Gold's Recent Rally Could Mean an Unexpected Tax Bill for Some Investors

Gold has seen a significant surge in value over the past year, offering investors a source of stability amid broader market volatility. But while the returns have been compelling, those holding gold through certain exchange-traded funds (ETFs) may face an unexpected tax consequence when it's time to take profits.

Precious Metals and the IRS: What You Need to Know

Unlike stocks, bonds, or real estate, gold and other precious metals are classified by the IRS as “collectibles.” This category also includes items like art, antiques, and rare coins. While that classification may seem academic, it has real tax implications, especially for investors using physically backed gold ETFs, which the IRS treats the same way as holding the physical metal itself. This includes popular funds such as SPDR Gold Shares (GLD), iShares Gold Trust (IAU), abrdn Physical Gold Shares ETF (SGOL). If the ETF is structured as a trust and backed by actual gold, it falls under the IRS’s collectibles rules.

The Tax Impact: Higher Long-Term Capital Gains Rates

Collectibles are subject to a maximum 28% long-term capital gains tax rate at the federal level. By contrast, most other long-term investments—like stocks and mutual funds—are taxed at a top rate of 20%, depending on income.

Here’s how it works:

If you’re in the 12% marginal income tax bracket, you’ll pay 12% on long-term collectibles gains.
If you’re in the 37% tax bracket, your long-term collectibles gains are capped at 28%.

These rates apply to investments held for more than one year. Gains on assets held one year or less are taxed as short-term capital gains, which follow your ordinary income tax rate (ranging from 10% to 37%).

It’s also important to remember that state and local taxes and the 3.8% Net Investment Income Tax may apply as well.

Gold’s Recent Rally

Many investors have seen meaningful gains this year. Spot gold prices recently surpassed $3,500 per ounce, up sharply from around $2,300 a year ago. Futures contracts have risen approximately 23% year-to-date and 36% over the past 12 months. The rally has been fueled by economic uncertainty and recent tariff announcements, which have historically led investors to seek out gold as a safe haven.

Planning Ahead

For those who hold or are considering investing in physically backed gold ETFs, it's important to understand how your gains will be taxed. In some cases, what appears to be a relatively straightforward investment can have unexpected tax outcomes.

Helping You Make Informed, Tax-Aware Investment Decisions

At Hanover, we believe strong portfolio management includes understanding both investment strategy and tax implications. If you’re investing in gold, or considering it, we can help you assess the most efficient approach for your goals and your tax situation.