How to Invest in Gold Canada

Gold is the oldest store of wealth in the world. In fact, gold even preceded printed currency as a medium for transferring wealth and was used to back the value of currencies during the gold standard. Thus, while financial markets and economies have advanced dramatically over the past 50 years, gold remains one of the most important asset classes in the world.

Why You Should Invest in Gold

The popularity of gold as an asset comes from the fact that its fundamentally limited supply gives it intrinsic value. However, as the world economy gradually moved off the gold standard throughout the 1900s, countries have been free to print currency as they see fit and use various tools or mechanisms to control the money supply artificially.

Ever since the Great Financial Crisis, most of the major countries in the West were forced to print money to protect their economies and bring interest rates to near-zero levels to promote spending. The effects of such monetary and fiscal policy are that most economies enter inflationary periods due to excessive money supply, cheap debt, and lower savings rates. Just as the global economy was reeling from the damage done by the Great Financial Crisis and interest rates were gradually increasing, the pandemic struck, and another money printing and low-interest-rate cycle commenced. This has pushed inflation to record-high levels.

Due to such excessive amounts of money printing and other economic measures to boost money supply, many question the value of a traditional government-issued currency as historically high inflation and money printing is eroding its value. The fact that 25% of the total US dollars in circulation were printed/artificially created in just in 2020 is enough to drive the point home. This puts investors in a tricky place as bank savings rates lagging significantly in inflation, and stock markets are risky to invest all savings. The current inflation rate in Canada was 3.1% in June, while the bank savings rate is about 1%. While equity markets have performed tremendously well since the pandemic, a low-correlation inflation-beating hedge is necessary for every investor.

Gold is hands-down the world’s most popular safe-haven asset. This is because investing in gold does not entail any credit or default risks present in treasuries, bonds, or other safe-haven assets. Its price movements are, to a large extent, driven by the shape of the economy. Generally, gold is negatively affected by positive developments in the economy and positively affected when the economy is in poor shape. A perfect example is that gold only had a minor sell-off when the market tanked early last year due to the pandemic and started trending up before the stock markets turned upwards. Another one is how gold had a brutal sell-off last week after a positive US jobs report.

Here Are Some Of The Best Ways To Buy Gold in Canada

Due to the advent of various financial products like ETRs (Exchange Traded Receipts), ETFs (Exchange Traded Funds), and various types of derivatives, investors today have a wide variety of instruments to build an exposure towards gold without having ownership hassles of holding the gold physically.

Gold Focused ETFs

Gold-focused ETFs are the simplest and most hassle-free way to gain exposure to gold. Exchange-Traded Funds are passive investment vehicles that follow simple strategies to track a sector, index, or commodity closely. These funds are very low-cost, liquid, and very effective at compounding.

There are two main types of ETFs related to gold. The first is traditional gold ETFs. These ETFs gain exposure to gold by either holding the commodity directly in physical form or replicating gold’s price movements through the use of financial instruments. Some of the biggest gold ETFs include the Granite Shares Gold Trust or iShares Gold Trust.

The GraniteShares Gold Trust is a physically-backed ETF, which means that it holds physical gold as the fund’s assets. It has about $1.024 billion of assets and an expense ratio of 0.174%

iShares is also a physical gold ETF with a mammoth $28 billion in assets and an expense ratio of 0.25%.

One of the most popular Gold ETFs in Canada is the iShares Canada Gold ETF (CAD-Hedged). This ETF is exactly like the ones above, except its units are denominated in CAD and trade on the TSX. Also, this ETF is hedged against any movements in the CAD value against other currencies, which removes foreign exchange risk for the investor and provides pure exposure to gold.

Mining Focused ETFs

Mining Focused ETFs maintain exposure to gold miners rather than physical gold. Gold miners are companies that are involved in the exploration, mining, and refining of raw gold. The managers of the ETF choose the best gold miners across the world in terms of operational and financial performance and allocate the funds assets among them.

Another difference between these and gold-focused ETFs is that these mining companies pay dividends passed on to the investor. In contrast, physical gold-backed ETFs do not generate any income from their assets and actually erode some of the fund’s value due to the cost of insuring and storing the gold safely. 

For example, the iShares S&P/TSX Global Gold Index ETF is a Canadian ETF that gives investors access to a basket of some of the most well-run gold miners in the world. The fund holds equity in about 52 companies and has a cumulative C$1.14 billion in AUM. It has an expense ratio of 0.61%, and its largest geographical exposure is Canada. The fund also has a dividend yield of about 2.27%.

Gold Focused Exchange Traded Receipts

Exchange-Traded Receipts are very similar to ETFs because they both hold physical gold to back their value and are traded on the TSX exchange. However, a major difference is that Exchange Traded Receipts are sponsored by the Royal Canadian Mint rather than a financial services company.

