Gold's Relative Tax Rate

Considering the implications of the last post, I thought some data would be helpful. Remember, the government doesn’t see gold as an investment but as a collectible.

Source: Tax Foundation

When capital gains taxes were cut for most financial assets other than gold, gold underperformed the market, although the subsequent maneuverings of the twelve to 18 month capital gains tax rate had less clear effects:

The effects of the next relative tax cut for the market and gold is unclear, as it happened during a time period when central bankers were still mildly worried about deflation. Bernanke’s helicopter speech was only 6 months before. The dollar had been falling for a year, and would continuing falling for a year and half more. In an environment like that even an increasing tax disadvantage can get overwhelmed pretty quickly.

In general, it is rather difficult for a casual look back to accurately the determine market impact. There is a lot of noise preventing the market watcher from knowing what is being priced in at any one moment. Looking at past news stories, unless the story is about a specific announcement, would only help in the rare cases where the financial journalist knows what they were talking about.  In these cases, falling back on theory is probably the best approach.  When the opportunity cost of holding an investment has decreased, then when all other things are held constant it becomes a more attractive investment.  Whether this is already priced in and whether this signal is greater than the general noise of the market are the next two questions.