On Tuesday, Arizona Governor Doug Ducey signed a bill exempting the sale of U.S. gold coins from state capital gains taxes. What does it imply for the gold market?
Governor Doug Ducey signed the HB2014 bill, which defines gold, silver, and other precious metals as legal tender and exempts them from capital gains taxes:
“23 FOR TAXABLE YEARS BEGINNING FROM AND AFTER DECEMBER 31, 2017, THE AMOUNT OF ANY NET CAPITAL LOSS INCLUDED IN ARIZONA GROSS INCOME FOR THE TAXABLE YEAR THAT IS DERIVED FROM THE EXCHANGE OF ONE KIND OF LEGAL TENDER FOR ANOTHER KIND OF LEGAL TENDER. FOR THE PURPOSES OF THIS PARAGRAPH
(a) “LEGAL TENDER" MEANS A MEDIUM OF EXCHANGE, INCLUDING SPECIE, THAT IS AUTHORIZED BY THE UNITED STATES CONSTITUTION OR CONGRESS FOR THE PAYMENT OF DEBTS, PUBLIC CHARGES, TAXES AND DUES.
(b) "SPECIE" MEANS COINS HAVING PRECIOUS METAL CONTENT”
The new bill means that if someone buys a $1,250 one ounce gold coin and sells it next year for $1,251 or another higher figure, they will not experience a capital gain and will not have to pay any taxes. Hence, the demand for gold coins may increase in Arizona.
It’s an important step towards sound money and dismounting of the national currency-monopoly, but there is still a long way to dethrone the U.S. dollar, as there is simply a lack of public interest in the usage of silver and gold coins in people’s ordinary transactions.
The key takeaway is that Arizona passed a bill exempting the sale of U.S. gold coins from state capital gains taxes. It’s wonderful news for Arizona bullion investors, but it should not affect the price of gold. The reason is that the bill is limited to one state, however, similar legislation has been introduced recently also in a few other states as well, while it is up for consideration in 2017 in a few other ones. Moreover – and even more important – retail bullion prices rely on the international spot price of gold, not the other way.
Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.