Welcome to Common Sense Finance. In this post I want to discuss liquidity with selling precious metals. In particular, I want to discuss an article I found from the WSJ around Costco gold bars and the issues allegedly people were having selling these gold bars back. Later in the post, we’ll discuss tax implications with buying and selling, so stick around there’s plenty of good info in this article.
Now, we all remember a few weeks ago, the story in the press around Costco and how they were making around 200 million in revenue from selling gold bars. This article got quite a bit of attention and I, like many others covered this.
Now it’s come to my attention the WSJ has done a follow up story on some of the individuals. In their story they highlight some of the individuals who bought Costco gold, why they bought it and issues they had selling it back. Maybe most irritating to me is that the article implies that Costco gold is somehow inferior.
To begin the article talks about a 33-year-old man named Adam Xi. Mr. Xi bought gold at Costco and just a few weeks later was hoping to sell it back for a few extra bucks. In addition, he wanted to rack up a bunch of travel points on his credit card.
However, things didn’t work out so well for Mr. Xi. He called several bullion dealers and soon learned that he wasn’t going to come close to making a profit on his purchase. Most dealers wouldn’t offer spot and one dealer offered him $200 under spot.
Most of you probably know that this strategy is just plain foolish. But the article really seems to imply that the Costco gold is illiquid and is tough to sell. Even more troubling is that the WSJ reports that selling gold is “complicated”.
Now the article discusses that the complication of selling gold has to do with the fact there are no returns or exchanges. And this makes sense and is pretty standard. Even more so this makes sense since the value of gold changes on a daily basis. I could go buy a 1 oz gold bar for $2600 (hypothetical example) with a $2500 spot price. The next day the price of gold could drop to $2300. Then, I could take it back to Costco. If I did return with that same one-ounce gold bar, Costco would have to resell it for cheaper, and I would pocket a $200 profit.
Perhaps what’s most irritating about the article is how it implies gold is an illiquid asset. It discussed that Mr. Xi is having difficulty selling it back and getting less than market value or spot price.
The issue though here isn’t liquidity. Rather, it is having someone who doesn’t understand how precious metals premiums work.
Precious metals are an asset one should buy and hold and not try and flip for a quick buck. Generally, when you buy, it’s expected that if you go to sell quickly, you will get less than what you bought it for.
Now the article mentions taxes and the complexity of how when you sell precious metals, if you made money, you’re liable for capital gains tax. Now there are states that I believe are exempt from this, I think Nebraska just passed a bill exempting this.
Countries like Canada exempt citizens from this tax as well.
Right now, there is a bill floating in Congress to get rid of this.
US Representative Alex Mooney (R-WV) is proposing The Monetary Metals Tax Neutrality Act (H.R. 8279), a piece of ‘sound money legislation’ that removes all federal income taxation from gold and silver coins and bullion. We will see where it goes but in time I think it will pass.
Still regardless of this, when I think of capital gains tax and buying and selling precious metals, it’s sort of like an honor system. For the most part on the sell side, from what I remember, the onus of reporting your taxes is on you. And while I definitely don’t encourage people not to report their tax liability, the reality is a lot of time you go in and buy precious metals in cash; when you go to sell you receive cash.
Precious metals are classified by the IRS as collectibles, which I think is just ridiculous. They’re put in the same category as art and fine wine. I could understand things like collectible coins, highly graded morgan silver dollars or Charlotte gold coins. But modern-day precious metals bullion should not be classified as collectibles.
Precious metals should be classified as currency or money, which is what they are. To make matters even worse, collectibles have a higher capital gains tax than many other asset classes. I do believe though we will see in time, bullion reclassified as money as the simple fact of the matter is it would be beneficial for a politician to pass a bill on this.
Still, I honestly have little experience selling previous metals as I hold all mine. I can only remember selling a few silver coins years ago and the dealer handed me cash.
Comment if you sold any precious metals and if you had to pay taxes or reported your capital gains.
I do believe though that many people not only in the precious metals space, but many areas simply don’t report capital gains and other liable taxes. This is one reason that I strongly believe the CBDC is coming. The federal government wants to start getting more money from the little guy. Its clear people are avoiding taxes in more ways now than ever. This is why we’ve seen reporting requirements, for things like Ebay drop from $20,000 to $600.
Coming back to the article on selling gold. It’s really not complicated to do, and precious metals are liquid. You might make a little or lose a little, but the main goal in buying gold is preserving wealth; silver has really the same purpose too. There are of course other reasons to, like having something to barter with, but if you buy precious metals, you’re going to be able to sell them.
Thanks!
