Asset location - gold/silver etf and miners

[adamsdp]

I currently own the following gold/silver etf's that hold physical metal and miner stocks in the accounts as noted-

iau - physical gold - Roth
sil -silver mining stocks - Roth
iau - physical gold - Traditional IRA
sivr- physical silver - Traditional IRA

I am thinking that it will be better to have something with an expected higher long term return (stock fund) instead of gold/silver to take advantage of the tax free Roth. With that in mind, I am planning to sell iau and sil and buy a stock fund in the Roth account. To maintain, the same allocation to gold/silver, I will than purchase gold/silver in a taxable account.

In the traditional IRA, I am thinking to sell iau and sivr and purchase a bond fund after reading a traditional IRA is a good location from asset location standpoint. I would also purchase an equivalent amount of gold/silver in a taxable account to maintain current allocation levels.

If both or either of the above moves makes sense, I am planning to buy gold and silver miners in the taxable account to take advantage of the capital gain rate vs collectible rate if I purchase an etf that holds physical gold and silver. I have read that you can get similar diversification effects from holding a smaller amount of gold/silver miners as they tend to move to a greater degree than the physical metals. If this is the case, I may not purchase as much of the miners in the taxable account that I previously held in my Roth/Traditional IRA accounts. Wanted to run this plan by the group to see is I am on the right track and if there is more to consider. Thank you!

[Watty]

Wanted to run this plan by the group to see is I am on the right track and if there is more to consider. Thank you!

This likely is not the best place to ask about precious metal investments since that pretty much goes against the Boglehhead philosophy of buying low cost index funds.

[GottaLottaNada]

It would help us to know what percent of your overall Portfolio is invested in the Metals.

When did you buy into the IAU and SLV ETFs ?? What was your entry point ?

I bought into GLD at $157 back in April 2020......it's grown to be about 6% of my IRA. The Miners don't really interest me.

[suemarkp]

I wouldn't recommend IAU or GLD in taxable because of tax headaches. There are entries you need to make for monthly maintenance of the fund which causes capital gains. I did not like having to figure out those numbers and how to enter them on the 1040. I think the brokerage even provided the numbers as a courtesy, and some don't do this.

I moved them to an IRA to avoid the headache. Unless you are in the 31% tax bracket or higher, IRA is just as good as taxable from a tax point of view.

[Gaston]

I wouldn't recommend IAU or GLD in taxable because of tax headaches.

I don't own gold, but I do know that many gold products (eg, GLD, GLDM, IAU, IAUM) are registered as grantor trusts, and long-term capital gains are taxed at the 28% collectibles rate rather than the normal 20% rate. Just curious, is this the tax headache you refer to, or are there other adverse tax consequences?

[halfnine]

There is a counterargument. And that would be that if your stock/bond allocation does as expected or better that paying taxes on it isn't going to have that much of an overall impact on your lifestyle. However, if gold excels it will likely occur alongside a disastrous performance of the stock/bond allocation. And as your gold allocation is probably quite small relative to your stock/bond allocation mitigating taxes would probably be paramount to help mitigate the impact to your lifestyle. So, in that respect, gold in a Roth could be considered a bit of a left tail hedge. Most of the time it is going to lose out but during the most critical times it's beneficial.

[adamsdp]

It would help us to know what percent of your overall Portfolio is invested in the Metals.

When did you buy into the IAU and SLV ETFs ?? What was your entry point ?

I bought into GLD at $157 back in April 2020......it's grown to be about 6% of my IRA. The Miners don't really interest me.

The percent of overall portfolio is -
iau - 2.5%
sil - 0.6%
siver - 0.7%
gdx (taxable account) - 3%

I bought into iau and slv around 6 years ago at a price lower than where they are now.

[adamsdp]

I wouldn't recommend IAU or GLD in taxable because of tax headaches. There are entries you need to make for monthly maintenance of the fund which causes capital gains. I did not like having to figure out those numbers and how to enter them on the 1040. I think the brokerage even provided the numbers as a courtesy, and some don't do this.

