Up until 2004, investors who wanted to own gold generally had to buy coins or bars or some form of jewelry. That has changed since then, mainly because of the introduction of two exchange-traded funds (ETFs):
* SPDR Gold Shares (ticker symbol: GLD); and
* iShares Gold Trust (IAU).
Both of these ETFs trade on the New York Stock Exchange, so shares are easy to buy and sell. The funds purchase gold bullion and store it in vaults. Thus, investors in these ETFs own a portion of those gold holdings; the value of the ETF shares go up or down with the price of gold.
Since these ETFs were introduced a few years ago, they have become enormously popular. Combined assets now top $70 billion. Obviously, investors find that they offer a convenient way to own gold.
These ETFs have unusual tax treatment, though. If you sell shares of GLD or IAU and report a long-term gain, you won’t be able to use the bargain 15% tax rate. Instead, sales are treated as sales of collectibles, because investors own gold. Therefore, the tax rate on long-term gains from these ETFs can be as high as 28%.
On the other hand, these ETFs are not treated as collectibles for IRAs. The tax code prohibits IRAs from investing in collectibles but GLD and IAU are acceptable for IRAs.