Gold is an erratic hedge against inflation. But if you want to put 5% or 10% of your savings in the metal, consider costs, taxes and liquidity.
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Not quite a century ago FDR demanded that savers surrender their gold in return for paper dollars. Since that day the dollars have lost 96% of their buying power.
Are we in for more damage in greenbacks? You could hedge. You could own the gold that was outlawed in 1933 and is now legal again.
There is something to be said for precious metal as a repository of buying power. Also something to be said against: Gold is an erratic hedge against inflation, it has a negative yield (cost of storage) and over long stretches it does worse than stocks and real estate.
But maybe you want to go ahead, with 5% or 10% of your savings. Then consider these six ways to own bullion, directly or indirectly.
1. Something to clutch.
Costco is doing a lively business selling one-ounce gold bars and coins to its members. Recent price: A mere 2.7% above the value of the metal. Costco customers with a premium membership and a Costco charge card can recover most or all of the premium. Alas, quantities are limited.
You could buy an American Eagle, put it in your lingerie drawer for 20 years, then sell it to buy stuff. If the price of gold has doubled but the prices of everything else have also doubled in the meantime, you’re just breaking even in real terms. You will nonetheless owe capital gain taxes on your papery profit.
Disadvantages: two. The coin or bar might be lost or stolen. Also: Costco won’t buy it back. You’ll have to sell it to a bullion dealer, who will be justifiably suspicious and need to subject the piece to tests for integrity. Expect a 5% haircut from the dealer.
On sale, the tax on a long-term precious metals gain is at your ordinary income rate or 28%, whichever is lower, plus 3.8% if you pay the investment income surtax (at adjusted gross income over $250,000 on a joint return), plus state income tax. An upper-middle-income couple will lose maybe a third of the appreciation to the government.
2. Coins in an IRA.
A plethora of operators are offering gold-based IRAs. They solve the capital gain problem. They don’t spare you the frictional costs.
Goldco is one of the larger players; it claims $3 billion in sales since its 2006 founding. I was interested in buying 12 one-ounce Canadian Maple Leaf coins inside an IRA. A soft-selling salesman came to the phone. The hard sell, he explained, had already been done for him by the Federal Reserve’s printing presses.
With Goldco you pay an annual $235 or so in fees. The sum covers costs at the IRA custodian, Equity Trust in Ohio, and the guarder of the coins, the Delaware Depository. Goldco promises to buy back your coins when you want to pull out cash in retirement.
Goldco makes its money from the spread between its selling price and its buyback price. The salesman quoted a buy price that was 6.6% lower than the sell price. Spread over 20 years, that’s a 0.33% annual expense.
Now add in the custodial and depository fees. For a $50,000 account, they come to 0.47% a year. Combined expense ratio: 0.8%. A $500,000 account would bring that number down below 0.4%—but that’s still a bit stiff.
The salesman was disappointed that I remained focused on the Canadian coins, which are very liquid and see a lively volume in the wholesale market. He wanted me to look at limited-edition coins with prices lofted high above their melt value. Even if Goldco is still around to honor its buyback offer when you need the money, you would be looking at a 30% bid-ask spread there. I think it makes no more sense to use premium coins than to invest in antique highboys to fund your retirement.
But let me add a note of support for IRAs as a tax dodge. It is commonplace for IRA vendors to describe the account as “tax-free.” Financial scolds will say, “No it isn’t. You have to pay tax at ordinary-income rates when you take the money out. In a taxable account you would be paying only the lower capital-gain rate on the appreciation.” I side with the IRA hustlers here.
If your combined tax burden is going to be a third of the eventual withdrawal, then the $300,000 IRA balance you see on a monthly statement isn’t yours. A third of it, along with any future appreciation on that third, already belongs to the government. The other $200,000 belongs to you and compounds totally tax-free.
3. Futures in an IRA.
Not many custodians allow commodities futures in an IRA. Charles Schwab is an exception.
