1099 Supply Shock for Gold Buyers

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The 1099 reform
in the health care bill passed by Congress and signed by the President
has turned the physical gold market upside down. Under the new law,
gold buyers and sellers will have to fill out a 1099 on each side
of the transaction if the sales price is greater than $600. As a
result, many investors who have been buying gold as an anonymous
way to protect their wealth are now feeling the heat.

The Economics
of the 1099

Just months
after passage, the Senate has already moved to remove the 1099 requirement
from the health care bill in an effort to reduce transaction and
accounting costs for small businesses. With many companies processing
far larger orders than $600 on a near daily basis, it is certain
that new regulation will prove to be time consuming and costly.

Just today,
the Wall Street Journal reported that in 2008, regulations
cost businesses more than $1.7 trillion. This new regulation, one
which virtually no business can avoid, will only add billions of
dollars in additional regulation costs to an already burdened American

However, what
really matters here is that this new provision will be far more
devastating to local gold and silver suppliers. These small businesses
rely on volume to make a profit, with the spread between buy and
sell prices often little more than a few percentage points. For
a small coin shop to cover rent, utilities and other fixed expenses
of $5,000 per month, it would have to sell as much as $100,000 in
gold and silver to pay the bills. Add on regulatory costs, the time
required to fill out each 1099, and the drop in investment after
the bill passes, and what you have is an industry that has to sell
even more product as its buyers run away scared.

the rest of the article

4, 2010

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