For many, gold and silver’s benefits as savings assets are compelling reasons to own them. Precious metals remain fundamentally uncorrelated to mainstream assets, so they offer potential diversification and the general possibility of sometimes offsetting portfolio losses. Gold and silver have demonstrated a capacity to strengthen against a backdrop of accommodative monetary policy and free-spending fiscal policy, which means they often have surged during periods when the economy is suffering and receiving that kind of assistance.
But there’s another side to physical precious metals that many find particularly alluring: their universal appeal as sound money. The latest economic era of loose-money policies and fiscal irresponsibility has exacted potentially erosive effects on the dollar. Some individuals are particularly concerned about the eventual consequences – and want to be ready with what they see as the only true alternative: physical precious metals.
On that note, there’s a legislative effort underway in Kansas to establish gold and silver coins as legal tender in the state. If successful, it would mean citizens conceivably could engage in everyday transactions using physical gold and silver coins. The potential implications for physical metals are enormous. This is especially true in light of the growing movement among some states to allow reserve funds to be held in physical metals. Currently, three other U.S. states already have metals-as-legal-tender laws on the books.
Physical precious metals’ value as sound money also can prompt some retirement savers to consider buying a portion of their gold and silver outside of an individual retirement account (IRA) in what’s termed a cash account. Those gold and silver coins and bars owned separate from a tax-advantaged account give owners the greatest measure of control over those metals. This is because those metals are not subject to the strict custody rules that apply to IRA assets. Owning gold and silver both inside and outside of an IRA gives savers options that could result for some in their most complete metals ownership profile possible. A savings regime that includes both IRA metals and non-IRA metals gives savers an opportunity to benefit from owning gold and silver as both long-term savings assets and sound money.
Kansas House Bill 2123 – the Kansas Legal Tender Act – was introduced by Republican Rep. Brett Fairchild and four Republican co-sponsors.1 Successful passage would result in the “reaffirmation of gold and silver coin as legal tender,” according to the text of the bill. The law would define “legal tender” as “a recognized medium of exchange for the payment of debts and taxes.” As independent journalist Michael Maharrey puts it, “Gold and silver specie would be treated as money, putting it on par with Federal Reserve notes in Kansas.”2
Interestingly, the act contains a provision declaring the gold and silver specie eligible as legal tender could include that which is not necessarily minted by the U.S. government.
Specie legal tender in Kansas consists of: (a) Specie coin issued by the United States government at any time; or (b) any other specie that a court of competent jurisdiction, by final and unappealable order, rules to be within state authority to make or designate as legal tender.
Although it’s reasonable to speculate that official U.S.-minted coins such as the American Gold Eagle and American Silver Eagle would be popular as legal tender in states that allow gold and silver to be so used, the act would allow Kansans to decide that non-U.S.-minted coins could be used for money, as well.
Maharrey believes the macro effect of a sound-money “movement” would be enormous.
By passing laws that encourage and incentivize the use of gold and silver in daily transactions by the general public, policy changes at the state level such as the Kansas Legal Tender Act has the potential to create a wide-reaching impact and set the foundation to nullify the Fed’s monopoly power over the monetary system.
As I noted earlier, the effort to designate gold and silver coins as legal tender didn’t begin with the proposed Kansas measure. In 2011, Utah was the first state to legally “reaffirm” gold and silver coinage as legal tender, although the law applies only to coins minted by the federal government.3 Oklahoma enacted a similar law in 2014, and Wyoming followed suit in 2018.
The movement toward declaring gold and silver to be legal tender appears to be part of a larger trend among states to relax the rules and regulations concerning the use of metals as money.4 Should this trend continue, more savers might find it appropriate to consider owning some precious metals outside of a retirement account so that they may readily access and use their gold and silver.
For many retirement savers, purchasing physical precious metals inside of an IRA is their first choice when it comes to how they want to own the asset. As with other assets purchased within an IRA, the capital gains on gold and silver sales are either tax-deferred or tax-free, depending on the specific type of IRA. That benefit could prove substantial when you realize silver has appreciated roughly 450% over the last 20 years and gold has climbed about 530% during the same period.
But, as I mentioned at the beginning of this piece, strict custody rules are associated with IRA assets. These rules mean you don’t have the same access to IRA metals as you do metals purchased outside of an IRA in a cash account. Not only are there no constraints on access to cash-account metals, gold and silver owned outside of a tax-advantaged account can be stored anywhere the owner chooses and may be used in any manner he or she sees fit.
1 Kansas House Bill No. 2123, Kansas Legal Tender Act (January 25, 2021, accessed 3/25/21).
2 Michael Maharrey, NaturalNews.com, “Kansas bill would make gold and silver legal tender in the state” (February 23, 2021, accessed 3/25/21).
3 William Yardley, The New York Times, “Utah Law Makes Coins Worth Their Weight in Gold (or Silver)” (May 29, 2011, accessed 3/25/21).
4 Jp Cortez, Sound Money Defense League, “State Legislatures Eye Sound Money Reforms” (February 1, 2021, accessed 3/25/21).
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