However, there are some other differences. For example, the Canadian Royal Mint has specific redemption dates every month when the investor holding the ETR can choose to cash out their holdings in the form of cash directly with the Mint or cash out in the form of physical gold. Investors are willing to exit their investment in ETRs by selling on the exchange too.

In the case of exit through cashing out, investors get cash amounting to 95% of the lower ETR price on the redemption date or the volume-weighted average price of the previous five trading days.

In case of exit in the form of physical gold, investors can redeem their certificates for 99.99% pure gold bars or coins, depending on the size of the transaction. However, this option is only available to those holding at least 10000 or more ETRs and are willing to pay redemption and fabrication fees. The Canadian Mint ETR is listed as TSX: MNT and is currently trading at C$22.67 per unit.

Gold Focused Mutual Funds

Gold Focused Mutual Funds are another indirect method to get exposure to gold. Gold and other precious metal funds buy shares of companies that have exposure to the price of gold or other precious metals. The companies held by these are usually mining, refining, or exploration companies. These funds are more actively managed than gold-focused ETFs, and their managers regularly churn the fund’s portfolio based on conditions.

While there are no gold-focused mutual funds in Canada, there are plenty in the US. However, there are precious metal-focused funds. These funds invest in companies exposed to a basket of precious metals such as silver, platinum, gold, etc.

The best Precious Metal Fund in Canada is the TD Precious Metals Fund – F. It has an AUM of about C$138 million, a minimum investment of C$500, and an expense ratio of 1.09%.

Investing in Gold Futures

Investing in gold futures is another one of the many ways to gain exposure to the price of gold without having to own it. Futures are a type of derivative contract that is traded on popular stock exchanges. Gold Futures derive their value from the spot price of gold.

A futures contract is an agreement between two parties to buy or sell a specified quantity of assets at a specified date in the future at a specified price. For example, you can enter a futures contract to buy 1 kg of gold for $55000 that matures on 30th August.

Every futures contract has a party on the opposite side, meaning that someone has agreed to sell you 1 kg of gold on 30th August at the same price. The profit/loss from the transaction is calculated as the difference between the spot price of gold at maturity and the price set in the futures contract; if the spot on the 30th is greater than $55000, then profit and if it is lower, then loss. However, investors should be aware that they have to square off their contract before the maturity date by taking an opposite position in the same contract; otherwise, they will have to take physical gold delivery and bear the costs of doing so. Futures also have leverage available, meaning that you can take a bigger position in gold than the amount of cash you are willing to invest; think of it as short-term debt. However, futures leverage is very risky as they amplify gains as well as losses.

Futures usually have maturities ranging from 1 month to 3 months, and the usual contract size is about 100 ounces. So if an investor wishes to hold a position longer than 1-3 months, they have to keep rolling over their contracts and pay big brokerage and exchange fees.

We don’t recommend futures to new investors as they are heavily volatile due to the leverage involved and can lead to heavy losses if not used prudently.

Investing in Gold Companies Directly

Investing directly in stocks engaged in gold-related businesses is an effective way to give investors exposure to gold. The rationale behind investing in gold miners, explorers, and refiners or royalty companies is that these companies benefit from operating leverage when the price of gold rises.

Simply put, operating leverage means that when the price of gold goes up, they get a higher price for the gold that they mine or refine, but their cost of production remains the same. However, investing in gold companies requires a certain level of expertise that ranges from a general understanding of financial statements, the implications of financial metrics and sector-specific knowledge.

Investors should deeply study a company’s balance sheet, debt levels, operating and net profit margins, return of equity, free cash flow, etc. They should also have some sector-specific knowledge such as cost of extraction per ounce, cost of mining per ounce, extraction ratio, etc.

There are two main types of gold-exposed companies: miners/explorers/refiners, and the second being royalty companies. Miners/Explorers/Refiners are directly engaged in the production of gold from raw to processed bars, coins, etc. On the other hand, royalty companies buy mines and then partner with miners that bear the mine’s entire development and operating costs. In return, the royalty companies get a part of the revenue of the mine.

While investing in gold companies is a way to get exposure to gold, there are far more factors at play than just the price of gold, and the investment might not be as effective as a gold-focused ETF at replicating the price of gold.

Buying Physical Gold

Last but not least, buying physical gold is the oldest form of investing in gold. There are multiple ways to buy gold today, both online and in person.

The simplest way to buy gold is through your bank. Banks will quote you a live price online for gold bars/biscuits/coins; usually, this price is lower for a bank’s customers. Buyers can opt to have the gold delivered to their home or pick it up from a bank branch. Another trusted online dealer is the Royal Canadian Mint.

