gold is not money

I drive men crazy for love of me.

Easily defeated, never free.

It’s me?

Why, you are gold, of course.

In fact, metal is many things to many people. But one thing is not: money.

That’s a surprise to some people.

Over the years, in letters from readers about acquiring, transporting or storing gold, I have noticed that many people assume that gold is money. From there they extrapolate all kinds of false conclusions about how they should manage their ownership of the metal.

Some even miss out on great opportunities as a consequence.

Gold is not money… and that makes a huge difference when it comes to wealth management strategies…

What is money… and why does it matter?

Those of you interested in bitcoin are probably familiar with the long debate over whether virtual currency is a form of money or a non-monetary asset.

Government agencies, the IRS, and the courts have dealt with this issue from time to time. It’s important for a number of reasons… all of which apply equally to gold bullion.

Money (currency, a legal tender issued by a sovereign authority such as the US government, including face value gold coins) is not considered an asset. It is just a store of value, a unit of account, and a medium of exchange.

Because governments issue money, governments have a unique interest in controlling it…such as when it comes into or out of the country, or stores it in a foreign financial institution, or uses it for a large transaction. That is why they impose such strict reporting requirements.

On the other hand, governments do not normally tax the appreciation of the value of money. If you have an account denominated in Swiss francs and its value increases against the dollar, increasing your purchasing power, it is not considered a capital gain.

The same would apply to bitcoin or gold, if they were considered forms of money… hence the debate.

The Bullion Advantage

But gold bullion – gold that has not been minted into legal tender coins, which is treated like money – is an asset, not money, and that matters… a lot.

Let’s go over some of the key differences.

• Gold bullion purchases must not be reported to the US government. Many people think that they are. This is because if paying cash or a cash equivalent worth $10,000 or more in bullion, the merchant must file IRS Form 8300, “Report of Cash Payments Over $10,000 Received in a Transaction or Business.” However, this requirement is not specific to purchases of precious metals. It applies to all cash transactions of more than $10,000, no matter what you are buying. If you buy bullion with a credit card, you don’t need to tell Uncle Sam.

• You do not have to declare gold bullion when bringing it into or out of the US, like you do currency. Admittedly, this is a tricky topic, and many people advise you to play it safe and declare it anyway to avoid trouble. But technically, gold bars are just like any other personal property: furniture, a car, etc. – and cross-border movements do not have to be reported if the value exceeds $10,000, as is the case with any form of currency (including legal tender gold coins).

• You are not required to report gold stored outside of the United States. Whether you keep it in a safe deposit box or a private vault, gold bullion is considered personal personal property, an asset no different than jewelry, works of art, or anything else of value. By contrast, if you keep money in a foreign financial institution, you face all sorts of onerous reporting requirements, such as Foreign Bank and Financial Account Reporting (FBAR) and Foreign Account Tax Compliance Act (FATCA).

• You report and pay capital gains tax on gold sales, but you can also deduct losses. The IRS classifies billions of gold as collectibles. That means the gains on your sale can be taxed at the maximum capital gains rate of 28%. The actual rate you pay is determined by the amount of time you’ve owned it and your ordinary income tax rate. You would report capital gains from gold sales on Form 1040 Schedule D and pay the tax when you file. Conversely, if you sell gold bars at a loss, it may offset other capital gains or even ordinary income.

the universal asset

Looking at gold bullion as an asset rather than a financial instrument illuminates its role in wealth management strategies.

Many people successfully speculate on gold price movements. Some even invest in funds like the SPDR Gold Trust (NYSE Arca:GLD). (Though that doesn’t count as owning gold in my book, it’s just paper.)

But by far the bulk of the world’s gold bullion is doing precisely what assets should do in any smart wealth management strategy: safely storing value for the long term as a hedge against the slings and arrows of the markets. of financial instruments such as stocks, bonds and the like.

Gold bars are the best “set it and forget it” strategy. If you haven’t already “set it up” by stockpiling some of the yellow metal that “powers[s] men madly in love with me”, now is the time to start.