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I am a 19 year old college student and a US resident. I recently got a job and am making $15/hr (which may increase) ~15 hrs per week. I live with my parents and have no expenses. I want to save/invest money for 2-4 years before I move out. I have always wanted to invest in precious metals (gold/silver) as a hedge against inflation. I have two semi-related questions:

  1. Would you recommend that I invest in physical gold/silver vs an ETF? The way I see it is that when buying myself from a dealer I pay 5+% over spot price, and would also be selling below spot price, while with an ETF the purchasing cost is much less (IAU/iShares gold trust with $15.67 billion in capital has an expense ratio of .25%). Given this information, why would anyone buy physical gold/silver?

  2. Regarding taxes, the research I did has told me that in the U.S gold/silver has a unique collectibles tax rate of 28% no matter what, while my short term (<1 year) capital gains rate based on the chart below would be 10% or maybe 12% depending on the hours I worked. enter image description here

    So, if I were to invest in gold/silver, would it make sense for me to sell the holdings before a year, and then rebuy them so that I could take advantage of the lower short term rate compared to the collectibles tax rate? Is that allowed?

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  • This is unrelated to how to buy gold, but if your goal is to save money then a savings account would likely be a lot better. Yes you'll have losses due to inflation but your returns are pretty much guaranteed. With physical gold you have high transaction costs, potential tax complications, and high volatility – you might very well lose half of the value. Gold isn't a good investment, but depending on your beliefs it might be a good hedge against catastrophic financial events such as hyperinflation. – amon Aug 27 at 12:28
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    @amon I agree with what you mentioned regarding savings accounts (and I still plan to keep some money in savings/checking accounts). I am mainly interested in buying gold/silver to hedge against hyperinflation or a currency collapse. – AfronPie Aug 27 at 12:38
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    Two comments: 1) short-term gains on gold are taxed as ordinary income, and 2) it's not widely accepted that gold is a great inflation hedge. – D Stanley Aug 27 at 15:04
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    If you're interested in the hedge against currency collapse I would think that an ETF isn't what you're looking for since you'd have to sell and then cash out to USD. you may also have to wait for transfers/wires and funds to settle. So if that's your only goal you're clearly going to have to go with physical gold. – xyious Aug 27 at 19:11
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    Note that long-term capital gains (greater than a year) is almost at a lower tax rate than short-term gains, with exception perhaps only due to the special treatment of "collectibles". nerdwallet.com/blog/taxes/capital-gains-tax-rates So if you hold stocks, there would be no need to sell until you want the money. Note that investments can and do lose money. If you are buying at a high and selling at a low for IAU, looking at high/low within 12 months across the last 5 years, you could have lost up to 40-50% of what you put in. Be sure to weight the risk of loss against the gain. – BrianH Aug 27 at 23:07
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Physical gold should be held in a commercial gold vault but major bullion dealers arrange the gold storage.

Investors in any income tax bracket lower than 28% should consider selling gold before the one-year time period for becoming a long-term asset in the U.S. Then the gold can be re-bought. But selling and re-buying works best with an ETF. Also, there are internet-based financial services companies that buy, sell, and vault gold for customers who have accounts. And there is a Canadian ETF that has a method of avoiding the U.S. collectibles tax rate on gold.

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