Did you purchase some gold at $1,500 or higher over the last year or two? If you did, then I have an idea for you. I think you should consider selling at least part of your position. WHAT? Blasphemy! No, I am one of THE very few who has not even a niggling doubt that over time, gold will trade much, much higher in terms of dollars; so no, I have not turned bearish or have even the slightest doubt about owning gold.
What I am talking about here is that depending on your personal situation, it might be a good idea to sell part of your gold and take the tax loss…and then, using the same dollars you receive from the gold sale, purchase silver in its place. Please Note: I nor Miles Franklin are licensed to give tax advice. I am offering an idea for you to consider. It is important that you speak with your tax professional first to be sure that this idea works for you. Silver is now ratio’d to gold at about 62 or 63 to 1. 2 years ago the ratio was very close to 40 to 1. Gold from its peak has dropped about 35% and silver is off a whopping 60%. It does not matter whether these drops were natural (I don’t think so) or whether they have been engineered operations because “it is what it is.”
By liquidating a portion of your gold before year end, you can create a tax loss to aid in your 2013 taxes…AND purchase more silver than you could have 2 years ago with the original capital. In fact, you can purchase roughly 50% more “ounces” of silver than you could have back then, with the same capital used to originally purchase your gold.
I have said all along that when the music does finally stop, you will “count ounces” to calculate your net worth, rather than count “dollars.” By making this swap, you can own 50% more silver now than you could have by purchasing silver in the first place.
In my opinion, silver will outperform gold over the long term. I say this because the historical ratio has been 15-1 over 100’s of years. Were the ratio to revert to 15-1 then silver will outperform gold by 4 to 1 in dollars, Yen, “widgets,” purchasing power or whatever. Because silver is “poor man’s gold,” I think the demand and use will far exceed that of gold, as the bulk of the world’s population scrambles for precious metals, but finds that they cannot “afford” gold.
Is this swap a “no brainer?” I don’t think you can call it a no brainer but I do think that the logic behind it is sound. I do believe that once the precious metals markets become unshackled, and begin to trade freely, that the ratio should, over time, at least approach (if not over shoot) the 15-1 ratio.
A swap at this point in time, in my opinion, is a very well-reasoned action. You give yourself a tax loss, you add “ounces” of silver under control and if history is any guide, you are doing this at a point in time when silver is “cheap,” in relation to gold. Silver is also “cheap” in relation to its cost of production, so your nominal downside in dollar terms should also be protected near $20.
Some will say, “But silver is just too heavy. Where would I store it?” If you are swapping only a small amount of gold then this is not a problem. If you want to swap a large position, then Miles Franklin can offer you a storage option at the Brinks facility in Montreal.
As I wrote about 2 weeks ago, Miles Franklin has recently rekindled their partnership with BFI so we can now also offer storage in Switzerland, Hong Kong and Singapore.
Please understand that I am not suggesting this idea as an “all-or-none” proposal. I am not. I nor Miles Franklin is giving tax advice. Again, you should contact a tax professional for tax advice and discuss if this idea fits into your personal situation. I am only suggesting this as a way to potentially create a tax loss and move a little further toward silver, which I personally believe will outperform gold, over time. If you see merit in this idea, or would like to explore it further, then contact your tax professional first. If after your conversation you believe this will work for you, please call us at 800-822-8080 and speak with one of the brokers.