A Tax-Free Way to Play Gold
Source: Gold-Prices (11/23/09)
"If one can take advantage of this, the benefits are huge."
For those unfamiliar with the concept, it involves betting a certain amount per point on various financial instruments (i.e., one could go long and bet $10 per point on gold, and so for every dollar that gold goes up, the bettor's position increases in value by $10). The bettor also can set a stop and limits, at which their bet will be automatically closed.
Many would view financial spread betting as simply a trading vehicle, but it doesn't have to be limited to just that. What if you placed the stop at gold being $0.01 and placed enough capital in your account to cover that bet? One would effectively be getting a 1:1 ratio with gold, similar to returns offered by GLD and other 1:1 ETFs/ETNs.
Some may argue that in order to get that amount of coverage from the broker, a huge amount capital would have to be deposited to cover the potential loss. But this is not the case; the minimum bets at some brokers are as low as £1.00 per point. So with gold at around $1,080, one would only need to deposit £1080 to cover the bet, and one is getting a 1:1 return on gold, for every $1 gold goes up, one gains £1, and the position will only be closed if gold falls to 1 cent.
The large tax advantage here is that spread betting is free from capital gains tax (18%) in the UK, so there is another great advantage of this situation. If one can take advantage of this, the benefits are huge. Considering investing $100,000 in gold and gold doubled. You would have made $100,000 but would have to pay $18,000 in capital gains tax leaving you with just $82,000 profit. With financial spread betting, there would be no tax and you would pocket the full $100,000, increasing your profits by 22%!
We know this may not apply to all investors, but for those it does this opportunity is definitely worth looking into.