By Jeff Nielson of Bullion Bulls Canada
With the U.S. government having already stolen the gold of its own citizens once, a question which I have often been asked by American readers is, "Do I think the U.S. government will steal
their gold again?" My reply has always been that in the absence of a gold standard there is no motive for simply confiscating all gold again.
With U.S. debts and liabilities exceeding $100 trillion, while all the gold inside the U.S. is worth considerably less than $100 billion (at current values) even a quadrupling of the gold price from today's price would still make it totally inconsequential in restoring solvency to the U.S. government. If the government were to stoop to directly (and openly) stealing from its citizens, it would be much more likely to pillage their bank deposits, which are more than ten times as large as their gold holdings.
However, there is a further point which I should have made which relates to this issue. Specifically, even without formally "confiscating" our gold, all of our governments have already created a vehicle to steal a portion of our gold: our taxation systems. The pretext our governments use/will use to steal our gold (and silver) via taxation is "capital gains." This is such a perversion of the concept of a "capital gain" that such tax treatment for gold and silver is simply evil.
Keep in mind that if you buy physical bullion and sell it for a profit that most of that gain is merely the money you didn't lose by foolishly storing your wealth in our paper, "fiat" currencies. In other words, there was not a capital gain for your gold or silver, but more properly there was a capital loss on all paper currency.
Once we recognize this obvious truth, it leads to another, equally obvious truth. If the government believes it has the right to tax our capital gains we make in gold vs. paper, then it must allow claims made on the commensurate capital losses in our paper, "fiat" currencies versus gold.
In fact, our tax codes refuse to acknowledge those equally valid capital losses -- and for an obvious reason: it would amount to receiving a tax deduction for inflation. Since inflation is the vehicle which governments and bankers use to steal our wealth in the first place (which creates the need to buy gold and silver), the last thing they want to do is to slow down that theft.
Actually, governments do the exact opposite. Inflation pumps up nominal prices and nominal wages -- increasing the total amounts of both sales and income taxes. No, our governments are too addicted to stealing to allow us to claim capital losses on our paper currencies. And they are so hypocritical and evil that they also intend to tax our gold and silver: the only means of preventing theft-by-inflation.
Having demonstrated that our tax system has a double-standard which is so perverse as to be genuinely evil, I now intend to explain to readers how to legally avoid such perverse taxation. Bear in mind that I offer this advice having studied tax-law, and in order for the advice to be valid, readers must follow every aspect of this strategy, precisely as described.
To explain the legal, tax avoidance strategy for gold and silver bullion, I must first explain how our governments justify stealing our gold and silver with taxes. To begin with, we help them perpetrate this taxation double-standard by foolishly using terminology which supports their interpretation. We talk about "buying" and "selling" bullion with our paper, "fiat" currencies, when what we are really doing is converting one currency into another.
For those who attempt to foolishly maintain that gold is not a currency, I need only point out that every central bank in the world holds gold as currency. While these central banks don't hold silver as currency, there are two factors involved. First, as I have explained in previous commentaries, global stockpiles of silver have almost been totally exhausted because silver has been so grossly undervalued, for so long. And because silver remains grossly undervalued, any government holdings of silver as currency would be literally nothing more than "spare change."
To illustrate how we buy/sell other currencies without generating either capital losses or capital gains, I'll use a simple example. If we go on a vacation to Mexico, we would not talk about buying pesos for that vacation, and if we did so, we would be using the term inaccurately. Instead, most people would simply say they need to get some pesos, since all they are doing is converting their dollars (or euros, or yen) into another currency (along with paying an inevitable commission for the transaction).
In other words, if we talk about our gold and silver like they are commodities rather than currencies, then this allows our governments to deem these holdings as commodities, not currencies. However, even people who routinely swap one currency for another must pay taxes on their gains because they are formally deemed to be trading those currencies. In other words, the people who regularly trade in currency markets also treat their currencies as commodities.
It should be noted that those currency-traders are allowed to claim capital losses when one of their currency trades goes bad. This reinforces my earlier point that if governments are going to tax the capital gains of our gold and silver versus paper, that both logic and justice demand that they also allow our capital losses on that same paper.
Irrespective of these different rules, the first stage in legally avoiding taxation of our gold and silver is to treat these holdings as currencies not commodities. But it is not enough to simply "talk the talk," you also have to "walk the walk." What do I mean by this?
