Gold Bullion or a Gold ETF?

Larry Light explores the pros and cons of gold investing in his column Catching the Gold Bug.

When deciding whether to buy and store gold bullion or to invest in a gold ETF like SPDR Gold (GLD), investors need to consider several issues.

Light points out that buying gold is not cheap with markups on bullion at around 5%. Taxes are another consideration. The Internal Revenue Service classifies gold not as an investment, but as a collectible. As a result, gold is ineligible for the 15% maximum federal capital gains tax.

Gold pays no dividends or interest. If you keep gold in an IRA, the gold must be held in trust by a bank, where you can’t use it for nonretirement purposes.

Storing and insuring gold also has costs. In Light’s article, he points out that under a standard homeowner’s policy gold kept in the house is covered only up to around $200 in value. Special riders are available: Allstate will ensure $20,000 worth of household gold for an annual premium of $684, with a $250 deductible, for example.

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