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Investing in Gold: How to Buy Gold in Canada

Investing in Gold: How to Buy Gold in Canada

Have you considered buying gold as a hedge against inflation? Do you want to diversify your investment portfolio by adding gold exposure? Whatever your reasons, it’s never been easier for Canadians to buy gold. In this article, I’ll share three ways to invest in gold and let you know if gold is suitable as an investment.

How to Invest in Gold in Canada

There are three primary ways to own gold in Canada: you can buy physical gold, invest in gold stocks, or buy gold ETFs. Let’s take a closer look at how each method works, including the pros and cons:

Buy Physical Gold

The most obvious way to invest in gold might be to purchase the real thing. Many people prefer to own physical gold, also known as gold bullion. Physical gold can take the form of a gold bar or gold coin. In Canada, the easiest way to buy physical gold is through your bank or directly from the Canadian Mint.

Banks have made it easy to buy gold bars. You can buy gold online and deliver it to your nearest bank branch. The gold will usually arrive within a few days, and you can pick it up in person. You can also sell physical gold bullion through your bank.

The only real advantage to buying physical gold is having the ability to hold it in your hands. It’s cool to be able ot say that you own a gold bar. Also, some people may wish to gift gold bars or coins to a family member. But physical gold is not without its drawbacks.

There are shipping fees when you buy or sell gold bars or coins. These fees will reduce the overall return on your investment. Also, when you own gold, it needs to be safely stored in a safety deposit box or a safe in your home. Storing physical gold can be a hassle.

Buy Gold Stocks

If owning physical gold doesn’t interest you, you may want to consider buying gold stocks. When you buy gold stocks, you don’t own actual gold, you are investing in gold companies. As their profits increase, so should the value of your shares. With that in mind, gold stocks won’t necessarily follow the price of gold. Many other factors influence the value of gold stocks.

Gold stock prices are highly volatile and should only be considered a long-term investment. Also, gold stocks should never make up a significant portion of your investment portfolio. They should be complimentary and, as a general rule, have a weighting of 5% or less.

Purchase Gold ETFs

The problem with individual gold stocks is that they are risky investments. For added diversification, consider buying a gold exchange-traded fund (ETF). Gold ETFs have low MERs, so they’re cheap to own and let you diversify your holdings within the precious metals sector. Canadians can choose from several leading gold ETFs, including a couple that I’ve listed below:

iShares S&P/TSX Global Gold Index ETF (XGD)

This iShares ETF has more than $1.6 billion in Assets Under Management (AUM). It has a very low MER (0.61%) compared to other precious metals ETFs. Canadian companies make up more than 60% of the fund’s holdings, but there is also exposure to the US, South Africa, and Peru.

Horizons Gold Yield ETF (HGY)

Horizons Gold Yield ETF (HGY) is much smaller than XGD, with only $74 million in assets under management. Also, instead of investing in gold stocks, it holds units of SPDR Gold Shares, the world’s largest gold ETF backed by physical gold. HGY has an attractive dividend yield, with a 5-year average of 5.16%.

How to Buy Gold Stocks and ETFs

The best way to buy gold stocks and ETFs is through an online brokerage account. Online brokers put you in the driver’s seat. As the investor, you are responsible for the investment decisions, and you get to place the trades. In exchange, you benefit from some of the lowest fees in the industry. A few Canadian online brokers offer free stock and ETF trades, and many offer no-fee accounts.

While there are many great discount brokers, Questrade remains our top choice here at MapleMoney. Questrade customers enjoy free accounts and free ETF purchases, so you can buy gold ETFs at no charge. And if you are interested in adding gold stocks to your portfolio, Questrade’s trading fees are as low as $4.95.

Wealthsimple Trade is another solid option for buying and selling gold stocks and ETFs. Like Questrade, ETF purchases are free, but Wealthsimple goes one step further with no trading fees. So, you can buy or sell gold stocks for free. On the other hand, Wealthsimple is mobile-only and lacks the market and research tools that other platforms offer, including Questrade.

Reasons You Should Invest in Gold

While many point to gold as a hedge against inflation, the matter is debated. But there are other reasons why you might want to consider investing in gold.

  1. Gold is fairly liquid. While pure gold isn’t as easy to sell as a stock or mutual fund, you can dispose of gold bars without much trouble. As an investment, gold is certainly more liquid than other assets, like real estate.
  2. Gold offers diversification. If your portfolio consists only of stocks and bonds, it may not be fully diversified. This is especially true if you only own Canadian stocks. By adding gold to your portfolio, you are making it more diversified. Gold prices have a negative correlation to the stock market. Generally speaking, when stocks are rising, gold prices are falling. The inverse is also true.

Gold Investing FAQs

It’s important to do the proper research and consider your options before investing in gold. Below, I answer some of the more common gold investing questions to help you make an informed decision.

Is Gold a Good Investment?

The price of gold can be very volatile, so it’s not ideal as a short-term investment. It will maintain its value over the long term, but gold hasn’t performed as well as stocks or bonds. Gold is an option if you have a long-term time horizon and are looking for a way to diversify your stock and bond holdings.

Is Gold a Good Hedge Against Inflation?

Many people view gold as an ideal hedge against inflation, but historical data suggests that there is little correlation between the price of gold and inflation rates. There are several reasons you might decide to buy gold; inflationary hedging shouldn’t be one.

What Is a Better Investment than Gold?

While we recommend specific investments here at MapleMoney, long-term equity investments, like stocks or ETFs, will be more suitable than gold for most investors. Many equities are income-producing (dividends), historical returns are superior, and offer more diversification.

What Are the Disadvantages of Investing in Gold?

There can be several disadvantages, depending on how you buy gold. If you plan to own physical gold bullion, you should know the shipping, storage costs, and liquidity issues. You can’t sell gold bars with the click of a button, as you would with ETFs or stock shares.

Final Thoughts on Buying Gold in Canada

Gold can be a fine asset to add to your investment portfolio, provided you do it properly. In my opinion, trading physical gold bars are more trouble than they are worth, but if you have an emotional connection to owning pure gold, then by all means, buy gold.

You can benefit from capital growth in the gold sector by purchasing individual gold stocks or ETFs. It’s a cheaper and easier way to include gold in your portfolio. Remember that no single sector should ever dominate your investment portfolio. It’s not wise to trade your stocks and bonds for gold bars. Instead, consider keeping a small portion of your portfolio (5% or less) in precious metals like gold or silver.

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