How taxes can dim the shine of gold and silver investments

Gold and other precious metals, traditionally a hedge against stock volatility, have been swinging drastically in value lately — but the taxes on those investments can be even more jarring to investors.

Last month, gold topped $5,000 per ounce and silver breached $100 an ounce for the first time. However, precious-metal prices tumbled to historic daily losses at the end of January, after President Donald Trump's announcement of his intention to nominate Kevin Warsh, a former Fed governor and investment banker known as an inflation hawk, to be the next chair of the central bank. Gold and silver have regained some of those losses in subsequent trading.

Regardless, clients are increasingly asking financial advisors about potential precious metals strategies that they have seen in headlines or TV commercials or heard about from friends or family, said Timothy Steffen, a managing director and the head of advanced planning with Milwaukee-based wealth management firm Baird. However, many of those investors fail to take the possible tax implications into account. The tax considerations include the treatment of precious metals as collectible capital gains or losses, the difference between owning the commodities directly or investing through an ETF, and the need to report the income to the IRS.

"You get a lot of inexperienced investors who jump in who maybe aren't quite as familiar with the tax reporting of these things and the other tax rules — they're the ones who are going to be surprised with some of these things," Steffen said. "There's a little bit of sticker shock when it comes to some of the taxes. These investments have to outperform those traditional investments to give you an equivalent return."

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The questions won't fade away

Despite the tax complexity and recent market jitters, precious metals routinely catch investors' attention. Experts point to compelling long-term reasons for the big jumps in value — a 157% surge in silver prices and a 75% gain for gold — in 2025. President Trump's nomination of Warsh may not eliminate the underlying macroeconomic reasons driving those soaring values.

Gold in particular is "more liquid and structurally supported" than other precious commodities, "reinforcing its role as the anchor metal in the current cycle," Guy Wolf, the global head of market analytics at financial services firm Marex, said in a commentary note after its price soared above $5,000.

"Gold remains the purest expression of investor concerns around fiat currency debasement," Wolf said. "Its strength is being driven by multiple forces that show little sign of fading. Central banks are steadily increasing the proportion of reserves held in gold, reversing decades of reliance on sovereign debt, particularly U.S. Treasuries. This reallocation is likely to be a multiyear process. At the same time, private investors are returning to gold as both a hedge against currency debasement and a form of insurance against geopolitical risk, equity market overvaluation and broader macro uncertainty. Gold's rise is not simply a function of U.S. dollar weakness; rather, it reflects a broader erosion of confidence in fiat currencies globally, with gold appreciating in virtually every currency."

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Loss harvesting?

That doesn't mean that the prospect of more volatility with such hedge strategies has gone away. But last month's ski lift to the summit followed by the giant slalom downward poses an opportunity to offset capital gains or even income through loss harvesting.

Importantly, the IRS considers assets like gold and silver to be collectibles for tax purposes, Steffen noted. That means the 28% maximum rate is higher than for most other capital gains. And any losses must first offset gains under that same collectible classification before they can be applied to other investment appreciation or up to $3,000 in ordinary income per year.

"People who got in recently probably have some meaningful losses in their portfolio right now," Steffen said. "It all depends on when people got into this thing."      

The ETF distinction

At any given time, ETFs tied to gold, silver or other precious metals likely pose a better fit for most investors' portfolios than procuring bullion from jewelers or other dealers. Generally, those ETFs receive the same tax treatment as physical bullion.

There's one exception, though, Steffen noted. Since the gold and silver ETF issuers' products contain the actual commodities, they must sell part of their holdings regularly in order to pay expenses. And those transactions may bring capital gains distributions to the investors.

"If there is a gain, it's something you'll have to report on your return," he said. "Frankly, it's usually very small amounts, fractions of a share that are sold. It's probably more of a nuisance on your tax return than anything. But it's something to be aware of."

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Report it to the IRS

In that vein, the TV ads for gold frequently pitch viewers to buy such products with the claim that there is "no IRS tax reporting on the transaction," Steffen said. That's true — but only in terms of the initial purchase. Advisors can help clients sort through the larger tax ramifications.

"That doesn't mean you don't have to report it to the IRS when you realize the gain," he said. "I always like to point out to people that lack of documentation doesn't mean you don't have income. I sometimes refer to that as the 'too-good-to-be-true rule.' You probably don't want to be getting tax advice from the jeweler or the dealer on these things."