Gold ETFs Make Access Easy, But Taxes Can Be ComplicateD
CNBC’s latest breakdown details the recent gold rush in the ETF space, fueled by gold’s nearly 60% surge over the past year as more investors and central banks seek a safe haven. ETFs that track gold have become a popular way to invest without having to handle the physical asset, but the article warns that behind the easy access lies a web of tricky tax rules.
As I explain in the piece, the IRS classifies gold (even when held through most ETFs) as a collectible for tax purposes, not as a stock. This means that, even if you hold your gold ETF longer than a year, any long-term gains are taxed at a maximum rate of 28%—much higher than the usual top 20% capital gains rate for stocks and bonds. “From a tax standpoint, [gold is] treated as a collectible by the IRS, so long-term gains … are taxed at [a maximum rate of 28%],” I told CNBC. For investors in higher brackets, this can be an expensive surprise.
The article also highlights that not all gold ETFs are created equal. Some funds invest directly in physical gold, while others are based on gold futures contracts. For the latter, gains are typically taxed under the IRS’s 60/40 rule—meaning 60% of any gains are taxed as long-term capital gains, and 40% as short-term, regardless of how long you hold the fund. This can lead to a blended tax rate that often proves higher than many investors expect. Meanwhile, ETFs that hold shares in gold-mining companies are treated like stocks for tax purposes—so standard long- and short-term rates apply—but that introduces both added volatility and corporate business risk.
Even with prices running hot, the article underscores the message I continually share with clients: gold should remain a very small slice of a diversified portfolio. “It’s going to bounce up and down, and it’s not always going to work in your favor,” I remind clients, and most financial planners steer people to cap gold and similar ‘alternatives’ at no more than 5% of overall assets. Gold’s long-term returns have consistently lagged well-diversified stock and bond portfolios.
Bottom line:
Gold ETFs can be a convenient way to get exposure to a historically important asset, but investors need to enter with their eyes open—especially about taxes. Don’t let this recent price spike lure you into overweighting precious metals or overlooking the tax bite. As always, make sure any investment fits your broader plan (and won’t create an unwanted surprise at tax time).