As investments in precious metals like gold surge, driven by global economic uncertainties and inflationary fears, many investors are flocking to gold exchange-traded funds (ETFs) as a seemingly safe harbor for their capital. With gold prices recently witnessing unprecedented highs, it’s no wonder that investor enthusiasm is peaking. However, what many may not realize is that this eagerness could come back to bite them when tax season rolls around. The taxation of gold ETFs, governed by IRS regulations, is posing a potential pitfall that could drastically affect the net returns of these investments.
The Collectibles Tax Rate Revelation
A crucial aspect of the tax implications surrounding gold ETFs is their classification as “collectibles.” According to the IRS, gold—and other precious metals—fall under this category, which includes various physical assets like art, vintage cars, and rare coins. Why does this matter? Because collectibles are hit with a steep 28% tax rate on long-term capital gains, which applies to any profits realized from assets held for over a year. This is a stark contrast to the considerably more favorable 20% maximum on long-term capital gains for other assets such as stocks and real estate.
Investors in popular gold ETFs such as SPDR Gold Shares (GLD), iShares Gold Trust (IAU), and abrdn Physical Gold Shares ETF (SGOL) may be unaware of this major distinction—leading to vastly inflated tax liabilities. As Emily Doak, director of ETF and index fund research at the Schwab Center for Financial Research, clearly points out, the IRS treats these ETFs like direct investments in gold itself, which are subject to this hefty tax. This oversight could devastate the investment landscape for those who naively believe they’re simply buying into a diversified fund that won’t command such steep taxes.
Profits with a Cost
In 2025, gold prices soared above $3,500 per ounce, showcasing remarkable growth from the previous year’s pricing between $2,200 and $2,300. The spot gold price has not only reached an all-time high but also attracted attention as a viable hedge against economic downturns. As concerns about a potential global trade war ramp up—especially after recent tariffs introduced by President Trump—investors are turning to gold as a traditional safe-haven asset. However, this rush to secure profits can result in a double-edged sword when long-term gains are evaluated under the IRS’s stringent tax rules.
While many investors are accustomed to a straightforward tax structure for assets like stocks, which generally allow for a tiered approach of 0%, 15%, or 20% depending on income, the structural complexities of gold ETFs introduce a new layer of challenge. Tax liabilities on collectibles can be burdensome—especially for those who might find themselves in higher income brackets, where returns on investments become taxed at the maximum rate.
The Mechanics of Taxation: A Closer Look
For an investor aiming for growth in a collectible investment, understanding their marginal tax rate is critical. An individual in the lower income brackets—say, the 12% marginal income tax bracket—will see their long-term collectibles profits taxed at 12%. Conversely, someone in the 37% tax bracket will find their profits capped at the maximum 28%. This can lead to quite disparate outcomes for investors depending on their other income sources.
Additionally, outside of long-term capital gains, those selling gold ETFs within a year face short-term capital gains taxation, which mirrors their ordinary income tax rates, ranging widely from 10% to 37%. This creates a volatile tax environment where investors must not only consider the potential appreciation of their gold holdings but also the tax ramifications of their investment strategy. And this doesn’t even take into account potential additional levies, such as the 3.8% net investment income tax or various state and local taxes.
Investing in gold through ETFs may seem appealing, especially during tumultuous economic times, but the hidden tax consequences are a critical consideration that could greatly diminish the anticipated financial benefits. As gold continues to shine as a wealth safeguard, investors must navigate the complexities of tax policies with caution. Only by fully comprehending these implications can one genuinely reap the rewards of their investment, rather than be ensnared in a fiscal trap set by the IRS. Understanding the nuances of capital gains taxation can empower investors to adopt more informed and strategic approaches to their financial futures.