Fundamentals - How Does a Donor Own Gold?

Charity Advisor Resource Newsletter - Volume 1.3 (2009)

BY JONATHAN D. ACKERMAN

There a variety of means by which a donor may hold gold - some obvious, and some less so.

In any event, this discussion should at least put you on notice that gold can be held in a number of ways, each with its own layer of potential complications. A complete analysis with an expert in this regard is of the utmost importance to fully understand the nature of the assets being contributed to the charity, the ways to determine their value and the proper method to handle the consummation of the gift. But here's a few of them and some basics:

Jewelry - this is self-explanatory.

Numismatic Coins - are collectible coins whose value surpasses that of their actual metallic content.

Bullion Coins - are recently minted coins - such as the American Gold Eagle, South African Krugerrand or Canadian Maple Leaf - whose value reflects their actual weight and content, See, the discussion relating to bullion bars immediately below for more.

Bullion Bars - are bars of pure metal whose value is reflected in their actual weight and content. Apparently, there are two ways to create gold bars - through a minting process or through a casting process. In either event, all gold bars are not created equal, in that some are made of "pure" 24 carat gold, while others are mixed with another specific alloy (which, of course, will diminish the purity and value of those bars). The gold may be represented by physical possession of the bars, which come in a variety of weights, sizes and quality. Gold may also be owned through a certificate of ownership or an account, and in that case, the actual physical gold may be held in a storage facility with a bank or a dealer. The value of gold is generally based upon a "spot" price, which is the price at which a commodity is quoted for immediate (spot) settlement, but experience has taught us that negotiations with several reputable dealers can render different ultimate sales prices. See PLR 200732026 for a description of owning an interest in gold where another entity stores the physical gold.

Mutual Funds - publicly-traded funds which represent a diversified series of investments of gold-based assets. These funds may contain a small percentage of direct ownership in gold itself, but may also include such investments as stocks of gold mining companies, exchange traded funds (ETF), futures contracts, and other commodities and precious metals.

ETFs - represent assets owned by a fund, but sold as shares on the stock market. In other words, each share of an ETF represents ownership of a certain amount of the metal.

Gold mining stocks - are stocks of companies that mine gold. There are many factors that affect the value of publicly-traded mining company stock. One perception is that, as the price of gold rises, the profits of a gold mining company will correspondingly rise. These companies may also have a stake in gold reserves.

Derivatives - are represented by gold forwards, futures and options and trade on various exchanges. In the U.S., gold futures are publicly traded on the New York Commodities Exchange and the Chicago Board of Trade.

See also our other articles relating to gold in this CAR Newsletter 1.3:
Featured Article - Gold as a Hot Topic Today
Technical - Charitable Contribution Deduction - Part 1 - Income Tax Issues (& Gold)

As you will note, a gift of gold may not be simple - there are many potential pitfalls for the donor and the charity. In addition, the character and method of investing in gold and gold-related assets are evolving. In all events, professional counsel should be retained to fully analyze the implications of a gift of gold given a particular set of circumstances.