The Public Has Been Sold a Very Limited Narrative, Says Veteran Financial Strategist
Gold has made headlines in recent years, but it remains arguably the most misunderstood investment resource, says gold financial strategist William A. Storum.
“The conventional narrative is that people ran to gold in the panic of the 2008-09 economic crash, and that the price eventually plummeted by 28 percent from the 2012 close – from $1,675 an ounce to about $1,200 in 2013 – but there was no context or national discussion as to what that really meant,” says Storum, author of “Going for the Gold,” (www.goldandtax.com).
“What most in the media failed to emphasize was the fact that this drop was the first since the year 2000. Such a long-lasting bull run should not have been overlooked, and despite the 2013 setback, gold remains a valuable investment.”
The reasons to own gold have not changed, he says. Many, however, simply don’t know that there are many ways in which to invest in gold – not just owning the metal. Storum reviews those options.
• Along with coins and bars, a well-established way to invest in gold is to invest in the shares of a company that mines gold. As long as the price of gold increases, gold-mining firms are likely to show higher profits, which will increase their share prices. Gold producers are also valued on their production volume. Higher profits can generate ample dividends to investors, but lower gold prices or other circumstances, such as unrest in a host country, for example, can result in losses. So, investing in mining stocks and funds is, in many respects, like any other stock market investment. Many gold mining stocks are publicly traded, and several mutual funds hold a diverse collection of these stocks. Stocks and funds rate high for convenience and profit potential, but investors are exposed to market swings.
• Of course, don’t forget about actual gold … which comes in the form of coins and bars. This is the most direct investment, readily at hand and free from fraud, which many folks prefer due to market volatility. However, you’ll need to minimize dealer markups and find a practical mode of storage. Bullion is a good form to start with; it’s a term referring to a gold item that’s valued solely by its weight and purity. Generally, you’ll pay a premium of nearly 2 to 3 percent when you buy and take a discount of the same magnitude when you sell. If premiums and discounts are much higher when buying and selling, you’re probably being ripped off. As gold has been shown to be a good long-term investment, these premiums and discounts will likely be marginal costs.
• Among the new forms of gold exchange-traded funds, bullion ETFs (exchange-traded funds) have become the most popular. They offer a direct pay on the price of gold, but they don’t provide direct access to gold you can touch and trade. Funds holding a variety of mining stocks are known as open-ended mutual funds, whereby investors buy shares from a fund company and sell shares back to the same company. ETFs have emerged in recent years to rival mutual funds. Bullion ETFs are among those with the highest visibility and, for investors, bullion ETFs provide a practical way to profit from gold price increases without worrying about dealer markups, storage, insurance and other concerns. The advent of bullion ETFs permits institutional investors to buy gold and include it in their asset allocation.
“These are just some of the ways you can invest in gold,” Storum says. “It’s important to note that there are different types of tax implications for these investments. For example, whereas gold stocks are taxed like regular stocks, bullion ETFs are taxed as collectibles with different rates and rules.”
About William A. Storum
William A. Storum, JD, is a member of the California Bar Association (inactive) and a licensee (inactive) of the California Board of Accountancy. He has extensive experience in individual, corporate, real estate and partnership taxation and has represented clients in tax audits and other tax matters with the IRS. As an investor, Storum came to understand the need to own gold in order to preserve wealth from our government’s reach. He wrote “Going for the Gold,” (www.goldandtax.com), in an effort to clarify widespread confusion about investment in and taxation on gold. Storum graduated cum laude from the University of Santa Clara with a bachelor’s degree in accounting with a minor in economics, and from the University of Santa Clara School of Law, cum laude.