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If You Don’t Hold It, You Don’t Own It!
When buying gold, it is extremely importance to understand the difference between paper gold, and physical gold. Additionally, the understanding of the terms and concepts of hypothecation, rehypothecation, allocated, and segregated are crucial to your investment decision.
Many new investors to the gold and silver markets are nervous about storing bullion in their own homes or vaults, and choose to purchase gold certificates for account storage.
Unfortunately, the bullion banking industry often hypothecates bullion- unless the bullion purchased is segregated specifically in the customer’s personal account- meaning the bullion that the investor believes is his own, is actually being used as an asset the bullion bank is pledging as collateral for multiple different loans. In the event of a default, the unsuspecting investor can be left literally holding the bag, as commodities investors at the brokerage MF Global discovered in 2011 when the brokerage failed on October 31st, and the firm hypothecated over $1 billion in customer funds to pay banking giant JP Morgan.
Only physical gold and silver bullion held in your own personal possession has zero counter-party risk.
Buying Gold Coins
When buying gold bullion, many customers prefer the iconic US Mint’s American Gold Eagle or Gold Buffalo coin due to its .9999 purity, as well as the Austrian Philharmonic, Chinese Gold Pandas, and Perth Mint Gold Kangaroo coins as they are exempt from IRS Form 1099 requirements upon selling.
Gold bars are sold for significantly lower premiums than the official government coins listed above, however any subsequent sale transactions over 1 kilo (32.15 troy oz) in size are required to be reported via 1099 to the IRS.
Non exempt government coins from the IRS form 1099 requirements include Canadian Gold Maple Leaf coins, Gold Krugerrands, and Mexican Gold Libertads, all of which require 1099 forms when sold in quantities of 25 coins or greater.
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