To begin with, you cannot trade gold and silver. As I explained earlier, if you trade gold and silver at all, you forfeit your opportunity to avoid taxation. You can never "sell" any of your bullion. For those who cannot accept this first principle, you may as well read no further, as none of the rest of this strategy will apply to you.
This should not be too onerous on people. First, most precious metals investors understand that the physical gold and silver they are acquiring is insurance. By definition, this should be something which people automatically hold onto, until needed. Secondly, for those who want to trade in this market, you have literally hundreds of gold and silver miners to choose from (along with mining-ETF's) which are not only direct plays on gold and silver, but which provide natural leverage through the very nature of their business models.
My own policy with respect to my precious metals portfolio is simple: I hold my bullion, and I trade my mining stocks.
Once people have accepted the principle of never "selling" their bullion, the next imperative is the form of your bullion. I buy only legal tender, minted coins. As I have explained previously, it should not be necessary to do this in order to prove to tax authorities that our bullion is a currency, not a commodity. However, with any legal system which could permit such a perverse double-standard in its taxation, we must also go to this extreme.
There is a second reason why I prefer coins to bars, even though it means paying an extra premium in my purchases: assaying costs. Anyone who holds gold or silver bars outside of a registered storage facility may be forced to pay assaying fees if/when they decide to convert their bullion back into paper currency. A bank safety deposit box is not a "registered storage facility" -- even though that same bank may very well have their own bullion vault which is such a facility.
My fear with respect to holding bars is that the same banksters trying to steal our wealth today through inflation (and who are rapidly destroying their own sector) may decide to move into the "assaying business" tomorrow -- in order to steal some of the wealth of those who were prudent enough to protect themselves with precious metals. Potential assaying costs could easily exceed the premium one pays for coins (today), by many multiples.
I hold legal tender, minted coins, and I don't sell them -- so I can't be considered a trader. I have thus legally established that my bullion is currency not commodity. So far, so good. However, astute readers will have already seen a gap in my strategy: no "end game." It's great to store your wealth in bullion to prevent theft-by-inflation, and to do so in a way which legally avoids your "insurance" from being taxed. The problem is how do you ever utilize such wealth?
Perhaps a few have figured out the simple answer to this question. You do exactly what you do with your other currencies: you "spend" it. This is the final component in this insurance strategy which "completes the circle" in terms of acquiring insurance (i.e. bullion), protecting your wealth (the so-called "capital gain"), and then enjoying the benefits of your prudence -- without the government immorally, unjustifiably stealing its own "cut."
To illustrate this final principle, we can simply return to the previous example of someone going on a vacation to Mexico. However, let's add some additional facts to this scenario, in order to fully illustrate the taxation repercussions (or rather the lack of such). Let's assume that our hypothetical vacationer is also a savvy investor, who plans ahead.
Six months before his vacation, the value of the peso dips suddenly. Knowing he will need to hold some pesos six months from now, he obtains his pesos today. Over the next six months, the peso rebounds in value, and the pesos obtained by the vacationer are now worth significantly more than when he originally acquired them. Nevertheless, when he goes to Mexico, and spends his pesos he does not trigger a capital gain in the eyes of tax authorities.
There are two reasons why there is no taxation in such scenarios, one a matter of principle, one a matter of practicality. With respect to principle, the vacationer has done nothing to rebut the presumption that he was merely acquiring currency to spend, rather than trading that currency like a commodity. The simple fact that he planned ahead to time his acquisition of currency does not make this a capital gain -- as ordinary prudence is not taxable.
Let's add some additional details here. The vacationer does not use-up all his pesos during his vacation, and in fact has a significant amount left over. He simply hangs onto those pesos, and then when he returns to Mexico for another vacation, three years later, the pesos he is holding have appreciated even more. When he spends the remainder of those pesos, and realizes even larger gains on the transaction that gain is still not taxable.
In part, this simply reflects the fact that there is no expiry date on his original act of prudence, and more importantly he has never violated the presumption that he acquired his pesos as a currency, not a commodity. However, there is a second consideration at work here: practicality. Given the amount of travel which takes place in the 21st century, and the vast sums of money spent in tourism (in billions of transactions), it would be impossible for the government to even attempt to tax such (supposed) capital gains.
