Gold CoinsOwning gold can be a 24 karat-sized headache. First, there's the problem of just carting the stuff around.

On a recent episode of the hit cable TV show Pawn Stars, a customer swapped his classic 1932 Lincoln roadster for $95,000 in gold. When the spunky retiree took possession of his fortune -- piles of gold coins -- the store had to hire a security guard to keep him and his loot safe.

However, hiring muscle to fend off ne'er-do-wells may be the least of the newly minted Midas' problems. When the gold glow begins to fade, the Pawn Stars customer may regret not taking the cash and running when he had the chance.

Don't Get Blinded by the Light

Investing in gold is much more complicated than buying and selling a stock or bond. And while gold can have a place in a well-diversified portfolio, before you buy bullion, consider the costs and complications that go with it.

1. You'll pay a king's ransom in taxes.

Physical gold is subject to a capital gains tax of 28%, one of the highest rates of taxation on investment property.

The tax hit isn't limited to gold bullion or coins in your collection that you decide to sell. To the IRS, exchange-traded funds backed by physical supplies of gold, such as the SPDR Gold Trust ETF (GLD) and the iShares Gold Trust (IAU) are considered a collectible, like a work of art, and are taxed accordingly.

2. Gold could be the next dot-com bubble.

Gold fever is reaching record temperatures right now. But that hasn't been -- nor will it always be -- the case. When it comes to gold, as in everything else in investing, diversification is key.

Historically, gold's returns have been lousy. As University of Pennsylvania finance professor Jeremy Siegel wrote in his seminal book Stocks for the Long Run, $1 invested in gold in 1802 would have yielded 98 cents in 2001 compared with $599,605 invested in stocks when adjusted for inflation.

While some exposure to gold is good, says Steve Ayer, managing director at HighTower's Strata Wealth Management, "that does not mean that somebody should have all their money in it." Those investors may find themselves as financially troubled as the people who went all-in on tech stocks before the bubble burst, he adds.

3. There are cheaper ways to buy it.

Most of Ayer's clients prefer to invest in gold miner stocks and ETFs rather than the physical gold itself. Shares of gold miners such as Barrick Gold (ABX), Goldcorp (GG), and Newmont Mining (NEM) are not subject to the high tax rates of coins or bullion and investments backed by physical gold. Same with ETFs that hold stocks in the miners, such as the Market Vectors Gold Miners ETF (GDX) and the Market Vectors Junior Gold Miners ETF (GDXJ). Plus, says Ayer, "Right now the mining stocks are cheaper compared to the bullion."

4. That classic car may be a keeper after all.

One idea that apparently did not occur to the man on Pawn Stars was holding onto the car.

According to Oliver Pursche, president of Gary Goldberg Financial Services, which manages $500 million in assets, a pre-war classic car like the 1932 Lincoln, which apparently is in immaculate condition, can appreciate in value by 15% to 20% annually. "Over time, they have proven to be a very good investment," says Pursche, an antique car buff.

Did the Pawn Stars customer make a smart investing move or a dumb one? Share your thoughts below.

Motley Fool contributor Jonathan Berr owns shares of IFAU.


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metalsman

the only proven hedge against inflation for thousands of years is gold and silver

Please visit silversnowball com/3988

August 05 2011 at 4:49 PM Report abuse -1 rate up rate down Reply
hgeorgech

There is one sure way to get the "Do Nothing Congress" to act on this Debt Ceiling situation .. hold them (indvidually) responsible for losses investors, pension funds, etc., etc incur to their portfolios as the result of their in-action!

Law suits for all 535 of 'em and mass dismissal for being totally inept

****************************************************************************

Here's a question for all: How many other countries have "Debt Ceilings"? Answer: NONE!

If Germany, France, England, Japan, China, Australia, Canada, etc., see no need for such Ceilings, why do WE?

Why do we put up with this nonsense? Nobody else does!!