I moved them to an IRA to avoid the headache. Unless you are in the 31% tax bracket or higher, IRA is just as good as taxable from a tax point of view.

Thank you for mentioning about the tax headaches and don't need any additional work in that area.

[adamsdp]

There is a counterargument. And that would be that if your stock/bond allocation does as expected or better that paying taxes on it isn't going to have that much of an overall impact on your lifestyle. However, if gold excels it will likely occur alongside a disastrous performance of the stock/bond allocation. And as your gold allocation is probably quite small relative to your stock/bond allocation mitigating taxes would probably be paramount to help mitigate the impact to your lifestyle. So, in that respect, gold in a Roth could be considered a bit of a left tail hedge. Most of the time it is going to lose out but during the most critical times it's beneficial.

Thank you for the thoughts about keeping some gold/silver in the Roth and can see how it could make sense in extreme circumstances as you mentioned.

[suemarkp]

I wouldn't recommend IAU or GLD in taxable because of tax headaches.

I don't own gold, but I do know that many gold products (eg, GLD, GLDM, IAU, IAUM) are registered as grantor trusts, and long-term capital gains are taxed at the 28% collectibles rate rather than the normal 20% rate. Just curious, is this the tax headache you refer to, or are there other adverse tax consequences?

No. If you use turbo tax, the fact that it is a collectable with a different tax rate is easy to indicate with a checkbox for "collectable". The problem is holding an asset you didn't sell at all during the year, but you still have realized capital gains to deal with. In a managed mutual fund, that might hit once in december. In a stock fund, you have quarterly dividends to track. With a gold fund backed by physical holdings, there is a monthly number you have to go fetch and multiply your holdings by that percent to determine the gain (or perhaps loss) for each month. Finding these numbers is a bit tougher if your brokerage statement doesn't provide them for you.

One of the plusses for physical gold is that it has no yield so no tax drag. Holding it in taxable shouldn't cause any taxes until you sell. With a fund like IAU or GLD, this isn't so, as they have to sell physical holdings as necessary to pay internal expenses and this is tabulated monthly.

[bberris]

I get that gold and silver are supposed to be a inflation hedges. I don't get how gold mining companies are inflation hedges. Their costs go up as the price of the commodity goes up.

[Gaston]

With a gold fund backed by physical holdings, there is a monthly number you have to go fetch and multiply your holdings by that percent to determine the gain (or perhaps loss) for each month. Finding these numbers is a bit tougher if your brokerage statement doesn't provide them for you.

Interesting. I'll have to google around some day and see how that works. Among all the investors in GLD, IAU and similar, I wonder what percent of shareholders actually do this, or know they are supposed to do this. Maybe the IRS notifies them when they've not done it.

Thanks.

[suemarkp]

It was my Dad's holdings that first got me in to this. He held GLD and SLV at Morgan Stanley. The Morgan Stanley guy said "there isn't really anything you need to do with those numbers", but I think he was wrong. In holding those for 9 months, the GLD gains from internal selling were $16 and the SLV gains from internal selling were $15. So $31 taxed at 22% which is $6 (and I was not clear whether these costs were short term or long term gains. Since he was in the 22% bracket it didn't matter but I coded them as short term). Maybe the Morgan Stanley guy thought the IRS wouldn't quibble about $6.

Whether this will have an impact on your taxes depends on how much you hold. I think my dad had about $10K between GLD and SLV and it may have been $10 in taxes if I had not moved it out of his taxable account in September. It was a fair amount of research for that $6 hit and would have been easier next time. But I didn't want to suffer with it again, and if the brokerage didn't provide the monthly values I would have had to go to the GLD and SLV website to find them.

[halfnine]

It was my Dad's holdings that first got me in to this. He held GLD and SLV at Morgan Stanley. The Morgan Stanley guy said "there isn't really anything you need to do with those numbers", but I think he was wrong. In holding those for 9 months, the GLD gains from internal selling were $16 and the SLV gains from internal selling were $15. So $31 taxed at 22% which is $6 (and I was not clear whether these costs were short term or long term gains. Since he was in the 22% bracket it didn't matter but I coded them as short term). Maybe the Morgan Stanley guy thought the IRS wouldn't quibble about $6.

