5 Tax-Efficient Strategies When Investing In Precious Metals

Nowadays, investing in precious metals has grown in popularity across the world. They’re seen as a safe-haven investment since their value tends to go up in times of economic crisis, while currencies and other paper assets are declining. They’re also an excellent hedge against inflation. Prices of goods tend to increase over time, hence today’s dollar won’t buy the same value of goods after 10 or so years to come. But gold has always held its value over the past decades and centuries, making it an excellent alternative investment.

Despite these advantages, many people shy from investing in precious metals because of the high taxes levied on them. In this article, you’ll discover the tax implications of investing in precious metals, as well as the tax-efficient strategies you can use.

Tax Implication Of Investing In precious Metals

The Internal Revenue Service (IRS) classifies precious metals, such as gold, silver, platinum, and palladium, as capital assets, and particularly collectibles. 

If you hold precious metals for less than one year and then sell them at a profit, you’ll be taxed at your ordinary tax bracket. As a U.S. citizen, you fall under either the 10%, 12%, 22%, 24%, 32%, 35%, or 37% tax bracket. These are determined by the IRS, depending on the income you earn.

But if you hold the precious metals for more than one year and sell them profitably, you’ll have to pay the Long-Term Capital Gains Tax, which is capped at 28%. As you can see, this is advantageous to those in the higher tax brackets, such as 32, 35, and 37 but disadvantageous to those in lower tax brackets, such as 10, 12, 22, and 24.

To avoid such high taxes, here are five workarounds you can count on:

1. Hold Precious Metals In A Self-Directed IRA

As revealed in this guide on precious metal investments, a precious metal IRA is an individual retirement account in which you hold physical gold, silver, palladium, or platinum instead of the usual paper assets, like bonds and stocks. Prior to 1986, it wasn’t permissible to hold collectibles in an IRA. This prohibition aimed at reducing speculative risk-taking for retirement savings. But then, the IRS ruled in favor of holding precious metals in an IRA. The only condition is that the IRA owner can’t physically possess the metals. The storage of these precious assets is left to a trustee, to whom the account owner pays an annual fee.

By holding precious metals in a self-directed IRA, the IRS won’t impose any tax on them until you sell them for cash. At this point, you’ll be taxed at your ordinary marginal tax rate, which might be lower than the 28% rate highlighted above. Note that this applies to traditional precious metal IRAs, wherein the taxation comes at the time of withdrawal. 

For Roth Gold IRAs, you’re taxed before making the deposits, such that the withdrawals are tax-free. This is your go-to option if you suspect the taxes at the time of withdrawal will be higher than the taxes at the time of deposit.

2. Invest Via The Futures Market

According to the IRS, futures have a blended tax rate. This means 60% of the profits are taxed at a rate equivalent to that of long-term capital gain. The remaining 40% is taxed at the short-term capital gain tax rate. This way, you slightly reduce the tax burden on your precious metal investments, especially if you’re in a lower tax bracket.

A precious metal futures contract represents the right to buy or sell the assets at a given price for a specified amount of time. However, you’re not obligated to make the transaction, especially if your prediction doesn’t turn out to be correct. The maximum risk you subject yourself to is the premium you paid when signing the contract.

Futures come with the additional advantage of reduced maintenance fees. Unlike storing physical gold, which requires storage fees for security purposes, futures contracts don’t have such charges.

3. Try Securities Tied To Precious Metals

There are some securities related to precious metals without having a physical backing. Understand that the IRS is very particular on taxes regarding any investment physically backed by precious metals. But without a physical backing, the taxes due will be manageable.

Securities are a type of loan you give to credit institutions, government agencies, or public authorities. The initial amount you give out is paid at a later date, which you must agree with the loanee. Before this date, you’ll be receiving interest periodically, say monthly or yearly.

4. Non-U.S. Closed-End Funds

The IRS treats the U.S. Closed-End Funds as collectibles, so you’ll have to pay the corresponding tax amounts if you go with this option. An excellent workaround is to invest in non-U.S. Closed-End Funds. These offshore corporations are under the Passive Foreign Investment Company rules. Thus, they attract lower long-term capital gains tax rates.

5. Transfer The Metals To Heirs

If you don’t intend to sell the metals immediately, you may want to transfer ownership to your next of kin. Any capital gain up to the time of your demise won’t be taxed by the IRS, as long as the total value of your estate is less than the cap. The current cap for individuals is USD$5.49 million and USD$10.98 million for married couples. If the heirs decide to sell the precious metals later, the taxes will be calculated from the time the ownership right was passed to them.

In this same sense, you may consider gifting the precious metals to a friend or loved one. The taxes will be calculated based on the market value at the time you purchased them and not at the time you’re giving them out.


It’s possible to reduce the taxes on your precious metals investment. The discussion above is only an introduction to the dynamics of taxes on precious metals. You’d want to consult a certified public accountant or financial advisor for a deeper dive into the logistics of investment before making your final decision.