax man.
Zero income
Just as the math game on gold price appreciation doesn't tell the
whole story, the lack of regular payouts is another reason why the
long-term profits quoted in gold are incomplete. Many long-term
investors can't afford to stash their savings in the back yard for 20
years. Income is a very valuable feature of many investments and gold
simply doesn't provide that.
Remember, simply looking at returns in a vacuum can't tell you whether
an investment is "good" or "bad." Is it a good idea for a 70-year-old
retiree on a fixed income to bet on penny stocks because they could
generate huge profits? Even if those trades pay off, 99 out of 100
advisers would say something akin to "You got lucky this time, but
don't tempt fate. Quit while you're ahead and don't be so aggressive."
Similarly, the volatile and income-starved gold market is not a place
for everyone. Just because past returns for gold have been so stellar,
that does not mean that gold is low risk or that investors who need a
secure source of regular income will be well-served.
Gold scams take a toll
In a previous article, I detailed gold coin scams in detail. They
include false gradings on the quality of the coins, the use of cheaper
alloys instead of pure gold and even brazen scams where you don't
actually even own the gold that you buy. And that's just on the coins
front. Scams abound in pawn shops and "cash for gold" enterprises that
refuse to give you a true value for your jewelry or other gold items.
You'd think it would be obvious that precious metals should never be
purchased from anyone other than a broker or seller of good repute who
provides proper documentations. But many investors fail to do their
homework, or worse, can't tell forged documents from real ones.
Gold is ready-made to be a retail sales item, and with that comes all
manner of unscrupulous activity. Vigilant investors can protect
themselves, but do not underestimate the very real price of being
taken to the cleaners by a gold scam if you don't do your homework.
High ownership and storage costs
Maybe through some creative accounting or selective amnesia at tax
time you can mitigate the tax burden of gold. But one expense you
can't as easily avoid is the high ownership cost of gold. After all,
it's not like you mined it yourself — and all those middlemen between
the ore and you want to get paid.
The first is that old tightwad Uncle Sam again. Even if you can avoid
him going on the capital gains front, he gets you coming into gold via
sales tax on most jewelry and coins. And then there are the high
transaction costs and commissions that gold can carry. Anyone who has
bought jewelry knows significant markups are part of the precious
metals trade, and that's the same for investment gold as it is for
engagement rings. The bottom line is that some of your initial buy-in
goes towards the business of gold and you'll never get it back, not
unlike realtor fees or broker fees.
And then there's the additional cost of storing your gold. You have to
pay a fee for a safe deposit box, and if you have a lot of gold, that
can run you a few hundred bucks a year for a good-sized box. Of course
if you're afraid of that Order 6102 scam pulled by FDR you likely have
your gold at home in a safe — so that's a one-shot deal. But are you
really foolish enough to distrust the government but trust your gold
stash to be safe without insurance?
The presumed "safety" of gold is good on paper, but obtaining the
actual metal and keeping it safely stored is a costly endeavor.
Yes, gold can lose value
Proponents of gold love to claim that gold has never been worthless
like Lehman Bros. or GM. And while this is true on its face, it is
actually a half-truth. While gold may never become worthless, it is
foolish to think it will never lose value.
Consider that after reaching a record high of $850 per ounce in early
1980, gold plummeted 40% in two months. The average price for gold in
1981 fell to a mere $460 an ounce — and continued nearly unabated
until bottoming with an average price of around $280 in 2000. For
those folks in their 40s and 50s who bought gold at that 1980 high, it
took them 28 years to reclaim the $850 level. That's hardly much of a
retirement plan, unless they lived to be 80 or 90 and just cashed out
recently.
Gold is an investment, period. And no matter how gold bugs spin the
metal as a hedge against inflation and a sure thing that will only go
up, gold can lose its value — sometimes in a hurry, as in the early
1980s.
Jeff Reeves is the editor of InvestorPlace.com. Follow him on Twitter
at twitter.com/JeffReevesIP
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