December 29, 2010 – One widely accepted belief about gold bullion investments is that they cannot produce income and therefore are appropriate only when interest rates are very low. Disregarding the argument’s failure to consider gold’s potential for long term wealth creation, it also ignores a straightforward way to realize income from physically held gold.
The idea is really quite simple: whenever the value of gold bullion is rising faster than inflation, as it has done by a wide margin for more than a decade, a portion of the investment can be periodically withdrawn and sold without diminishing the value of holdings. For example, in 2009 about 3 1/2 ounces of gold had the same value as 10 ounces in 2000 so over that time 6 1/2 ounces could have been sold without diminishing the original investment adjusted for inflation.
There is another advantage to income generated from partial liquidation of gold holdings – it is to be taxed as capital gains and not income, which for most investors is a significant savings. Furthermore, under current law most transactions are not even reportable leaving the issues entirely up to the investor’s conscience.
When you have enough of gold you can also lease it out at interest. The problem with that, as with all other interest bearing investments, is that you hand your money over to another party based solely on a promise that it will be repaid in full plus a fee for its use. That is true even for bank savings accounts, where your money is loaned out to generate income. Somebody else has your money and they alone control how it will be used. And if they go belly up, you lose.
Although the primary strength of gold bullion investments is long term wealth protection, they can also provide a favorable source of income should the need arise.
