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GOLD

Discussion in 'Shares' started by Chomp, 9th Dec, 2008.

  1. Chomp

    Chomp Well-Known Member

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    There has been a bit of sentiment towards Gold, just recently I have had a couple of emails, Business Spectater, John Mauldin to name a couple saying that the US dollar is going to drop and that Gold is going to rise, another rumour is the Chinese are going to start buying it as well..

    I was wondering if anyone has bought any, tempted to buy maybe waiting for a couple of particular signs and how they would invest when they do?

    If you did invest in Gold would the interest payments on a loan be tax deductible?

    Does anyone think that Gold will drop overall in price? (2 year time frame)

    Cheers

    Chomp

    (I do not hold any gold stock:rolleyes:)
     
  2. AsxBroker

    AsxBroker Well-Known Member

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    Hi Chomp,

    IMHO this would be unlikely as an owner of gold does not receive any income.
    For an investment loan to be tax deductible it has to produce an income (think shares paying dividends and investment property paying rent).

    Cheers,

    Dan

    PS Before making an investment decision speak to your accountant or tax adviser.
     
  3. redman361

    redman361 Redman

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    if however you sold it for a profit the interest charges would be a tax deduction on your capital gains tax
     
  4. Chomp

    Chomp Well-Known Member

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    Thanks ASX & Redman,

    I wasn't too sure, thought it might be a silly question at first, but I swear I'm starting to learn somethings from the people on this site.

    So double tough luck if you make a loss, seems a bit harsh.

    But if you invested in a goldmining company there share price would go up with the price of gold? and they would pay you dividends?
     
  5. Chris C

    Chris C Well-Known Member

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    I'm pretty sure I have glanced over a few reports that China has already made it public their intention to move away from US Treasuries into gold, so I don't think it is a rumour. This policy should hasten the decline of the USD and the growth of gold prices.

    However, like most investments in the current climate, it is difficult to speculate on the future, though if I had the money to be backing anything, I would definitely be backing the decline in the value of the USD as things settle and investors are willing to once again take on a little risk and pull their money out of US treasuries, because at the end of the day whilst there are still people/countries willing to buy US debt it is hard to see BIG drops in the USD which are probably required to drive gold higher as increased uncertainity is ignited about the potential collapse of the world's reserve currency.

    I have made a number of posts about what I think of the USD and the US economy. I don't look at the USD decline as a situation of "if" as much as "when" though obviously knowing what will happen isn't as important as knowing when it will happen, and unfortunately I've read and heard a very wide range of speculation on the issue, varying from it happening within a few weeks, to experts speculating that it may well take 2 - 3 years for inflation of their fiat currency to be realized before the USD starts really dropping. With that said there is not reason why world wouldn't continue down the path it has taken for the last decade, of continuing to buy US debt despite the risk of default or deflation.

    I have made a few posts about this topic before and I remember there were at least one or two people on these forums that have moved into gold, I forgot who, and I forgot what thread it was discussed in.

    If I had money lying around I would be seriously considering investing it in the GOLD security listed on the asx. That said, I would only be looking at putting my money in gold because I see it as a safe haven with potential upside growth over the next 1 - 2 years due to the chaos that will result from the USD collapse and the havoc that will cause on other investment mediums. This investment strategy is obviously based on my view that things will probably be getting worse before they get better and that the reserve currnecy of the world is in trouble. I should at this point mention that these views are of a 23 year old that is naive to many of the ways of the world is far from the best advice to be acting on.

    As for signs, I wouldn't really be looking to "time" the gold market. I think the writing is very much on the wall already, if anything I'm surprised gold hasn't already made its move - and there have been a number of rumours floating around that there may well be some market manipulation presently playing out (highlighted by the disparity between physical and stock gold prices).


    Hard to say, considering it is quite difficult to gauge what the world will be like in two years time.

    I think the safest statement at this point is that whilst the US economy lingers in peril the gold prices will be strong. Once the necessary market forces have produced the required corrections (on the USD) I'm not sure what will happen after that - I'm sure there will be a lot of politics that will need to be played out, and the result of this will shape how the world will proceed into the future.

    With all that said, there is a downside to investing in gold for us Australians; my understanding is that traditionally the AUD tends to move with the price of gold (because we are such a big exporter of it) which would eat into any gains made in the price of gold unlike the USD which, being the reserve currency of the world, moves against the price of commodities like gold and oil. So as I have mentioned in other threads on these forums, ideally if you were going to fully leverage yourself for the possible gains from investing in gold you would borrow USD's to buy gold on the expectation that gold would appreciate along with the AUD as the USD depreciated. Though going about this seems difficult in practice.
     
  6. Tropo

    Tropo Well-Known Member

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    Gold charts.
     

    Attached Files:

  7. Chris C

    Chris C Well-Known Member

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    I'll be honest I'm not much of a charts man. I like my fundamentals, but what is your interpretation Tropo.
     
  8. Tropo

    Tropo Well-Known Member

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    Gold is a commodity and like any other commodities (at the moment) is in the down trend.
    If you like fundamentals for whatever reason (I don't) that is fine...
    Link (below) may give you something to think about.
    I would treat this article as another point of view.
    Have fun....:p
    The Manipulation of Gold Prices - Seeking Alpha
     
  9. Chomp

    Chomp Well-Known Member

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    Chris C great post thanks alot,

    I read that link Tropo but briefly I have the flu so will give it another read soon, I did like one of the comments below the article, that gold would be linked to supply and demand so I'm not sure I can agree with what he said?
     
