Here’s a look at the latest developments in the precious metals market for the week beginning 5/1/2022.
- Gold is the ‘most confusing’ of all commodities right now. Here’s why.
- 5 steps to take with your money in 2022, according to experts
- How do I avoid capital gains tax on gold?
Gold is ‘the most confusing’ of all commodities right now. Here’s why.
Gold is abandoning its usual drivers and is focusing solely on the U.S. dollar, with prices tumbling around $50 on the day at the start of May trading. But the “unloved” metal could surprise the markets with a $2,100 year-end price target as investors shift their asset allocations, Wells Fargo’s head of real asset strategy John LaForge told Kitco News.
The way gold behaved this year has surprised many investors, especially when the precious metal chose to ignore the risk-on/risk-off sentiment in the marketplace.
LaForge described gold’s trading action as “the most confusing of all the commodities.”
His comments come as gold dropped around $50 on the day, with June Comex gold futures last trading at $1,862.60, down 2.57% on the day.
“It doesn’t seem to want to react to anything outside the U.S. dollar and that’s been going on for a solid year and a half,” LaForge said. “The bad news is bad news and the good news is bad news. It doesn’t seem to matter. Gold reached a point where people just don’t love it no matter what the fundamentals are. They’d rather go play and do other things. Bitcoin could be one of them. This period doesn’t have to last, but that’s where gold is today, which makes these things hard to explain.”
Gold usually reacts to real interest rates, risk-on/risk-off sentiment in the stock market, and much more. But all of these relationships have changed as gold focuses on the U.S. dollar. This was especially felt Monday when the U.S. dollar index was trading near 20-year highs. “We’ve had the risk-on go away; we’re back to risk-off. And gold still can’t get out of its own way,” LaForge said.
Markets and investors at large are overlooking gold’s potential at the moment. To determine this, LaForge looked at gold’s performance relative to other commodities. And since August 2020, the precious metal has given back almost 16 years of relative strength against other commodities.
“Gold had been slowly outperforming most other commodities from 2005 all the way up to 2020. And it’s given all that relative strength back in two years. And it’s a head-scratcher because it shouldn’t do it that fast,” LaForge pointed out. “The value is there. We’re in the middle of a supercycle. I think this whole unloved gold thing will turn around.”
The undeniable reality is that investors are waking up to a more uncertain world, and there could be a shift in asset allocations. And one big unknown going forward is how central banks will split their attention between growth and inflation as they kick off their global tightening cycle.
Originally published on Kitco.com
To learn more: Gold is the ‘most confusing’ of all commodities right now. Here’s why.
5 steps to take with your money in 2022, according to experts
Bankrate asked personal financial experts from across the country for their advice on how you can make the current and future years more financially fruitful.
Step 1: Create a budget
Though some aspects of your personal finances might change — such as where you bank or what stocks you invest in — one personal finance strategy remains constant: You need a budget.
A budget can involve mapping out your spending each month, including line items earmarked for things like savings and debt repayment. A budget should be flexible, as expenses change over time. A common budgeting approach is the 50/30/20 rule, which devotes 50% of your income to needs, 30% to wants and 20% to savings.
Step 2: Be mindful of expenses
Look through your expenses and determine which ones can be reduced or eliminated. Some areas where consumers tend to spend more than necessary include food, insurance, mobile services, and subscriptions.
Step 3: Start investing with a small amount
If you already have emergency savings, consider investing in the financial markets. While it can be risky, it’s possible for this type of investing to outpace inflation, build wealth and save for goals like retirement.
Ways people get started with investing commonly include 401(k) plans, S&P 500, mutual funds.
Step 4: Take a second look at cryptocurrencies
Cryptocurrency is a form of currency that exists solely in digital form and is managed without a central bank. Today, thousands of types of cryptocurrency exist, some of the most popular ones being Bitcoin, Ethereum and Dogecoin.
Cryptocurrency appeals to some investors for its potential for large returns, as well as its decentralized nature — which some investors believe can help protect them from inflation.
Step 5: Think beyond next year
Building a financial plan can help you reach your money goals for 2022 and beyond. Creating a financial plan involves calculating your net worth, income and expenses, and mapping out a savings strategy to reach your goals.
Rather than just planning to save money, set financial goals such as buying a house, taking a dream vacation, funding your children’s education or having a set amount of funds saved by retirement. Setting goals such as these can help motivate you to save and keep you on track.
Originally published on SeattleTimes.com
To learn more: 5 steps to take with your money in 2022, according to experts
How do I avoid capital gains tax on gold?
There are three three common strategies you can take to minimize capital gains taxes on gold:
Avoid physical assets
There are several ways that you can invest in gold, but often investors will invest directly in what’s known as “gold bullion.” This just means that you own literal, physical quantities of gold.
As an alternative, you can also invest in products that invest in physical bullion, effectively purchasing the metals on your behalf. For example, you can buy an ETF that holds quantities of physical gold in its portfolio. In this case you will own gold bullion by proxy.
This can increase your tax bill substantially. In fact it almost certainly will.
Ordinarily, capital gains are taxed at three brackets: 0%, 15% and 20%. You can’t pay more than 20% in taxes on investment profits, and to reach that top tax bracket you need to have made around $450,000 as a single taxpayer and $500,000 as a joint taxpayer in that tax year.
However, the IRS considers physical quantities of metal to be a “collectible.” For collectibles, such as coins, art and bullion, the standard tax rate is 28%. As a result, owning physical gold, or owning funds that themselves own physical gold, means that you can pay a higher maximum capital gains rate of 28%.
The best way to avoid this is to invest in funds and assets that do not buy physical gold. A particularly good approach is to seek out ETFs and mutual funds that specify this approach in their investing. Assets such as futures contracts and options are not considered physical asset investments, so the IRS treats them as ordinary capital gains with a maximum 20% rate.
Hold your investments for at least one year
This is a general piece of capital gains tax advice for all of your financial investments. If you sell an investment less than 12 months after buying it, the IRS considers it a short-term capital gain. These are taxed with ordinary income, meaning that your profits won’t qualify for the special, lower capital gains tax brackets.
To avoid this, sell your investments after at least one year, if possible. Otherwise you could face higher income tax rates. The top rate for single taxpayers earning more than $523,601 in 2022 is 37%. And for joint taxpayers, the top rate applies to income over $628,301.
Consider a 1031 exchange
A 1031 exchange could offer you more flexibility, allowing you to defer the tax bill on a capital gains so long as you reinvest those profits in another investment asset.
Generally, you have to make this new investment within 45 days of selling the old one. It has to be a similarly situated investment, so if you sell gold you would need to reinvest the profits in precious metals. And you need to have an intermediary hold the money, because as soon as the capital gains hit your bank account they become taxable.
Basically the idea is to let you roll one investment into another without owing taxes in the process. This can be useful for investors who want to use gold profits to make similar investments. However, if you are looking to liquidate your gold for cash, this strategy won’t help you.
Originally published on SmartAsset.com
To learn more: How do I avoid capital gains tax on gold?