I'm new at this and have a couple of questions. 1. Does anyone know a legit site that has the mining cost to get silver / gold out of the ground and stamp a coin? Interested in trying to find out what the current bottom for silver / gold is on that basis (at current currency values). 2. My CPA has confirmed that you can sell coins in the middle of the year at a loss, immediately buy similar coins (so that you maintain your position), and generate a loss for tax purposes. They say you can deduct up to $ 3,000.00 per year against ordinary income. Has anyone in this forum used this practice to lower their average cost? Thanks in advance for any helpful answers.
1. I've heard $500 a few times referring to gold, I've heard anywhere from $4 to $20-$25 on silver.... silver is largely a byproduct of gold/copper mines which is why their is a large discrepancy I believe.
1. Its variable. Think about it, every producer has their own costs, and those of a byproduct silver producer like a copper mine will be very different than a primary miner. 2. Well, I am a CPA and would tell you that you cannot sell and immediately rebuy a product and take the loss. Such a transaction would be labeled a sham transaction and ignored for tax purposes. This is extremely well documented for stocks, but the principal applies to PM and coins as well. You would have to make the case why the two holdings are different enough to in reality be completely different investments. It can be done in my opinion, but your statement as it is written is wrong sir. Chris
The best way to obtain the cost to produce silver is to do it yourself. It's easier than it looks. Just take two or three of the major silver producers. Look at the total cost [including everything] on the income statement [yahoo finance is a good source]. Then find the number of ounces produced annually, which is usually in a year-end press release or annual statement. Divide the expenses by the ounces and you will get the cost per ounce. Do this with several companies and average them, or calculate a weighted average. I would advise ignoring the cash cost numbers that are popular in some circles. This won't give you the absolute bottom price, but the long term price for silver will be something close to the production cost. Welcome to Coin Talk!
Of course there is always the danger of "Midas" the golden asteroid .999 fine. Being bumped out of Jupiters orbit and crashing into the "Bank of International Settlements:" (BIS) Then all bets are off. In fact most gold mining today is done in Nevada, its a horrible "Strip mining" technique that scaps up the desert floor, then leeches the gold out of the pile with cyanide.
CPA Said Coins Are Different Chris, I am not a CPA, but mine said that the tax law on stocks don't apply to coins because each coin is unique. I.E. if you sell then repurchase shares of ABC stock, you are still trading in ownership of ABC. I have been told that this does not apply to coins because you are selling and purchasing different coins.
Collectible coins would be different, bullion coins, (junk silver), is not. Its about intent. If you are holding an 1883s morgan, sell it, and buy an 1885 CC morgan, those are different assets, at least it could be argued with a straight face. If you sell junk half dollars and buy junk quarters, how are they different? Both are valued at silver value, so you have just sold then bought silver. So, it would be declared a sham transaction by the IRS and ignored. That would be my opinion on the subject, and I have dealt with similar cases. Its basically the inverse of arguments made on like kind exchange rules.
Chris, Thanks for the clarification. I believe my CPA was referring to "collectible" coins as opposed to junk.
Ok, that makes sense. I was believing you were talking about junk silver since this thread is in the bullion section.
Howdy all, Medoraman is spot on and so is your CPA. What you're talking about is the 30 day Wash Sale rule. IRS disallows losses on a sell if you turn around within 30 days and buy the same or similar asset. They are going to say it's the same and you've got to convince them it's not. Bullion you're screwed but you might make a case with collectibles. However, collectible coins would be tough because you've got to be able to register a loss - and prove it - and then turn around and replace the investment. The vigorish is probably going to outweigh the capital loss. And the collectible coin market doesn't have large enough swings to play it like you would a stock or even a mutual fund. You need to have a lot more volatility. Where we do have the volatility is with bullion. Alas. It would be very easy to do with a mutual fund because if you were riding a loss, you could sell it in December and turn around and buy a different precious metals mutual fund. Most pm funds invest in mining stocks rather than bullion, so it 's not a pure play on the POG/POS but it's about as close as you can do safely. good luck, peace, rono
Rono & Medoraman, I appreciate your responses. I did not get into a lot of detail with my CPA on what is bullion (junk silver) versus collectible. The intent with the question is to minimize a big move against a position, i.e. silver prices drop by half after a given purchase. In such a case the tax benefit might be worth the transaction cost. It is not clear to me what is bullion versus collectible. The price of uncirculated or proof eagles at the US Mint clearly includes a premium over and above bullion rates. I suspect it is also true that a large fraction of investors / collectors buy and hold (which supports a collectible definition). I don't know just how much premium it takes to make a given coin a collectible. I have been curious whether any users here have used such a strategy over time to lower their acquisition cost. With tax code and the IRS there is always the matter of what they are actually doing in practice versus ones reading of tax law. My CPA has not ever seen someone claim losses on coins even though theoretically one can, up to a limit of $ 3K a year against ordinary income.
Wouldn't you also have to take into account a weighted ratio based on how much money the lead and zinc in the same mine are bringing in since these metals coexist with silver homogenously in the ground? Since these other metals are also coming out of the ground and making money for the mine I'd imagine this would decrease the cost of production numbers for silver somewhat. Although then there is the question of would the mine even be open if there wasn't silver there, and if not then silver should bear the brunt of the cost of production. The other thing is, would more mines be open if silver was more expensive+profitable? An increase in price could potentially increase the cost of production by expanding mining operatoins. I think it's a bit more complicated than it seems, but I can't think of any better way to do it than you've described for a ballpark figure. I just wouldn't use that to base any important decisions on.
Everyone is free to do any calculation they want, or none at all. I've just explained how I do it, and if you stick with the primary silver producers, I think it's close enough. If the price increases or decreases, just repeat the exercise with the new data.
This gets into the complicated issue of byproduct credit and accounting for mixed outputs. Bottom line is you will probably get different answers at every mine since each of them will account for these issues slightly differently, and all will be GAAP since there is no specific method that must be used. I am lost how you believe higher silver would increase cost of production. All higher metal prices will do will be to encourage further production. YES, on the new parts of the mine they may have higher costs, but the issue is sunk costs. Once they decide to expand the money they spend to expand can never be recovered. So yes, PM can drop below their total costs and they will still mine, since some of those costs are now lost, and as long as they make more money mining than their variable costs are, they are still making money incrementally.
My thinking here is that mines which are not profitable enough to be open currently would be opened up if silver prices were higher. The cost of production is not impacted by dormant mines, and we know that due to a historically low mining ratio of silver to gold being around 7:1 that there's not as much incentive to go get as much silver as could be got. Either that or silver is disappearing in the ground faster than gold, but most likely both.
The question would be (at least in my opinion) if the asset is clearly identifiable or not, not whether it's collectible or not. For example, mint proofs are generally indistinguishable from each other, and would be treated like share of stock. You can't sell one and buy another without the wash sale coming into play. A collectible coin with a specific year, grade, mint mark would be different. As long as the coin(s) you sold was somehow significantly different from the coin(s) you purchased, then I would think you could take the loss. But given that it appears that you're trying to take a loss against the price of the base metal, I would expect that the IRS would challenge that particular loss.
Again, gets into the sunk cost issue. If you ignore sunk costs, even new silver mines would be profitable down to $20 or less.