  10. Chris C

    Chris C Well-Known Member

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    The article is probably one of the most comprehensive reviews of the FED and its systematic manipulation that I have read to date. That said the article largely cemented what I already believed to be the case.

    In regards to gold, I guess the real question the article poses is who wins in the long run? Will systematic manipulation of gold price continue to keep it artificially low, or potentially drive them even lower until the inflationary pressure of the USD has passed, or will the rising tide of everyday investors (along with major economies like China) looking to move into Gold as means of wealth preservation overwhelm the market manipulators. I tend to lean with the market winning - but recent history definitely favour the manipulators.

    From my perspective, as is highlighted in the article, I can't help but feel that the US is caught between a rock and a hard place at the moment with downside associated with any option they decide to take in regards to the valuation of their dollar. I have been saying for awhile that USD needs to weaken, if not now, definitely in the longer run, I just don't see another way out for the US, and with that weaker dollar gold will appreciate (at least in USD's) regardless of the power of the manipulators. I'm not as certain that the price of gold will appreciate from an AUD perspective.

    However the downsides associated with a stronger or weaker USD pales in comparison to the chaos that would result if the world was to obtain the truth about how the FED was dealing with the crisis. Part of me wants to know and wants the truth, but another part of me recognises that this may well be a situation of curiosity killed the cat, considering there is no upside to knowing the truth other than reaching the bottom faster.
     
  11. handyandy

    handyandy Well-Known Member

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    Great article Tropo.

    A quote from the same

    The U.S. economy is in shambles. Both commercial and investment banks are insolvent. European central banks no longer want to sell gold. China wants to buy 360 tons of it as soon as humanly possible, and as soon as it can be done without sending the price into the stratosphere. A close look at the Federal Reserve balance sheet tells us that Ben Bernanke eventually intends to devalue the U.S. dollar against gold.

    Wholesale manipulation which also confirms the whole concept of a crashing USD.

    Cheers
     
  12. C3PO

    C3PO Well-Known Member

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    Not sure I agree on this one Dan ... I would have thought if you take out a loan and buy gold futures with it, or even gold bullion, this is no different from borrowing to invest in anything else (e.g. a managed fund which doesn't pay income but only achieves capital growth).

    Since the intent is to achieve a capital gain, thereby creating taxable income, I wouldn't have thought the ATO would have an issue with letting you have a tax deduction for this.
     
  13. AsxBroker

    AsxBroker Well-Known Member

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    Hi C3PO,

    Gold futures would give you income by being marked-to-market on a daily basis. Managed funds "usually" distribute any short term gains via income before the end of financial year.

    Buying gold bullion would be more similar to buying an empty block of land and never renting it out. You don't receive any income but potentially could make capital gains when you eventually sell it.

    Saying that if you never sell you might be at the pointy end of Part IV A as you are claiming an annual tax deduction for something which doesnt generate income.

    Hence speak to your accountant or tax adviser before you get into trouble ;)

    Cheers,

    Dan
     
  14. C3PO

    C3PO Well-Known Member

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    That's not income, Dan - it only beomes income once a capital gain (or loss) is realised. Being marked to market does not constitute a declarable income. That's like buying the block of land, getting a valuation done every year and declaring an income based on the theoretical capital gain made.

    Capital gains = declarable income
     
  15. Rob G.

    Rob G. Well-Known Member

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    A capital gain is not ordinary income.

    So where you have purchased gold as an investor for a hedge against market movements in the value of your investments, any realised gain or loss is on the capital account.

    Normally interest expense will be added to the cost base.

    BUT NOT ADDED to the reduced cost base should you make a loss !!!

    Cheers,

    Rob
     
  16. C3PO

    C3PO Well-Known Member

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    From the ATO website:

    If you receive, or reasonably expect to receive, assessable income from your investment, you can claim deductions for many of the expenses you incur. You cannot claim expenses which are private or capital in nature.

    And:

    There is no separate tax on capital gains, it is merely a component of your income tax. You are taxed on your net capital gain at your marginal tax rate.
     
  17. Rob G.

    Rob G. Well-Known Member

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    INCOME FROM PROPERTY represents returns *ON* your capital such as dividends and rent.

    CAPITAL RECEIPTS would include return *OF* your capital by disposal.

    Where you only hold an investment to make a capital gain, the interest is a CAPITAL EXPENSE and so is not deductible since it is not incurred in an income earning activity.

    If you purchased as trading stock, or commercially with a view to resale at a profit then the story is different since the assets are held on the revenue account.

    Cheers,

    Rob
     
  18. C3PO

    C3PO Well-Known Member

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    So, if an investor borrows money and buys shares in Berkshire Hathaway, which has not paid a dividend since 1967, the interest paid on the investor's loan is not tax deductible?
     
  19. Rob G.

    Rob G. Well-Known Member

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    The Commissioner is entitled to deny deductions where there is no "realistic expectation" of dividends.

    Check out Spassked v FC of T 2003 ATC 4184

    Cheers,

    Rob
     
  20. C3PO

    C3PO Well-Known Member

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    In that case it was judged that the purpose of the taxpayer was not to generate income.

    What we are talking about here, whether it is gold futures or shares in Berkshire Hathaway, is an intent by the taxpayer to generate assessable income through the realisation of a capital gain.

    You would have to prove that the taxpayer was investing with the intention of making a loss in order to deny the deductibility of interest if there is relevance here.