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Before You Buy

Tax on Gold and Silver

Before making any investment purchase you should consider the tax implications of buying and selling the asset.

GST (Goods & Services Tax): Investment grade Gold (99.5%+ fine) and Silver (99.9%+ fine) bullion is not subject to GST. Bullion products of a lesser grade (for example 22k Gold coins like Sovereigns & Kruggerands or 92.5% sterling Silver coins) do attract GST when sold by a bullion dealer.

You can avoid this additional premium by buying affected products privately where GST does not need to be charged.

Numismatic coins are not considered 'investment grade' so will also attract GST even though they might have the required finesse.

CGT (Capital Gains Tax): CGT is applicable on capital gains made from Gold and Silver. This from the ATO:
A capital gain - or capital loss - is the difference between what it cost you to get an asset and what you received when you disposed of it.

You pay tax on your capital gains. It's not a separate tax, just part of your income tax, although it is generally referred to as capital gains tax (CGT).
So for example if you buy an ounce of Gold for $1500 and sell it for $2800 then you will be liable to pay income tax on the $1300 profit (there are exceptions, such as if you've held the asset for 12 months then you only pay tax on half the gain). Consult your accountant to see how CGT might affect your investment in Gold and Silver.

Tax Changes: There is the potential that tax rules could change over the course of the bull market (after you have purchased Gold and Silver or related investments). In fact there have been a few commentators who have  suggested this is how the metals will be confiscated from the people, via a windfall tax (rather than direct confiscation they will tax precious metal investors a much higher percentage on their gains once they sell). This is definitely something to keep in mind. There has also been a suggestion by the Greens that Gold miners should be included in the MRRT (Minerals Resource Rent Tax) which has the potential to impact their profitability (and in turn share price if you hold any Australian Gold miners).

Spot Price / Physical Premiums

The spot price of Gold and Silver is derived from active intraday trading that occurs on multiple markets across the world. Generally the largest moves occur in the most established markets during US and London trading hours. Consider the spot price a base rate for the metal.

When you buy retail sized bullion bars and coins you will pay a premium to the spot price. This premium covers the cost of production and distribution. Generally speaking the smaller the product you are buying the larger the premium will be (as a % of the products underlying spot value).

If spot was at $30 then a 1oz Silver round might set you back $34.50 (15% premium to spot price), whereas a 10oz Silver bar might cost $315 ($31.50 per oz, 5% premium to spot price), a lower premium than the coin. Depending on the product the premium may hold or even rise if the product is sought after (e.g. in the case it has a limited mintage). It’s a good idea to hold a mix of larger bullion (to stack as many ounces as you can for as little as possible) and smaller bullion (for liquidity purposes and to take advantage of limited mintage bullion coins which can rise in value), I talk more about what to buy later in the guide.

Australian Price of Gold and Silver

In Australia you will pay a different price to our American counterparts as the local price is a derivative of the US spot price and AUD/USD exchange rate. For this reason Gold and Silver purchased locally is both a play on the US spot price of the metal as well as a currency play (what the AUD will do relative to the USD).

This has resulted in some interesting local dynamics, for example the price of Gold in Australia didn't fall by nearly as much as the US price in the middle of the GFC (2008) as the falling AUD held up the price.

To determine the AUD price of Gold we take the US spot price and divide it by the AUD/USD exchange rate. So for example at the time of writing this post we have a US spot price of US$1680, an AUD/USD exchange rate of .9714:

US$1680 / .9714 = AUD$1729

Of course there is no need to manually calculate the price this way every time you want to check the local price as there are websites that display spot price of Gold and Silver in AUD (and I have even included some live charts in the right hand sidebar on this site which you can check anytime for an update).

It's important to understand this pricing. There are many who suggest that the US will enter hyperinflation and Gold/Silver will go to the moon. If this were to happen then it wouldn't necessarily reflect in astronomical prices here as we could see our dollar appreciate against the USD.

If we have a second credit crisis like that seen in 2008 and the USD strengthens (against the AUD) along with Gold (as opposed to the fall it saw in 2008) then the local price of Gold could soar much higher than the US price. 

Hopefully this gives you a basic understanding of how the AUD price of Gold and Silver works.

ID Requirements When Buying Gold or Silver

When you make a bullion purchase (either in person or online) you may be required to provide identification. Depending on the size of the purchase, the business you are buying from may be required by law to view particular ID or it may simply be an in house rule.

Under the Anti Money Laundering / Counter Terrorism Financing legislation it is a requirement for customer identification procedures to be followed for certain transactions by providers of designated services. Basically this means where a bullion dealer provides you with $5000 or more worth of bullion they are required by law to take appropriate identification from the buyer.

Furthermore where a transaction of $10,000 or more is made with cash (e.g. for the purchase of bullion) the dealer is required to lodge a significant cash transaction report to AUSTRAC.