Whether this will have an impact on your taxes depends on how much you hold. I think my dad had about $10K between GLD and SLV and it may have been $10 in taxes if I had not moved it out of his taxable account in September. It was a fair amount of research for that $6 hit and would have been easier next time. But I didn't want to suffer with it again, and if the brokerage didn't provide the monthly values I would have had to go to the GLD and SLV website to find them.

It's been a long time since I held GLD in a taxable account but I didn't find the tax reporting too onerous. A quick search for GLD in 2023 yields this. Now, if others find this more trouble than it's worth that's fair enough. For me, as an expat, GLD is a walk in the park. I also never found the collectible tax rate too much of an issue either. The capital gains kicked out to cover expenses is minimal enough that the tax rate is rather meaningless and when I sold GLD on two separate occasions the LTCGs were offset by captial losses on my equities and no taxes were due anyway.

[chaser]

I concur that this is not the best place to discuss precious metals and miners. It isn't really in line with Bogleheads philosophy.

That said, for taxable accounts, consider buying Sprott PHYS, PSLV, or CEF instead of GLD, IAU, etc. Sprott employs a tax trick for the benefit of US taxpayers by structuring their funds in Canada, so you can avoid the collectables tax if you file Form 8621 annually. Sprott also avoids the yearly distribution accounting headaches of GLD. Look up some other threads on this for more detail, like this one:
viewtopic.php?p=7915236#p7915236

As for miners, you need to be extra careful and should really understand what you are investing in, and separate narrative from reality. While the narrative is they move like a multiplier of the metals, the reality is they can behave very differently and go out of business. Mining is a terrible capital destroying industry, also a very inefficient market, topped with massive geopolitical risks. During the massive decade gold run up from roughly 2001 to 2011 where gold multiplied its value ($500 to $2500), the miners pulled off the unthinkable and actually managed to lose money during the entire run up: terrible management of costs, too many acquisitions and increased capital expenditures, and reckless speculation of buying anything that had a sign on top of a hole with the word "gold" written on it. Then when gold crashed in 2011, the majority of miners went bankrupt. Since the majority of gold mining companies don't actually own a mine with a single ounce of gold, this means the majority of miner indices held complete garbage and crashed accordingly. So it really behooves you to understand the mining industry and be a stock picker. (This is very active, and very un-Boglehead.) The only silver lining is that miners were so decimated and so hated this past decade, the majority of the crap companies are extinct so you might actually be able to buy a (senior) miners index and actually be buying some good values, not get taken to the cleaners next time around (until the next mania, which you better know when to sell).

Anyway, if you go down this path, two general principles:
- Do the homework and know what you are investing into.
- Don't "wag the dog", i.e. don't let tax considerations drive you to make poor investment decisions.

[suemarkp]

If you buy once and hold, GLD/SLV isn't too bad. You still need to find this form each year to get the list of monthly expense values. You also need to find out how many shares you have each month and apply these factors to it. If you bought and sold shares, now you are having to pro rate within the month before and after when you bought or sold. And then there is the cost basis adjustment which you need to keep track of forever. Maybe you brokerage will do this for you. In my case, they were listed in the non covered share section which meant cost basis data is on me to maintain.

You can just skip all of this hassle by keeping it in an IRA instead of a taxable account.

Taxes are complicated enough with just normal things. I do what I can to keep it as simple as possible. I avoid K-1 forms too so don't want to hold MLPs or some REITs in taxable either.

[stimulacra]

I keep my Gold ETF (SPDR Gold MiniShares Trust — GLDM) in my tax-deferred IRA along with bonds.

This frees up Roth and taxable for equities.

[welderwannabe]

With a gold fund backed by physical holdings, there is a monthly number you have to go fetch and multiply your holdings by that percent to determine the gain (or perhaps loss) for each month. Finding these numbers is a bit tougher if your brokerage statement doesn't provide them for you.