Let’s suppose you are interested in one 100-ounce gold contract, representing $434,000 of metal. Although futures dates reach out years, liquidity is really good only in close maturities. Roll over the contract six times a year and you’re looking at $46 in commissions and exchange fees and another $150 or so in bid/ask spreads. Combined rolling expense: a bit more than 0.04% a year. A bargain!
Wait. It is customary in the commodities trading business to require the players on both sides of the contract to put up cash margin on which they get no interest. (Middlemen make off with the loot.) Opportunity cost at Schwab: $1,500 a year. That brings your expense ratio to 0.4%.
Note: You can own futures in a taxable account. The margin requirement is likely to be smaller (good). Gains are presumed to be 60% long-term and 40% short-term (pretty good) but you have to settle annually with the IRS on your paper profits (pretty awful).
4. Warehouse receipts.
Interactive Brokers allows customers to buy gold and have IB store it. Commission: 0.015%, with a $2 minimum. That’s $15 on a $100,000 trade. Storage is $1.80 a year per ounce, or 0.04%. Bid/ask spreads are presumably tight, but I can’t quantify them; they are, in any event, not the big item for someone buying and holding for 20 years.
You are, in effect, buying and selling warehouse receipts, but you also have the right on cashing one in to have the metal (for a fee) shipped to your home.
Security: presumably good, although I can’t vouch for the alertness of the armed guards or for the flood mitigation system. Interactive assures me that the gold is segregated from the assets and liabilities of the brokerage. But note that Securities Investor Protection Corporation insurance doesn’t cover this asset.
5. Bullion fund.
The granddaddy of bullion trusts, SPDR Gold Shares, sees $6 billion of trading volume on a good day. That keeps the bid/ask spread close to 0%. However, the stiff 0.4% annual expense means the shares are useful only for in-and-out trading. Long-term holders are better off with the iShares Gold Micro exchange-traded fund, with a 0.02% bid/ask spread and an annual charge of 0.09%.
You can hold ETF shares in any brokerage account, taxable or tax-free. SIPC insurance protects your ownership of those shares. It does not protect the gold if a Bond villain dynamites the warehouse where it’s stored.
6. Goldmine shares.
In lieu of metal you can own stakes in the companies that pull it out of the ground. They are able to earn decent money and pay dividends even when the price of gold is going sideways.
Miner shares are a concentrated bet. That’s mostly because of the operating leverage in the business: If a company’s production cost is $2,000, a move in gold’s price from $3,000 to $4,000 doubles gross profit. In buying these shares or funds that hold them, remember that a little goes a long way—both up and down.
The obvious choice is the Van Eck Gold Miners ETF (annual expense, 0.51%; bid/ask, 0.01%). Its largest holdings are Agnico Eagle Mines, Newmont Corporation and Barrick Mining Corporation.
Van Eck also has an actively managed fund, International Investors Gold. This open-end fund has done well recently (6 points ahead of the ETF in 2025) but is expensive, with a front-end load and an annual expense burden of 1.42%.
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Six ways to own shiny metal. You’ll have your favorite. Mine would be a low-cost ETF held in an IRA at a mainstream financial institution.
I can understand why someone might buy one gold or silver coin as, say, a graduation present. But what could possibly explain the purchase of a bag of coins? The transaction costs are fierce.
The answer came to me yesterday when I was chatting with a fellow I know who is a wealth manager for one of those mainstream financial institutions. He bragged that he had recently unloaded 800 Silver Eagles on a dealer for a bit more than $48,000. He had bought the coins on his own years ago, when silver was cheap.
You’re going to get killed when you put that on your tax return in April, I said. “Oh?” he said. “Coin sales are not reportable.”
That’s right. Coin dealers are largely exempt from the rule that forces stockbrokers to file 1099B reports with the IRS.
My email address is in my bio. Write if you’d like to share your experience buying and selling gold or silver.
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