Traditionally, since at least the Great Depression, the U.S. government has consistently discouraged (at times, outright prohibiting) its citizens from owning gold. There are a number of reasons for this.
It’s not simply the case that the establishment is against the idea of holding gold as a financial asset: the Treasury Department maintains the largest hoard of gold in the world, totaling over 8,000 metric tonnes. It is only the private ownership of gold that Uncle Sam is opposed to.
The state’s aversion to private gold ownership is in defense of its interests. If people (quite naturally) end up preferring gold over other forms of money, then the government-issued fiat dollar will stop circulating. This is true throughout most of the world, though no currency is quite as sensitive to its continued international use as the U.S. dollar is.
This federal prerogative notwithstanding, over the past four years a number of U.S. states have been pushing back against this idea by passing laws that make it easier for the public to purchase precious metals.
The Taxman Cometh
In many states, there is a hefty sales tax levied on purchases of gold or silver. Moreover, financial rules generally allow any “income” generated from precious metals to be taxed again at the end of the year.
When viewed in the context of gold as money, the notion of these taxes on precious metals makes little sense. You wouldn’t pay excessive fees just to convert your dollars in euros or pounds or pesos, so why do so for gold? Moreover, if the purchasing power of the cash in your pocket goes up, you don’t pay a luxury tax for seeing your dollars appreciate in value.
Depending on what you buy, and how much, a bullion purchase or sale might require you to report the transaction to the IRS, as well. Ironically, this defeats one of the main purposes for owning gold—to keep one’s wealth out of the banking system, away from the clawing influences of inflation and the government. Beyond placing a financial burden on bullion buyers, these policies of scrutiny and taxation discourage ownership of physical precious metals.
Some states, such as Florida (where Gainesville Coins is located) do not charge sales tax on precious metals that are sold outside of its territory. Florida residents are exempt from sales taxes if the purchase is over $500. Anything crossing state lines is subject to the laws outlined above. Deep confusion over these kinds of statutes has depressed the coin and bullion market in these states, discouraging both consumers and wholesalers from doing business in these states.
Now, places as disparate as Arizona and Virginia are beginning to reconsider these kinds of restrictions on sales of gold and silver. Virginia recently became the latest state to pass a law exempting rare coins from such a sales tax.
Some state legislatures are taking this noble idea even further, directly bringing the question about whether or not precious metals are money to a vote. State houses in both Tennessee and Idaho began debating bills that would encourage the use of gold and silver as “sound currency” in what would be a direct blow to the Federal Reserve’s effective monopoly on legal tender.
Meantime, two of the most independent-minded U.S. states, Utah and Texas, are both making arrangements for their own state-run bullion depositories sometime in the future. This not only allows the state to repatriate its portion of the country’s gold reserves but could also provide a storage solution to other states in the Union that want to do the same.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.