Down payment with gold

For all those ANA members out there who read their latest issue of The Numismatist, did anyone catch that news blip about the guy down in Florida who brought with him $400,000 worth of Krugerrands to the closing of a realestate deal worth 1mil??? That is 37 pounds or 444 gold coins. The article also went on to say that there was a coin expert at the closing to verify the authenticity of the coins.

WOW!

 

Log in or Sign up to hide this ad.

Yes, I shall be moving in next Tuesday.

Phoenix

 

Yeah, I read that. Whatever floats your boat. I thought:

1. Carrying around that much gold is risky.
2. That was a clever way to get full value out of the Kruggerrands. Rather than sell them to a dealer for slightly less than their bullion value this buyer was able to get full value for them from the Realtor. Good for him.

 

That's a very good point, cause you know the real estate guys were completely un-aware of the value. I didn't read the article, but wouldn't be a bad idea to bring a buddy along that's a coin expert... but I bet the real estate company hired their own. Really neat idea.

-DJ

 

I'm sure the realtors got their piece of the pie.

 

6% of the sales price is typical. That is $15,000 on a $250,000 house.

 

We may start to see more of this sort of thing.

 

Pretty sure I heard recently that this is very common practice in Vietnam and that vietnam just passed india in ammount of gold they have/use. Think it's a great idea. Also, some countries (France) are possibly going to put silver back into their coins. Rest of the world to follow? We shall see.

 

lol dont forget the commission you owe me for verifying the coins

 

Suppose the US goes back to 90% silver coinage. If you thought the 3 Cent Silver 'Trime' was small - 0.80 gram - you'll love the new microscopic 90% silver dime that weighs 0.184 grams. (Compare that to 2.50 grams for a pre-1965 90% silver dime.)

The above is based on silver at today's close of $18.84/oz. so the intrinsic value of a dime equals its face value. (I can walk you through the math if you like.) If the intrinsic value of coins exceeds their face value they tend to be pulled from circulation and melted for a profit.

So what happens if the price of silver goes up? The amount of silver in the dime would need to go down accordingly. If silver hit $30/oz. the dime would need to weigh no more than 0.115 gram (at 90% silver) or risk being cast into the melting pot. A coin that small would be completely useless.

At $30/oz. the 90% silver quarter could not exceed 0.288 grams - about 1/10 the weight of a modern zinc cent.

So how could a government make silver coins today and avoid the risk of having the coins melted every time the price of silver takes off? Answer - limit the amount of silver in the coins to an amount whose value would not exceed the face value of the coins at any foreseeable price of silver. So around what price of silver would you design your coins? We saw silver briefly hit $50/oz. in 1980. Could silver reach $50 again? You betcha!

So you may want to design the coins around silver at some price above $50/oz. If you plan to produce 90% silver coins - dimes, quarters and half dollars - those are going to be some tiny coins. What if you reduce the silver content to say 10%? That way you could produce a larger coin with at least some silver content. But is 10% silver really worth the effort?

With the wide price fluctuations of precious metals today it makes it next to impossible for a nation to produce circulating silver or gold coins. One day the coins have very little intrinsic value and the next they are worth well above face value and get melted.

The age of circulating silver coinage is over. Clad coinage is here to stay. Get used to it.

 

they could just reduce two zeroes from the dollar and you could have circulating gold coins let alone silver coins

 

Bruce, I remember reading an arcticle about this in Coin World. So I did a search and this is what I found. In the June 23rd Issue, France is going to experiment over the next three years with eight denomenations of silver and gold in their circulating coinage. The article states that the face value of the coin would exceede the precious metal content. The three denominations proposed for circulation this year are the E5, E15 and E100 Euros. Based on the value of silver and gold at the time of the article, the E5 coin would contain .16 troy ounces of .500 silver or about $2.66 worth of silver. The E15 would contain .434 troy ounces of .900 silver or $7.22 worth of silver and the E100 coin 3.1 grams (0.99AGW) of .900 gold or $86.99 worth of gold. Next year they will come out with the E10, E25 and the E250 and in 2010 they will come out with an E50 and E500. The 2008 coins will be available to the public on Sept. 1. through the rest of the year.
The article has alot more info, but these were the basics of the article. That is going to very interesting how the public reacts to these coins.

 

Lol.

Phoenix

 

Are you aware of the tax implications of selling something like 400 K-rands? Say the buyer of this home sold them, he would then have to provide the IRS with proof of what he paid for them, and report his profit on them, as I am sure he made a profit on them. Then you get hit with a snarfy capital gains strike in the form of a monster tax bill. I am not sure of the implications of reporting given the nature of this transaction, but it may be an instance where you don't have to, because were you "selling" them, or just tendering them for a transaction?

So by spending them in a transaction he potentially passed on that problem to the seller of the home, but the seller has no gain, just a reporting.

 

You are absolutely correct. The seller may have exposed himself to an income tax obligation by using the Kruggerrands for his earnest money deposit. He certainly will need to report this transaction. He will have a reportable capitol gain if he bought the Kruggerrands at a price less than that credited to him by the seller and broker. (He would have a capitol loss if he bought them a few months ago when gold was over $1,000/oz and was credited at the current value of gold.)

All this raises another questio - How did the Real Estate Broker handle the Kruggerrands?

Each state is different but every state has a Real Estate Commission of some sort. I held a real estate for a few years in Colorado and did everything except activate my license in Georgia.

I can tell you that one of the things that Real Estate Commissions everywhere watch very, very carefully is how real estate agents and brokers handle money given to them for earnest money deposits and other deposits. The primary concern is that the money given to a RE agent or broker be kept safe and separate from the broker's money. In other words, money given to a broker by another party as a deposit cannot be co-mingled with the broker's money. This money must be kept in a separate bank account so it is safe and cannot be used by the broker. Brokers are audited regularly to ensure they are not co-mingling clients' funds with their own.

So how did the broker handle the Kruggerrand's given to her as an earnest money deposit? She cannot simply deposit them into her account. Did she convert them into cash and depost that money into the account? Or did she hold the Kruggerrands (maybe in a safe or safe deposit box) until they could be released to the buyer?

This is an interesting scenario but it is probably one that many states' Real Estate Commissions have foreseen. I'm curious to learn how this was handled.

 

I am not familiar with the Real Estate end of it, but do know that if you sell gold "legally" within the framework of the Patriot Act, the sale has to be reported, so that the government knows who currently has the gold(for when they desire to seize it?) and that the IRS is involved in collecting taxes on the Capital Gain.

 

Do these rules apply to individuals or only to dealers?

 

I am thinking that if you are buying million dollar homes.... you will have people that take care of these things for you.

 

As a dealer I know I have to report any purchase over $1000 face silver coin, 40 oz of gold or 1000 oz of pure silver to the Government. In the case with the rands the buyer would not have to report anything or pay any taxes on profit because it was rolled over into his new house. Lets say you sell your house for $150k and you paid $125k. You do not have to pay Capital Gains on the $25k as long as you put that $25k into a new house or investment with in 6 months. The seller would have to report the transaction which I sure they had the dealer do for them. I think the buyer would have been better to sell the coins out right for cash and then take the cash as the payment.

If I was taking 1oz coins for payment I would not take them for the same price that I get paid for them. I have to sell them and hope gold does not go down. This might have cost the buyer $10-30 per oz which could have been a large sum of money on that much gold.