The rise in gold prices has prompted a growing popularity in the SPDR Gold Trust ETF (GLD), which buys and holds gold bullion. The IRS regards ownership in this trust as an ownership in a collectible and taxes profits in the trust accordingly.
An investor who holds GLD for a year or more and sells for a profit might expect to pay the 15% long terms capital gains rate. However, the profit is taxed at the 28% collectibles rate. For this reason, an investment in gold bullion is more appropriate in an IRA or other tax advantaged plan.
Another way to play the gold market is to buy Market Vectors Gold Miners (GDX), an ETF that owns shares in gold mining companies. The average cost to produce an ounce of gold is about $850 – $900, so that a gold price above that amount is profit to the mining companies. Because of this leverage, mining company stocks are more volatile than the bullion itself. Long term profits in an ETF like this one would be taxed at the usual 15% long term capital gains rate.