Today's comment is by Bob Bauman JD, Legal Counsel, and Senior Writer for The Sovereign Society. 

Sovereign Society members and readers often ask me if there's any U.S. law that forces them to report their gold, silver or other precious metals to the U.S.
government - especially if they hold those precious metals in foreign accounts or safety deposit boxes.

The question arises because if you're a U.S. person, by law, you must report if you have any direct or indirect control over any offshore "account" on the annual income tax IRS Form 1040. If your account exceeds US$10,000 at anytime during the calendar year, you also must file a foreign bank account disclosure form (FBAR) no later than June 30th each year.

What About the Perth Mint? Does That Count?

My friend and long-time associate, Vern Jacobs CPA, CLU, recently addressed this question in his free online "Jacobs Report."

One of his U.S. readers asked Vern if he had to report the metals held in his name at the Perth Mint in Australia.

The inquiring person had researched the Perth Mint website and among other statements, found this: "Perth Mint Depository Services (PMDS) operates like a private client bank account or stock-broking account, except with balances of precious metals in troy ounces."

The website also said that Perth Mint Depository Certificates allow clients to hold, deposit and withdraw funds in various national currencies, place market orders for precious metals, plus exercise put and call options for gold and silver.

Wise Advice: I'd Have to Agree

Vern Jacobs assessed the facts and gave the same opinion that I have: ''Perth Mint states that they function like a bank or brokerage account except with balances of precious metals in troy ounces. I mention this because I anticipate questions from readers who will want to use that 'exception' as a justification for not reporting [to the IRS] funds held in bullion form in a segregated account.

"To the extent that the bullion can be converted into other currencies or used to purchase investments it seems to me that the IRS will treat the account as a foreign financial account.

"To the extent that the bullion is physically being stored in a segregated vault or deposit box and can't be converted into currencies or investments as part of an integrated banking service, then there might be some justification for claiming it is not a financial account...I agree that the IRS is likely to argue that the Perth Mint program is a foreign financial account."

Bottom Line: To Report or Not to Report

In other words, if the IRS can view your precious metals account as a trading or banking account, then you should report. If you're just holding physical bullion, and not using it to buy other assets, then you should be able to justify not reporting.

However, my view is if you're in doubt about reporting to the IRS, err on the side of caution and go ahead and report. Better safe than sorry.

BOB BAUMAN, Legal Counsel

EDITOR'S NOTE: When you play by the IRS's rules, you actually beat them at their own game. By simply filing the proper paperwork, you secure all the benefits of the offshore world. You can go after the profits from stronger overseas investments. You can hold physical bullion abroad, enjoy the security trust or annuity, and protect yourself from any future lawsuits. And yes, you can even legally defer taxes - without raising any red flags with the IRS.

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Credit Market Says: Don't Buy Stocks Yet! Part II

I've been saying this all year: If you want to know when to buy stocks again, you must watch the credit markets. You also have to keep an eye on key indicators like the LIBOR and mortgage rates.

As I said yesterday, the U.S. markets have been recovering since they hit another intermittent low on July 15. But over that time, the credit markets have actually been declining.

So let's take a closer look at the credit markets and review last week's strong stock market action.

Basically, if we're seeing a big stock market rally, then we should also see a rally in yield spreads. In theory, a stock market rally means the risk-taking environment is improving. If investors are lunging after stocks, including the banks, then credit markets should also thrive.

Last week, the Dow gained 2.9% while the U.S. dollar had its best weekly rally in six years. Commodities prices continued to nosedive. That sort of bullish price action for stocks and the dollar should have driven non-government bond yields sharply lower. But that simply didn't happen.

From August 1 to August 8, 90-day LIBOR rates climbed only one basis point from 2.79% to 2.80%. And 30-year fixed rate mortgages climbed from 6.35% to 6.55%.

The only segment of credit that posted a rally last week was investment-grade corporate debt where yields declined from 6.08% to 6.05%. That's not exactly a huge gain.

Finally, what really irks me about this rally is the Treasury market.

On big days for stocks, like last Friday, the benchmark 10-year Treasury bond posted a modest loss or a decline of 4/32nds. Typically, a big stock market rally would drive Treasury bond yields much higher because investors dump staid T-bonds for equities.

Heck, if the world is chasing stocks doesn't that suggest we're growing more bullish on the economy? It doesn't look that way.

The fact is T-bond yields were unchanged from August 1 to August 8 while stocks gained 3%. This tells me bond investors don't believe we're at a stock market bottom. In fact, intermediate Treasury bond prices are unchanged since July 15 as stocks have rallied.

There's something fishy about this equity market rally.

Examining credit markets is not an exact science nor is it a perfect forecasting tool. But it sure beats the stock market where crowds of neurotic and momentum-based investors chase daily trends to make a buck.

My diagnosis: It's still not the time to fully embrace equities. Listen to credit.

Let Me Introduce You to the Seven Major Currencies...and the Dollar

The most important part of investing is to clearly understand what you’re investing in. In the currency world, most currency traders will talk about the “seven” majors.

The seven majors are the currencies that are traded most often on major brokerage desks around the world. The seven majors are generally paired with the dollar, so technically, the U.S. dollar would count as the eighth “major.”
Here’s a quick 30 second introduction to each of the major currencies…

U.S. Dollar (USD): The majority of trades in the Forex market involve the U.S. dollar against a different currency because it is currently used as the world’s reserve currency.

Euro (EUR): This is the new kid of the currency majors. Lately, the euro has been stepping up to take its place as a reference currency, as well as a larger component of foreign reserves by banks. It is also known as the anti-dollar because the euro tends to appreciate as the dollar depreciates.

Japanese Yen (JPY): The yen has been known as the carry-trade currency because for years, investors have borrowed yen to fund their carry-trades. Because Japan imports all of its oil, when crude oil prices begin to climb this hurts its economy and greatly impacts the value of the yen.

Swiss Franc (CHF): Also known as Swissie, it is sometimes called a ‘safe heaven,’ due to Switzerland’s independent stance, economy isolation, and strong private banking system. This in turn has made their currency very neutral.

The British pound (GBP): Frequently called, Cable or Sterling, the pound first got these nicknames because it was the first currency the Forex market traded through ‘cables’ across the Atlantic. The pound is the fourth most traded currency on the market and Great Britain’s economy is one of the strongest in Europe.

Canadian dollar (CAD): This currency’s unusual nickname, the Loonie, comes from the coins appearance which features a loon, a common Canadian bird, on the coins backside. Canada is a resource-focused economy, so the price of oil drives this currency along with commodities.

Australian dollar (AUD): Known as the Aussie, this currency is popular in the Forex market because of Australia’s currently high interest rates and generally stable economy. The Australian dollar is greatly influenced and driven by gold prices.

New Zealand dollar (NZD): Also known as the “kiwi,” the New Zealand dollar traditionally tracks the Aussie dollar’s path because these economies are tied together through exports. However, sometimes the New Zealand can fall while the Aussie dollar rises as we have recently witnessed.

ERIKA NOLAN, Managing Director

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