As these laws aren't specific enough to cover every type of transaction that might occur some dealers may interpret the legislation slightly differently (hence different requirements between dealers). Some dealers even choose to ask for ID (even if not required by law) on transactions less than $5000.

It's best that you familiarise yourself with the identification procedures that the dealer you are buying from adheres to. If they don't have the information readily available on their website or in store then be sure to ask before handing over your cash.

In general if you keep your transactions to less than $5000 and purchase infrequently then you should be able to build a position in Gold and Silver without an accompanying paper trail. Buying/selling privately can also result in the same.

Postage of Gold and Silver

I thought a section covering postage of bullion items would be prudent to include. Importantly it should be noted that AUSTRALIA POST DOES NOT INSURE BULLION. That is the case even if you have purchased insurance for the package. The terms and conditions on their Express/Platinum/Registered services specifically exclude bullion.
If you are sending valuable items, Express Post Platinum offers additional peace of mind with automatic compensation of up to $100 should loss or damage occur.  If your item exceeds $100 in value, you can purchase Extra Cover up to a limit of $5,000 from your local postal outlet.  
Extra Cover does not apply to bank notes, bullion or negotiable securities. Australia Post
This poses a significant risk when buying from either dealers or privately when their postage method is via Australia Post.

I have heard it suggested that some insure their packages as "metal parts" or something else rather than specifying it's bullion so as to cover themselves if it goes missing. It's not a strategy I would recommend relying on.

Some dealers post via other couriers who can insure the product or claim to self insure when sending via Australia Post. Be sure to have an understanding with the Gold/Silver seller (whether private individual or dealer) before making a purchase, know and understand their policy on what happens if they are sending via an uninsured method and the package goes missing.

Buying From Overseas

Purchasing Gold and Silver from overseas definitely has it's risks, but with premiums in the United States and elsewhere sometimes much lower than locally it can be worth importing Gold and Silver if doing so in large enough quantities.

Most products when imported will incur customs duty/GST if they are over AUD$1000 in value. Investment grade bullion shouldn't be subject to GST, however some courier services do not recognise this and you may have a fight on your hands to get the bullion through without paying the tax and then applying later for a refund. See this thread on Silver Stackers for more information.

Storage of Physical

You will need somewhere safe to store any physical Gold and Silver you purchase. Your options may be limited by your personal situation (e.g. renting/buying, house/unit). Here are the main options:

Safety Deposit Box: These are provided by some banks as well as private companies (for example Guardian Vaults in Melbourne). They provide an offsite storage option, usually with an establishment fee and then ongoing monthly fees. Pros: Generally safer than home storage. Cons: If Gold is confiscated you may get locked out & forced to hand over your Gold. Banking holiday could restrict access in case of urgent need.

Allocated: Allocated gold is gold owned outright by an investor that is stored, under a safekeeping or custody arrangement in a bullion vault. It is the property of the investor. Some dealers offer this as a free service to their customers. Make sure you read the fine print on any arrangement. Pros: Potentially a cheaper storage option for the small time stacker who doesn’t want to pay for a safety deposit box. Cons: At mercy of dealer to access.

Home Installed Safe: If you own your own home (or have permission from your landlord) you could install a safe. A safe will set you back anywhere from $100 to $1000’s. Depending on the size/weight it may need to be bolted to the floor or if large/heavy enough some are free standing. Pros: Easily accessed. Cons: If someone knows you have a safe they could simply threaten you with a weapon to get it open. Depending on the model it might be cracked or removed in a break-in. Fire risk (depending on safe rating).

Burried: Some choose to hide their physical metals. This may be inside the home in obscure locations, the problem with this being any hiding spots you can think of could be guessed by a burglar. Others choose to hide the metals underground, digging a hole to bury them. Pros: Probably the safest way of home storage. No risk of fire damage. Cons: If you don’t tell anyone and meet an unexpected end then they might never be found.

Insurance: Whether keeping it at home or in a safety deposit box you should consider insuring your bullion. Safety deposit box providers won’t always provide insurance for their boxes by default so see what is provided and organise it externally where required.

Environment: You should store physical metals in a location that is clean, dry and has a constantly moderate temperature (especially for Silver which can tarnish).

Have an Exit Plan

Having an exit plan is an important part of your strategy and should be considered before purchasing any Gold or Silver. If you intend on saving in Gold and Silver as an alternative to fiat money (and only exchanging it when required) then you may not need one, but if you intend on speculating on the price appreciation and selling when you believe it's reaching a peak then you better have an understanding in what circumstances you will be doing so.

Perhaps your intention is to trade Gold and Silver in for another asset class (e.g. once they reach an overvalued state against property or blue chip shares), maybe you simply have a price target (or Gold/Silver ratio) that you believe will mark the peak.

Whatever the case is, ensure that you have a plan and you will be ready to execute it when the time comes.