However, buying physical gold entails the problem of storing it safely. If you’d like to hold physical gold, then you can rent a locker at your bank for it. However, note that the cost of the locker will eat into your returns.

The second problem is selling the gold once you have bought it. Selling physical gold is a tedious process due to various reasons. It is not as easy as selling units of a gold ETF. First, you need to go to a bullion dealer such as the bank or the mint, fill out a form, following which the gold is checked for authenticity and purity. If everything checks out, you are paid the cash.

Final Thoughts

While there are numerous direct and indirect ways of owning gold, we feel that the physical Gold-backed-ETF is the best option due to ease of use, the safety of investment, convenience, and liquidity.

That being said, many people are willing to deal with the hassles of physical gold for the peace of mind of owning a tangible asset. However, we would advise that your gold is stored at a safe location, such as a bank locker.

How To Invest In Gold In Canada

Call me crazy, but precious metal buyers in Canada often face the question: “How do I buy gold from the banks?” Weave Brainstorming has identified 55 ways to invest in gold, silver, platinum, palladium, copper, gold and other precious metal assets. We talk about how to buy gold from banks in Canada, and we often face the problem of how to buy it from them. Gold buyers from Canada often face the question: “How do you buy gold from banks?” We have already discussed this in our previous article Buy Gold Canada: How to Buy Gold from Banks. Silver buying: We have discussed this in the past and have often been faced with the challenge of how to buy gold from Canadian banks. Sources: 1, 5

Trade documents: The easiest and most practical way to invest in gold is through direct ownership, which includes buying physical gold, silver, platinum, palladium, copper, gold and other precious metal assets. This is the most common way to invest in precious metals in Canada and one of the easiest ways to buy gold. The way you own physical gold: This way of owning physical gold is by investing in gold bars (gold bars, coins or silver bars) or gold coins and silver bars on the gold market. It is a simple and cost-effective way to invest directly in gold, silver, platinum, palladium and gold coins and silver bars. Sources: 1, 4, 9

You can buy physical gold from gold and precious metal brokers who sell gold in the form of coins, ingots or bars. Those who do not want to invest in gold bars can also invest directly in gold coins minted by the Royal Canadian Mint and other mints worldwide. Buy gold coins, ingots and bars: The most common way to buy gold, silver, platinum, palladium and other precious metal assets in Canada. Sources: 8, 9

If you prefer not to hold physical gold, you can invest in gold exchange-traded funds (ETFs) or gold stocks (bullion). If you don’t want to get confused with a precious metal IRA that has to store physical gold, a gold ETF is a great option that generally mimics the price of gold. ETFs are also cheap – costs by design, and investing in them is usually a better option for investors who are put off by the associated fees. Sources: 0, 2, 8

For example, it is possible to invest in an exchange-traded fund that tracks the price of gold or invests in gold mining companies. These investment vehicles can help you invest in gold by paying a higher spot price per ounce. A gold ETF can be backed by physical gold values or track gold prices based on the future. Sources: 7, 8, 9

If you are interested in investing in gold, you can also invest in some gold stocks in Canada. A good example for Canadian investors would be gold mining companies such as Goldcorp Inc. (NYSE: GGC) and Canadian Gold Mining Corporation Sources: 5, 6

Learning to buy physical gold in Canada can save you money and time while building a smart portfolio, even for silver. Learning to buy physical gold in Canada can save you time while building a smarter portfolio and even some silver! Sources: 1

If you are looking for a way to protect your assets and diversify your investment portfolio, gold can be a practical solution. There are several options to consider when choosing where to buy gold in Canada. Therefore, make sure you consider the following factors before deciding where to buy gold. Once you have completed your research and determined how to incorporate gold into your investment strategy, you can invest properly. Sources: 5, 8

Before you start your research, you may find that you have various options to invest in gold stocks and physical gold bars. Before you invest in gold, you should consider whether you want to buy physical gold and store it in the stock market, insure it, buy it in the stock market or use CFDs to trade gold. Sources: 0, 7

Gold can be a good investment, but it is easier to invest in gold if you want to invest in ETFs. If gold is an asset traded on the stock exchange and gold cannot be an asset because of its high volatility, then gold stocks may be a more attractive option for investors who do not want to bother bearing the cost of storing several grams of gold safely. You can also buy gold in a gold ETF, which is a more attractive option for investors who do not have to struggle with having to safely store several grams of silver or other precious metals such as platinum or palladium, or even gold itself. However, if gold is an asset traded on the stock market, it cannot be bought in gold-share or silver ETF. And if gold stocks are the asset alternative, gold-gold ETFs may be one of the most attractive options for an investor who does not need to invest in gold. Sources: 1, 3

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