Interesting. I'll have to google around some day and see how that works. Among all the investors in GLD, IAU and similar, I wonder what percent of shareholders actually do this, or know they are supposed to do this. Maybe the IRS notifies them when they've not done it.

Thanks.

Worse, you also have to subtract these fees from the cost basis, as the fees paid by the trust, which most of these ETFs are, are not deductible. This requires you to continuously track, for each lot you've purchase, the amount of gold that was sold to cover expenses. Not only so you can pay taxes on the gain (if any) for that small amount of gold sold, but so that you can adjust your basis when you sell the lot.

State street has a good writeup on the math. You can follow this link and download the most recent report.

https://www.spdrgoldshares.com/gldm/tax-reporting/

[welderwannabe]

I am thinking that it will be better to have something with an expected higher long term return (stock fund) instead of gold/silver to take advantage of the tax free Roth. With that in mind, I am planning to sell iau and sil and buy a stock fund in the Roth account. To maintain, the same allocation to gold/silver, I will than purchase gold/silver in a taxable account.

I know some people hold miners as a proxy for the physical metal, but they are really two different things. It all depends on the reason you wanted to hold the metals for in the first place.

[Gaston]

State street has a good writeup on the math.

Thanks again. After reading the write-up, I’ll be even more surprised if people know about this or bother doing it.

As an aside, my understanding is that ETFs that hold the asset that must not be named also follow a grantor trust structure. So I guess investors in those products must face (and maybe ignore) the same tax reporting challenge.

Learning a lot from you.

[adamsdp]

I concur that this is not the best place to discuss precious metals and miners. It isn't really in line with Bogleheads philosophy.

That said, for taxable accounts, consider buying Sprott PHYS, PSLV, or CEF instead of GLD, IAU, etc. Sprott employs a tax trick for the benefit of US taxpayers by structuring their funds in Canada, so you can avoid the collectables tax if you file Form 8621 annually. Sprott also avoids the yearly distribution accounting headaches of GLD. Look up some other threads on this for more detail, like this one:
viewtopic.php?p=7915236#p7915236

As for miners, you need to be extra careful and should really understand what you are investing in, and separate narrative from reality. While the narrative is they move like a multiplier of the metals, the reality is they can behave very differently and go out of business. Mining is a terrible capital destroying industry, also a very inefficient market, topped with massive geopolitical risks. During the massive decade gold run up from roughly 2001 to 2011 where gold multiplied its value ($500 to $2500), the miners pulled off the unthinkable and actually managed to lose money during the entire run up: terrible management of costs, too many acquisitions and increased capital expenditures, and reckless speculation of buying anything that had a sign on top of a hole with the word "gold" written on it. Then when gold crashed in 2011, the majority of miners went bankrupt. Since the majority of gold mining companies don't actually own a mine with a single ounce of gold, this means the majority of miner indices held complete garbage and crashed accordingly. So it really behooves you to understand the mining industry and be a stock picker. (This is very active, and very un-Boglehead.) The only silver lining is that miners were so decimated and so hated this past decade, the majority of the crap companies are extinct so you might actually be able to buy a (senior) miners index and actually be buying some good values, not get taken to the cleaners next time around (until the next mania, which you better know when to sell).

Anyway, if you go down this path, two general principles:
- Do the homework and know what you are investing into.
- Don't "wag the dog", i.e. don't let tax considerations drive you to make poor investment decisions.

Thank you and helps to know about the recent history of miners. Makes me more hesitant to go all miners. I was thinking miners would be a good proxy for gold and have the advantage of being taxed at the capital gains rate.

[adamsdp]

I am thinking that it will be better to have something with an expected higher long term return (stock fund) instead of gold/silver to take advantage of the tax free Roth. With that in mind, I am planning to sell iau and sil and buy a stock fund in the Roth account. To maintain, the same allocation to gold/silver, I will than purchase gold/silver in a taxable account.

I know some people hold miners as a proxy for the physical metal, but they are really two different things. It all depends on the reason you wanted to hold the metals for in the first place.