July 25 2011 at 9:36 AM Report abuse +3 rate up rate down Reply
martinsportraits

There is no way there is going to be a default but its going to be one Ugly 11th hour deal for sure and paints a rather gruesome picture of the turmoil to come , This country is in deep trouble! The unemployment picture is downright catastrophic , even after they cooked the books!

July 25 2011 at 3:18 AM Report abuse +2 rate up rate down Reply
martinsportraits

A very good time to buy silver actually , the most prudent decision of all!

July 25 2011 at 3:13 AM Report abuse +2 rate up rate down Reply
martinsportraits

Gold is still a long way off from its'' adjusted for inflation '' all time high , Bottom line , the US Dollar is faltering in the worst way and will continue as such along with other fiat currencies printed into oblivion. I certainly wish I would have went much heavier in metals as they are set to just explode in the coming years , Bottom line , there is a storm coming the likes of which no one can imagine , there are too many people , too few resources , Skyrocketing healthcare , fuel and food costs .... the gulf between the super wealthy and the ocean of the struggling middle class and working poor(who lost the majority of their net worth in the real estate crash) is ever widening....can you feel the first winds of revolution coming .....I assure you , the difficult times have not even started!

July 25 2011 at 3:11 AM Report abuse +3 rate up rate down Reply
cdcollector81

I bought my gold at about $450 an oz. so I say for me it was a great deal....If I sell it. personally I prefer the historical value to it over the monetary value. I'm not sure that buying investment gold at $1600 an oz is such a good idea. Gold will soon out price itself and the average investor will not have the connections to sell it other than to bulk gold buyers who will only pay a fraction of the purchased price. I think you would be better off investing in a nice vacation and spending some time with your family. I'm betting early on silver rising next.

July 24 2011 at 6:25 PM Report abuse +1 rate up rate down Reply
bidderman

I didnt see that episode of Pawn Stars and don't know why the man would need a security guard. $95,000.00 in gold equals approximately 57 oz. which could be carried out in a small briefcase, purse, or even in your pockets. I know people who carry much more than that with them and they have no security guards. The man made a good deal. Old car values have been declining and will continue to do so just like antique furniture since we have a generation of people who do not appreciate quality of workmanship.

July 24 2011 at 9:24 AM Report abuse +2 rate up rate down Reply
nodenyap

If you are interested in owning a little gold, go to your bank and tell them you want an uncirculated roll of
$1.00 gold, (clad) coins. You will get a roll of 20, $1.00 coins clad in gold but you will pay a $5.00 charge.
Your total investment is $25.00. However, like any coin of this type, it will never be worth less than
face value but, the coins could go up if the coin is a limited mintage by the U.S. Mint. Just use good
judgement before laying out a good sum of money. Remember, the gold clad coin is worth no
more than the paper one dollar bill you have in your wallet in terms of buying power.

July 23 2011 at 7:37 PM Report abuse -1 rate up rate down Reply
ccdae5

Real gold will always have value, the paper gold may not. If the day come that you need that you need to buy supplies and dollars don't work, that paper gold won't work either, you will need real gold.

July 23 2011 at 5:14 PM Report abuse rate up rate down Reply
Airamerica1964

Actually, currency is not "a piece of paper." United States currency is printed on cotton. But the premise of sgentiljr is just as good. Our currency is backed only by the Federal Reserve, and their backing rests on backing by bonds. And should the United States lose its AAA credit rating, then just how much the investment is worth is deoendent on the Feds being able to sell these instruments to backers. A major loss of confidence would reflect in the amount of discount bonds would have to sell for. One can only imagine what that would do to our free market economy. But for too long, the nation has been mortgaging today's economics on the backs of future generations. Without dollar-for-dollar exchange, maybe it would force the government to stop its continuing colonial efforts in places such as Iraq and Libya.

July 23 2011 at 11:40 AM Report abuse +1 rate up rate down Reply