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.