This practical consideration applies equally to our bullion. Even if we spend our bullion individually, and especially if bullion-holders collectively choose to spend rather than sell their bullion, it would be very difficult for our governments to even attempt to monitor such transactions.
The response to critics of this strategy is obvious: it's currently almost impossible to systematically spend bullion in our societies/economies. My reply is equally obvious: as I stated earlier, people should not be spending their "insurance" today, period -- because it is not yet needed. More importantly, by the time we do need to rely upon our precious metals insurance, in that future-world we will have no problem at all in "spending" our bullion.
Those who understand economic fundamentals (and economic history) know that every experiment with "fiat" currencies (going back 400 years) has ended in economic disaster. There has never before been an episode in history when the entire world has been on a "fiat currency" monetary system. The mountains of leveraged-debt which the bankers have been permitted to create (due to the absence of a gold standard) are also unprecedented in history.
This current, global monetary system must fail, and history tells us that it will be a collapse of epic proportions. What no one in the world can say today is whether such a collapse will occur five days from now or five decades from now (though logic dictates it will be much, much closer to days than decades). However, before (and likely long before) total collapse occurs, inflation will begin to spiral out of control -- meaning that it will have reached a magnitude where even the most gullible sheep no longer believe the phony "official" inflation numbers which our governments are still able to pass off on the (currently) ignorant and apathetic masses.
Stating that "high inflation" will soon be universally recognized is essentially the same thing as saying that people will begin to understand the foolishness (i.e. economic suicide) which comes from having your wealth in some paper form. Spiraling inflation also directly implies a spike in the price of gold and silver (from current price-levels).
In our future world, where high inflation ravenously devours our paper wealth, while gold and silver are (finally) universally recognized as the best forms of wealth-insurance available, it will not only be simple for people to "spend" their gold and silver coins, but there will be vendors offering premiums to buyers who use gold or silver for their purchases.
The reason for this is that by the time such a future evolves, the supplies of real bullion will already be so thoroughly exhausted that anyone trying to buy gold and silver on the open market will be forced to pay very large premiums to convince reluctant sellers to accept (rapidly-depreciating) paper in return for (rapidly-appreciating) bullion.
There will be skeptics who (even without any legal background) choose to reject my interpretation of tax laws. It is also true that governments could change their tax codes tomorrow and attempt to steal the gold and silver from those who try to (legally) avoid being robbed. My reply to that is if/when governments stoop to inventing new "taxation principles" solely to steal our gold and silver that such overt evil must be met with "civil disobedience." In other words, gold and silver holders can fall back on their second "defense" against having their gold and silver taxed: by spending your bullion instead of selling it, you will make it much more difficult for the government to find out that you have avoided their legal extortion.
The average citizens of Western societies are currently being victimized by the most savage wealth-grab by the ultra-rich "aristocrats" (who dictate economic policies to our supposed "leaders"), since the "revolutions" of the 18th century caused us to depose the last tyrants who attempted such mass, economic oppression. This is nothing less than "class warfare" -- except the poor and middle-class don't even (yet) realize that we are "at war." since the ultra-wealthy lack the courage to make a formal "declaration of war." This may have something to do with visions of guillotines dancing before their eyes -- as they recall what happened to their predatory ancestors.
In such an economic "war," we must use every means at our disposal to repel their various acts of economic "warfare" -- including the habitual abuse of our tax systems, as the principal means of stealing-from-the-poor to give-to-the-rich. For those who choose to question the "legality" of tactics, we can simply observe that our "legal" systems have already been perverted past the point of tolerance - for any supposedly "just" and "democratic" society.
I offer precious metals holders a strategy to legally avoid the unjust theft by our governments of their bullion. Should our governments pervert our tax code still further, in order to make such a strategy "illegal," then it's time to start the next "revolution."
Jeff Nielson studied economics for four years at the University of British Columbia, before going on to attain a law degree from that same institution in 1989. He came to the precious metals sector around the middle of last decade as an investor, but quickly decided this was where he wanted to focus his career. After publishing his own, amateur blog for a year, in 2008 he founded Bullion Bulls Canada: a web-site providing information and analysis to precious metals investors. Today, bullionbullscanada.com reaches a global audience of precious metals investors in more than 120 countries.