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« Agnico-Eagle Mines Limited: Slow to Recover | Main | An Update On Our Premium Options Trading Service »
Friday
Nov202009

A Tax Free Way To Play Gold

There are many different investment vehicles out there that one can use to play this gold market, each with their own advantages and disadvantages, however there is one vehicle that appears to be slipping under most investor's radar.

When one looks at the various choices of gold investment, top of the list is the physical bullion itself. This is very popular with many of the old school gold bugs and those who foresee some sort of economic armageddon as at the end of the day one will always have the physical metal should worst come to worst. For those who also wish to simply have exposure to the gold price, GLD, the physical bullion ETF has been extremely popular with investors able to buy and sell shares as if it were bullion itself, except with a great deal more fluency. Next up are the ETF/ETNs that offer leverage to the gold price on a daily basis by holding a combination of derivatives, popular for trader-investors looking for a bit more bang for their buck without the addition of due diligence required for gold mining stocks.

Gold stocks however have also got alot of air time, despite their performance not always living up to expectations. Whilst we would not recommend speculative junior resource stocks as a way to play this gold market, many of the larger producers tend to move in tandem with the gold price, although usually with more volatility. Then of course there are gold futures and options, plus options available on most of the instruments mentioned above for rather more speculative strategies.

However the vehicle that we believe many investors are not considering is financial spread betting. For those unfamiliar with the concept, it involves betting a certain amount per point on various financial instruments. So for example, one could go long and bet $10 per point on gold, and so for every dollar that gold goes up, the bettor's position increases in value by $10. The bettor also can set a stop and limits, at which their bet will be automatically closed.

Many would view financial spread betting as simply a trading vehicle, but it doesn't have to be limited to just that. What if you placed the stop at gold being $0.01 and placed enough capital in your account to cover that bet? One would effectively be getting a 1:1 ratio with gold, similar to returns offered by GLD and other 1:1 ETFs/ETNs.

Some may argue that in order to get that amount of coverage from the broker, a huge amount capital would have to be deposited to cover the potential loss. But this is not the case, the minimum bets at some brokers are as low as £1.00 per point. So with gold at around $1080, one would only need to deposit £1080 to cover the bet, and one is getting a 1:1 return on gold, for every $1 gold goes up, one gains £1, and the position will only be closed if gold falls to 1 cent.

The large tax advantage here is that spread betting is free from capital gains tax (18%) in the UK, so there is another great advantage for those available to take advantage of this situation. Obviously this may not apply to every individual situation so please check with your financial adviser or tax professional beforehand. However if one can take advantage of this, the benefits are huge. Considering investing $100,000 in gold and gold doubled. You would have made $100,000 but would have to pay $18,000 in capital gains tax leaving you with just $82,000 profit. With financial spread betting, there would be no tax and you would pocket the full $100,000, increasing your profits by 22%!

We know this may not apply to all investors, but for those who it does this opportunity is definitely worth looking into, and appears to be a much better option than holding an ETF simply for the above tax reasons. If you have any questions, feel free to post a comment on our website and we will do our best to answer them.

We also plan to cover spread betting in more depth in a future article, so stayed tuned to find out about more great opportunities that may have slipped under the mainstream radar.

You can find out more about spread betting at IGIndex.co.uk or igmarkets.com - or try one of the many other spread betting dealers.


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Reader Comments (4)

there are numerous advantages to spread betting but two major disadvantages:
1. as with any financial institution you are trusting that they stay solvent and are able to repay your money.
2. spread betting is tied to quartely or even daily contracts and there are expenses involved in rolling the bet over to the next contract

November 21, 2009 | Unregistered CommenterBob

Bullion sales in Canada do not have sales tax for buying or selling to international investors. Paying tax to local governments is then their responsibility if required.
Thx.
Anthony

November 21, 2009 | Unregistered CommenterAnthony

Capital Gains Tax in UK is 18% above allowance of £10,100

November 21, 2009 | Unregistered CommenterRichard

Richard,

Thank you for pointing out that error, the tax is 18% and we have revised the article accordingly.

November 21, 2009 | Unregistered CommenterGold Prices

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