Purchasing gold, especially in times when inflation or other economic conditions are volatile, is often recommended by financial professionals. Many veteran Canadian investors may seek to expand their gold holdings, while new investors may wonder what benefits investing in gold has in an economic climate of high consumer prices, rising inflation, and a depressed CAD. With rising gold prices at an all-time high, is gold still a lucrative investment? Does it belong in your portfolio?
This article will provide a brief overview of gold as an investment and four ways to begin investing in gold. When you’re ready to get started and buy gold in Windsor, or wherever else you are in Canada, CanAm Currency Exchange is here to help you through the process.
Unlike real estate, stocks, or bonds, gold does not produce income independently. That is, it does not produce earnings or dividends. The value of gold, like other precious metals, is tied to its value in specie speculation as gold bullion. Even in times of geopolitical uncertainty and high inflation, gold has still seen an increase in price and continues to act as a “safety net” for investors when other markets are more volatile.
During times of rapid inflation, the value of gold rises significantly, making it an excellent hedge.
When you’re ready to invest in gold, there are four main ways to do so:
Gold stocks are primarily investments in gold mining or gold streaming companies. Many gold mining stocks are traded on the Toronto Stock Exchange (TSE), just like stocks for other publicly traded companies.
Like any stock investment, though, your share purchase may be tied to the ups and downs of the gold mining industry and the profitability of the company you choose to invest in. Gold shares and gold futures contracts should be purchased with the same consideration and research that one would do when purchasing shares in a company.
Investing in gold ETFs limits your risk, as you’re investing as part of a mutual fund comprising several gold mining companies. Instead of investing in a single gold company, you invest in a collection of gold-related securities in a gold ETF or mutual fund. These funds track the price of gold and may include stocks in several different gold mines or offer investors the chance to participate in gold futures or options.
A gold ETF can be high-risk, high-reward, or more modest, depending on your risk tolerance and investment goals.
One thing to consider when choosing your gold-themed ETF is that gold companies tend to be more volatile as far as value fluctuations than gold itself. For example, investors may see the value of a gold producer fluctuate about 4-5% over time, and the value of gold may only fluctuate about 1-2% over the same period. This is because when purchasing interest in a gold mining company, your investment is tied to both the performance of the company and the value of gold.
One of the benefits of buying gold is that you own the gold. It’s physically yours to do with as you wish, and the value is tied to the value of the gold itself, not the performance of a gold mining company or exchange fund.
There are a few drawbacks to this manner of purchasing physical gold. First, you need to have the gold delivered or physically pick it up and find somewhere to store it. There’s also a consideration of insurance. If you plan to store the gold in your house instead of a bank, you may need to add it to your homeowner’s insurance policy.
Liquidity is the chief drawback of owning physical gold. While the specie itself has value, you cannot convert the value to purchasing power without converting it to currency; gold coins can’t be spent like pocket change. Liquidating gold bullion is more complicated than asking your brokerage representative to buy or sell more gold-related commodities.
One benefit to buying physical gold is that you can purchase gold bars and bullion coins in Canada using a tax-advantaged account, like a LIRA, TFSA, or RRSP registered account. If you use one of these types of accounts, then you can receive wholesale discounts on your purchases and usually get the best price for gold. The value of your gold will rise and fall with the gold market.
The final way Canadians can purchase gold is directly through the Royal Canadian Mint’s Canadian Gold Reserves Exchange Traded Receipts (ETR) Program.
It began in 2011 and offered investors the chance to own gold as a traded security. The gold is stored in the mint’s reserve. Investors own the gold directly, rather than through indirect shareholding like with ETFs.
Owners of gold ETRs may redeem their ETR for 99.99% pure gold bars or coins, or cash. The cash value is determined by the lesser of the gold price on the ETR market on the date of redemption and the volume-weighted average price from the previous five trading days and the date of redemption.
If you believe gold is a great addition to your investment portfolio, you aren’t alone. An industry expert from CanAm Currency Exchange can provide more information about how to buy gold, discuss investment options and explain the risks and advantages of this kind of investment.
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