Few investment opportunities have captured the human imagination like gold, which is a highly sought-after asset that can be liquidated anywhere in the world. However, investors should consider several factors before going all in on this precious metal. Benzinga looks at some of the logistical issues, taxation implications, and other challenges that go hand in hand with buying gold as an investment.
America’s obsession with gold dates to the country’s formative years and westward expansion, when gold was discovered in California and then the Black Hills of South Dakota. Although San Francisco is famous for its tech startups and dot coms, the first boom in the Bay Area was the gold rush, and San Francisco’s football team (the 49ers) is named after the year gold was first discovered in Northern California (1849).
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Costco put gold back on the map for casual investors when the warehouse giant announced it would be selling gold bars directly to its members. They could not have expected how popular these bars would become. Most stores depleted their entire stock of gold bars within minutes of making them available and Costco is now selling an estimated $200 million worth of gold bars every month.
However, this is where things get complicated. Many of the Costco customers who bought gold bars naturally assumed they would be able to liquidate them for the same price they paid, if not more. Theoretically, that’s true but commodities trading is a bit more complex than that. The price of gold fluctuates daily and despite its largely upward trend, there is no guarantee that individual buyers will be able to sell at a profit.
That variable price scale is why Costco does not issue refunds or exchanges on its gold bars. It’s also why some gold buyers are having trouble getting the price they anticipated when they put the gold bars back on the market. Complicating matters further, Costco is always putting new gold bars on the market, and gold dealers operate in every city in the country.
That all serves to make gold a bit of a buyer’s market, much to the chagrin of many aspiring gold moguls. A lot of Costco gold buyers report having issues selling their bars for the price they paid, and even fewer seem to be making a profit. After all, professional gold buyers calculate offers based on the spot price and then subtract a few percentage points so they can make a profit on the deal.
That makes perfect sense, but it comes as cold comfort to anyone who paid $2,000 for a Costco gold bar and expects to sell it for more. The buyers who do sell gold at a profit will have several other considerations. First, there is the tax man. Even though many buyers purchase gold as an investment, the IRS classifies it as a collectible, and taxes profit from gold sales at 28%.
Second, the logistics of storing and shipping gold are rather complicated. Buyers can keep it at their homes, but that is hardly a secure location, and storing gold in a secure location isn’t free. Shipping gold is also a challenging and expensive exercise because it must also be done securely. That means gold investors need to calculate the cost of secure storage, shipping, and taxes before they can turn a profit.
For all these reasons, “flipping” Costco gold bars, or even gold coins, is not as easy as baking a cake. That’s why prospective gold investors might be better served by buying shares of a Gold ETF and letting the experts do the heavy lifting. This isn’t to say that there is anything wrong with buying gold directly, but buyers must have their eyes wide-open and be attuned to all the potential complications.
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This article Is Investing In Gold A Smart Financial Move? Here’s What To Know Before Investing originally appeared on Benzinga.com
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