Gold is on the run.

Gold is hitting $3,000 an ounce in New Zealand dollar terms which is a recent record. Is gold a good investment?

Whether an investment like gold is a good investment or a bad one is entirely subjective. Physical gold might suit one person, but not the next.

My dad, for instance, held gold sovereigns all his life because his father had used them to buy up the opposition woolpress manufacturers during the Great Depression. He then closed them all down. Gold, of course, held its value during the Great Depression and was sought after.

I have always thought that gold was not a real investment because it did not produce any income. If it does not produce any income then it is speculation. It is not a productive asset.

Is the sale of gold taxable?

When father sold his gold sovereigns, perhaps he should have paid tax on the profits?

I am not a tax expert and you should not take anything I say on the matter as gospel. This is just a discussion and a summary of what can be seen on the web.

Whether the gains from holding physical gold, bars, coins or even paper gold is the subject of an IRD exposure draft – for consultation and comment, from 2016.

It all comes down to the intention of the person who originally buys the gold, say the IRD. If their intention was to eventually dispose of it and realise a capital gain (can there be any other reason?) then the gain would be treated as income and would be taxable income to the seller.

How does one prove intention? Could a buyer of gold demonstrate that they had another intention or even ‘no clear purpose’ other than selling it at some stage in the future?

Gold does not produce any taxable income along the way and that, in a nutshell, is what raises alarm bells at the IRD. No income = I will need to sell it at some stage to realise its purpose.

Gold jewelry, on the other hand, could be purchased for the dominant purpose of wearing it. Gold ornaments or antiques could be purchased for the dominant purpose of displaying them, for visual enjoyment.

Just so long as the dominant purpose was not to dispose of them. That is how our pseudo capital gains tax is framed in New Zealand.

Jewelry and gold ornaments were not considered to be targeted by the IRD in its paper.

Perhaps if one displayed one’s Krugerrands on the mantlepiece and enjoyed them as one would enjoy a painting, that might be seen as a dominant purpose? Sticking them in a safe as my father did probably would not.

From an investment perspective, buying shares in businesses that are involved in the gold industry is our chosen method of participating in precious metals, along with all the other precious metals out there.

Gold is having its day in the sun. It will be something else next. Spread the love around.

Keep asking great questions …