Despite Near Tripling, Historical Gold Record Remains Terrible
Today's Wall Street Journal had an interesting line in the lead story. It says, "After hitting $847 an ounce in January 1980, gold futures fell for almost 20 years, grinding down to $253 in August 1999, a 70% drop. Gold remained dull until 2001. Prices have more than tripled since then, but didn't exceed the 1980 record until this year. The precious metal has been a horrible hedge against inflation. To keep pace with inflation going back to 1980, gold futures would need to be above $2,228 today."
According to one online calculator, had you put $10,000 into the Dow Jones at that same time, you'd have roughly $148,273+ today. The same $10,000 invested in gold, despite the inflation we've experienced, is now flat, worth roughly $10,950 today. To add insult to injury, gold is taxed as a collectible, meaning that you're going to get hit for up to 35% or more for the gains on it, versus the long-term capital gains tax rate of only 15%. That's a huge difference.
A quick look at Ibbotson & Associates research shows that gold has done terrible on an after-inflation basis over the past 200 or so years whereas ownership of a broad base of stocks would have made a passive investor very, very rich. That's not to say gold can't make a fantastic short-term trade. Indeed, some hedge funds and money managers might even juice their trades with large amounts of leverage, hitting it out of the ballpark when it turns out they are right on the direction of the metal. Whereas businesses such as Coca-Cola or American Express are capable of growing and generating cash, precious metals just can't compete on the basis of returns when long periods of time get involved because they don't produce anything intrinsically. (Image property of Getty Images / Stockbyte)
Gold is money it is not a collectible. Banks do not store gold because it is a collectible they store gold because it is money. And money is not taxed duh!. Gold is cash. You are flat wrong. You are right in the investing in stocks to grow wealth but are wrong about gold. Warren buffet has gold and silver as cash and is he going to get taxed at 35% hell no because it is cash.
Rodrigo,
In the United States, gains on gold are taxed at the same rate as “collectibles”. If you buy gold at $200 and sell it at $800, you are going to owe a huge tax on the $600 difference. That’s because the U.S. tax system is flawed.
You can read more about it at US News:
“But there’s a rub that irritates art dealers, investors in coins and precious metals, and others who roam about outside the stock market. Profit from paintings, other artwork, antiques, and “collectibles” such as stamps and coins is taxed as high as 28 percent, almost double the top rate on securities. Included in the definition of a collectible is gold and silver bullion. Also collectibles, says the IRS, are investment coins that substitute for bullion, such as the American Eagle and the recently introduced American Buffalo, though some dealers and collectors mistakenly believe otherwise.”
In the case of our example, the $600 gain would be subject to a $168 Federal “collectible” tax upon sale. One more reason to hate the U.S. tax code …
The only problem with this is that it fails to consider buying gold futures. Few buy gold as a commodity with a buy and hold strategy. The idea is to leverage future contracts and $10k in future contracts right now would be worth several hundred thousand if you had rolled those contracts over starting in 2001.
Gold is cash? Try buying stuff with it.