Lerner, owner of the Frederick Coin Exchange, said he is concerned about a proposal that would have all buyers of rare coins and precious metals paying a 6 percent sales tax. Right now, because of a special exemption, customers who spend more than $1,000 on precious metal or coins can add to their treasure chests tax-free.
Rolling back the exemption would more than double the markup on many of Lerner's products and could send buyers heading to Pennsylvania or the Internet for their South African Krugerrands.

Proposed Tax on Bullion, Gold Coins

"It might force our business to open in another state," Lerner said.
The tax proposal offered by Gov. Martin O'Malley is part of a spectrum of cuts and revenue-raising strategies meant to polish the state's financial outlook. His office estimated that abolishing the exemption for precious metal and coin sales of more than $1,000 could glean an additional $3 million for the state; the Maryland Department of Budget and Management believes the state missed out on about $2.9 million in fiscal 2012 because of the tax loophole.
As part of a "balanced approach" to narrowing a budget shortfall, O'Malley decided repealing the exemption was a responsible choice, said Takirra Winfield, spokeswoman for the governor's office.
Initially, the state freed sales of bullion and rare coins from the tax to draw metal businesses to the region. O'Malley believes it is time to revisit the issue and stop offering these vendors special treatment, Winfield said.
Delegate Dana Stein made the same suggestion last year. In a troubled economy, the state should not only cut its budget, but also look at weeding out some tax exemptions, he said.
"I don't think this particular item should be singled out for exemption. Why not ... single out sales of precious art or other antiques?" he asked. "Why just sales of precious metals above a certain value?"
Sen. David Brinkley, a lawmaker from Frederick County, has a different take on the issue. In his opinion, levying a tax on the sizable sales of bullion and rare coins would be like charging a percentage for investment purchases.
Brinkley and Lerner both said some people like to hear the clink of metal in their coffers rather than rely completely on stocks and bonds, especially in a fickle economy.
"A lot of stocks just disappeared overnight," Lerner said. "Gold and silver are something you can hold in your hand."
On Feb. 12, 2007, gold was trading at about $660 per troy ounce; it is now at more than $1,700 for the same amount.
Those who want coins and bullion for their investment value are especially vigilant about getting the most for their money and are sensitive to price changes. Lerner said his highest markup for gold is less than 5 percent.
Not only would businesses potentially leave the state if the sales tax exemption is repealed, he said, but valuable coin conventions now held in Baltimore might also go elsewhere.
The proposal would damage the economy, including the Frederick Coin Exchange, without drawing much money to the state, Brinkley said.
"We're concerned about the sticks and bricks businesses downtown," he said. "Here we have a very successful one, and there are others throughout the state. And you're now penalizing anyone from purchasing their investment from these localities."
Lerner said he has been lobbying state legislators to oppose the governor's proposal.

Gold Resources to Run Out in 20 Years

It seems we have been so caught up in the decline of oil reserves that another commodity—one that the mining industry has thrived on for centuries—is apparently even in more scarce supply.  Gold reserves are running surprisingly low, and analysts believe that recoverable resources could run out completely within 20 years.

A report written by gold mining analysts for Standard Chartered Bank cites U.S. Geological Survey estimates that at the end of 2010, global gold reserves were only 51,000 tonnes.  At the rate of production seen in 2010, this would translate to only 19.2 years of production.  Unfortunately, the report also shows that while exploration budgets have risen for major gold mining companies, it has failed to prevent an overall decline in the rate of new gold reserve discoveries.

"In response to escalating gold prices, exploration budgets for gold have been rising since 2002," the report notes.  "As a result of declining hit rate and cost inflation, the average discovery cost of primary gold found has seen a rising trend since 1960, which is evidence that good, large gold deposits are increasingly difficult to come by."
Moreover, higher spending toward gold exploration between 2000 and 2009 still saw an average discovery rate lower than the period of 1980 to 2000.
Standard Charter adds, "It is also worth highlighting that the average ore grades of new deposits discovered have declined noticeably in the past six decades."  In 1960 for example, one tonne of gold ore yielded 2.86 grams of gold.  In 2000, one tonne only yielded 1.37 grams of gold.  Now, the newest gold ore discoveries are yielding less than one gram per tonne of ore.

This news may come as a shock to the mining industry, which may have to face the very real possibility of a non-existent gold mining sector in the next few decades.  What’s more concerning is that while gold may be running out, our need for it has increased dramatically, most notably in the continual advancement of computing technology.  Computers of all makes and models use gold in their circuitry for its malleable and non-corrosive qualities, and with demand for computing power only going up, the drop in gold supply may cause a ripple effect that could send shockwaves through the computer industry and other gold-reliant industries aside from just flashy jewelry outlets.

So what’s the best thing to do in such a situation?  Well, while the mining companies will undoubtedly continue pumping money into gold exploration, commodities traders and wise investors may want to revisit buying gold—solid, real gold.  That’s because at this rate of supply reduction over the next 20 years coupled with exponentially increasing demand from China and India, Standard Charter estimates that gold could be worth $5,000 an ounce in the not so distant future.

By John Shimkus of Energy Digital