I am holding the metals as a hedge against inflation, future dollar weakness and to diversify my stock/bond holdings. Any insights you have about the differences between holding the physical metal and miners will be appreciated.

[welderwannabe]

I am holding the metals as a hedge against inflation, future dollar weakness and to diversify my stock/bond holdings. Any insights you have about the differences between holding the physical metal and miners will be appreciated.

Suggest you do some research. Look at the GDX, which is an ETF that invests in the miners. It has a beta, which is a form of price volatility, of close to 1.0. That puts it on par with the S&P500.

Then look at an ETF like GLD, which invests in the physical metal, and youll see its Beta down between .1 and .2, depending on how its measured. For reference, cash has a beta of 0.

Gold, in physical form, is a relatively non-volatile steady as she goes asset. Miners, not so much.

The miners tend to be held more for speculation as to an increase in gold's price (or decrease if you're shorting).

For the reasons you state that you hold the physical metal, I'd suggest keep holding the physical metal.

[devillif311]

Miners still have not reached its high since 2008, why have it in the portfolio compared to index funds?

[halfnine]

...I am holding the metals as a hedge against inflation, future dollar weakness and to diversify my stock/bond holdings...

- Gold, which is global, is a poor hedge against any individual country's inflation.

- Gold is an unreliable hedge against the dollar or any other currency weakness.

- Gold has also been an unreliable divesifier if stock/bond holdings are in any individual local market. But gold can work as a good diversifier for a global portfolio.

You can think about it this way...gold is the asset of last resort. If there is nothing else foreign or domestic that is appealing money flows into gold.

[adamsdp]

I am holding the metals as a hedge against inflation, future dollar weakness and to diversify my stock/bond holdings. Any insights you have about the differences between holding the physical metal and miners will be appreciated.

Suggest you do some research. Look at the GDX, which is an ETF that invests in the miners. It has a beta, which is a form of price volatility, of close to 1.0. That puts it on par with the S&P500.

Then look at an ETF like GLD, which invests in the physical metal, and youll see its Beta down between .1 and .2, depending on how its measured. For reference, cash has a beta of 0.

Gold, in physical form, is a relatively non-volatile steady as she goes asset. Miners, not so much.

The miners tend to be held more for speculation as to an increase in gold's price (or decrease if you're shorting).

For the reasons you state that you hold the physical metal, I'd suggest keep holding the physical metal.

Thank you very much for highlighting the beta difference between the physical metals and miners. Shows how they are different as you mentioned. I am holding the gold to be a more steady asset and worst case insurance and appreciated your advice about keeping the physical metal. Since as others have pointed out about the tax headaches of gold etf's and the high collectible rate, I think keeping the physical metals etf's in a traditional IRA makes the most sense. Is a traditional IRA a good place to hold them?

[adamsdp]

I am holding the metals as a hedge against inflation, future dollar weakness and to diversify my stock/bond holdings. Any insights you have about the differences between holding the physical metal and miners will be appreciated.

Suggest you do some research. Look at the GDX, which is an ETF that invests in the miners. It has a beta, which is a form of price volatility, of close to 1.0. That puts it on par with the S&P500.

Then look at an ETF like GLD, which invests in the physical metal, and youll see its Beta down between .1 and .2, depending on how its measured. For reference, cash has a beta of 0.

Gold, in physical form, is a relatively non-volatile steady as she goes asset. Miners, not so much.

The miners tend to be held more for speculation as to an increase in gold's price (or decrease if you're shorting).

For the reasons you state that you hold the physical metal, I'd suggest keep holding the physical metal.

Thank you very much for highlighting the beta difference between the physical metals and miners. Shows how they are different as you mentioned. I am holding the gold to be a more steady asset and worst case insurance and appreciated your advice about keeping the physical metal. Since as others have pointed out about the tax headaches of gold etf's and the high collectible rate, I think keeping the physical metals etf's in a traditional IRA makes the most sense and wanted to ask if this is a good place to hold them?