US Government now tracking gross proceeds on gold sales over $600

An interesting wrinkle in the recently passed healthcare legislation involves language inserted into the bill to track gold bullion sales. For gold dealers, the problem is the paperwork because they now have to file 1099 forms for every transaction over $600 – which is essentially every transaction since gold sells for nearly $1200 per ounce in the spot market. But for individual investors, it means Big Brother is now watching you. It knows when you buy gold, how much you have bought and potentially much more.

In the video below Jim Cramer and Alix Steel discuss what this means for investors and for owning physical versus ETF gold. My view is that ETFs are paper and may not be backed 100% by a physical product. To the degree that this law pushes people into ETFs and away from the physical product, it is a pernicious little piece of legislation.

About two weeks ago, David Galland of Casey Research wrote this about the new law:

Dear Reader,

In past editions of this service, I’ve advocated tuning your personal radar to pick up early indications that the government is taking an active interest in gold. Especially when that interest revolves around terrorists or tax evaders, two popular bogeymen these days.

It was, therefore, with more than a little concern that I read an article in our Ed Steer’s Gold & Silver Daily service yesterday on an item slid into the legislation authorizing the government takeover of health care. Here’s a snip from Ed’s letter…

The good folks over at report that, starting on January 1st in 2012, U.S. federal law will require coin and bullion dealers to report to the Internal Revenue Service all gold and silver coin purchases and sales greater than $600. The report is written by David L. Ganz and is headlined "$600 Sale? Get Ready for Tax Form."  Apparently this little jewel was an add-on to the national health care legislation. But there’s a new bill being introduced by Rep. Dan Lungren (H.R. 5141), which has gathered over 80 members of Congress as co-sponsors to repeal this section… so we’ll see how that turns out. The link to the story is here.

According to the author of the article Ed references, the rationale for the new regulations is that the taxocrats believe that people conducting off-book trading in precious metals are chiseling them out of $17 billion in lost revenue annually. The net result, however, will be that the government will soon know who’s got the gold.

The full Casey Research piece will go up later tonight because the rule applies not just to gold bullion but all transactions over $600. Now, I am not partial to conspiracy theories but this gives me the creeps. It is a legislative sleight of hand, especially given how it was buried in a completely unrelated, large and complicated bill. I see this as an extremely negative event. Clearly big government is back with a vengeance. When Marc Faber said "I advise every American to hold his gold outside of the United States" he wasn’t kidding.

h/t David Merkel

Note: while the original title of this post did not include ‘gold’, most of the debate has centered on gold sales. Why is not yet clear to me. The provision in the health care bill is operative for all transactions above the $600 threshold. The link from numismater gives a $17 billion sum for the money expected to be recouped from previously unreported taxable income; but again I have yet to determine whether this applies to all tax dodging targeted by this legislation or specifically to the gold. I suspect the former.


Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.