U.S. Investors and Gold ETFs

Montreal, Canada

The Globe and Mail, Canada’s leading daily financial newspaper and my personal favorite, reported a useful tax tool for American investors in today’s Report on Business.

U.S. investors can qualify for a lower capital gains tax rate of 15% compared to 28% for collectibles. The word “collectibles” includes U.S.-based funds or ETFs that hold physical gold or silver. The risk here is currency-related should the Canadian dollar decline vis-à-vis the U.S. dollar; since 2003, the loonie has been on a tear and trades at a 3% premium to the sad buck.

According to the Globe and Mail, the Toronto Stock Exchange (www.tsx.com) lists seven bullion exchange-traded-funds and closed-end funds offering exposure to either gold, silver or a combination of said metals, including platinum. Platinum, however, is not regarded as a premier monetary metal and is highly tied to the cyclical demand outlook for the global economy. Silver also shares this role but has historically played a role as a surrogate currency in central bank coffers before gold replaced the former earlier in the last century.

In my book, the ultimate inflation-hedge and monetary reference tool remains gold.

I was interested to find only one precious metals fund actually trading at a discount to its NAV or net asset value. The Precious Metals Bullion Trust (Toronto-PBU), which holds physical gold, silver and platinum, trades at a mild 1.3% discount to NAV. That might not seem like much but it sure beats paying a premium above NAV to buy gold or even buying an ETF trading at net asset value. In this world, every edge counts for investors.

For U.S. investors, Canadian-listed precious metals ETFs are a great instrument to reduce effective realized gains compared to U.S.-listed bullion funds. That’s a loophole in the tax code that’s worth exploiting if you’re an American taxpayer.

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