The problem with buying gold as a LT inflation hedge
It's the government, stupid!
I like shiny rocks! A gold coin feels powerful in the palm. What you’re about to read, I genuinely would love to be proven wrong. If you can explain how my thinking is offbase I welcome it. Let me know in the comments section…
The problem with gold
There is an adage in the precious metals space that whether it’s 1920 or 2020, an OZ of gold buys a fine man’s suit. In other words, as the decades wear on it’s gold that preserves purchasing power.
Preserve is an important word since it does not equal grow.
Once you factor out the short term swings, if we buy gold today we expect that in twenty or thirty years it will still buy roughly the same amount of goods and services. That’s swell, but it’s also a huge problem.
Just to use round numbers, if 1 OZ of gold = $2,000 today and $20,000 in thirty years, a gold investor is technically on the hook for $18,000 in capital gains. It DOESN’T FUCKEN’ MATTER that the govenment debased the dollar worse than dapper Dan deflowering a drunken dubante. It counts for nothing that in terms of purchasing power the physical gold hasn’t gained ground. The guvornmint wants its $18,000 in capital gains, thank you very little.
Depending on your jurisdiction you could be looking at a 20 or 30% tax bill on the sale, which means your gold really hasn’t preserved purchasing power.
But allow me to retort!
A few months ago I wrote this entire argument out and posted my concerns on a gold forum. At the end of the post I asked: please tell me how I’m wrong. I received dozens of replies that broadly fit into three categories.
80% of people said, “why would you ever tell the guvornmint that you sold your gold? Sell your gold locally.”
10% of people said gold will outperform inflation, as it receives a premium as a societal breakdown hedge. In other words, the loss to capital gains will be offset by outperformance above and beyond a mere inflation hedge.
7% of people insulted me and engaged in adhominem attacks while providing zero proof that I’m wrong.
3% of people admitted that I was right.
Obviously, if you can sell your gold locally and never tell the authorities, then you’re not on the hook for capital gains and none of my concerns are warranted. However, technically I think that this is illegal. I’m totally cool with that, stick it to the man, however I want to grow my assets within a framework of legality.
Within that framework, where I consent to getting bent over a barrel by the good guys at the guv, I just don’t see how gold can functions as an inflation hedge. Capital gains kill the sick gainz…
Am I wrong? I welcome pushback, or any other ideas you have on the topic.
I wonder if I could take my gold coins and stick them in an IRA vault.. But if I did sell them (it will be the last thing I ever do, most likely they will be passed down), I doubt anyone will ever know.