Since the World Bank issued a warning about the threat of stagflation (stagnant growth and inflation), that threat has only risen. Inflation remains elevated, and the World Bank believes that a global recession in 2023 is very likely. The last time the global economy experienced stagflation, gold was the best performing asset in the world. The World Gold Council believes that gold remains the best hedge against stagflation. Many investors already understand the importance of owning gold given the threats ahead, but one source of portfolio-error remains: taxes. Many investors mishandle their portfolios and taxes eat away at all the protection that gold provides. It's essential to have a tax minimization strategy in order to fully take advantage of gold's qualities. 

(Photo : World Gold Council)

Use Taxes to Leverage Higher Returns

Leverage is an important source of returns. Traditionally, investors think of leverage in terms of going into debt to fund investments. However, taxes are also, in the hands of the right investor, a source of leverage. The first way in which investors can use taxes to improve their returns is by adopting a long-term investment horizon. Take the example of Berkshire Hathaway's investment in Coca-Cola in the late 1980s. The company's chairman, Warren Buffett, authorized a $1.5 billion investment in Coca-Cola, an investment which is now worth approximately $22 billion. If Berkshire Hathaway was to sell that stake today, they would pay a corporate tax of around $4.3 billion, at a headline rate of 21%. By not selling, Berkshire Hathaway is essentially getting an interest free loan of $4.3 billion in 2022, from the federal government, which it can use in Coca-Cola. You might not have a portfolio worth billions, but the principle applies: by trading infrequently, and taking a long-term view, an investor is essentially getting an interest free loan to remain invested in a particular asset. So the first rule for any investor in gold is: stay invested, don't trade in and out. 

Invest Through Tax-Friendly Vehicles

Carpathian Gold recommends investing in individual retirement accounts (IRA). An IRA allows investors to make tax-deferred investments toward your retirement. There are a number of types of IRAs, the most important of which are a traditional IRA, and a Roth IRA. You can set up an IRA with a bank or other financial institution, a life insurance company, a mutual fund, or a stockbroker. 

An IRA is funded by a taxpayer's earned income and holds investment assets. An IRA can be used to hold precious metals, namely, gold, silver, platinum and palladium. Gold is by far the most common precious metals held, and so, precious metals IRAs are often referred to as gold IRAs. Gold, and indeed all precious metals, is held in the form of coins and bullion. 

Gold IRAs are self-directed IRAs, meaning that an investor can hold a wider range of assets than is possible with the typical IRA. 

Once again, an investor should be careful about managing their investment. If you liquidate your IRA for cash, or take physical possession of the gold, you will become liable for tax. What you need to do is to stay invested in the IRA, and leverage taxes to juice up your returns. 

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