Why You Should Consider Investing in a Gold ETF in Canada

Posted on June 7, 2021

Did you know that the value of the loonie in your pocket has fluctuated as much as 70¢ in the last 20 years? Ok, that doesn't sound like a big deal until you start looking at money values.

In 2002, $1000US got you $1620 CAD. Fast forward to 2008, $1000 US got you $910 CAD. That is a big difference!

Many investors are seeking a better store of value than dollars. Some are turning to Bitcoin, others are exploring a less volatile option like a gold ETF.

Why You Should Consider Investing in a Gold ETF in Canada

Inflation seriously affects your purchasing power and your investments. Right now there is a significant upward trend in the Canadian inflation rate. If Canada's inflation rate continues to climb, our dollar's value will decline.

Investors will generally choose to hold a diverse portfolio of stocks and bonds. Stocks can be very volatile, fluctuating with the market. Canadian bonds are secure against the fluctuations of the market, however give a very low return on investment. In an uncertain market, gold serves as a hedge against inflation.

The price of gold bullion can fluctuate widely. In July 2001, one troy ounce of gold cost a mere $409.43 CAD. Its price rose sharply and by August of 2011, it was at $1917.90 CAD. It declined for the next four years, then began to rise again. It reached an all-time high in August 2020 of $2756.07. The current price is still in excess of $2000 CAD per ounce.

What is interesting about the value of  gold is that, when the dollar goes down, the value of gold tends to increase. However, in comparison with exchange-traded funds, the prices of a gold bullion and other gold products are relatively stable.

Gold prices are usually dependent on several factors. Demand and supply is a major factor, along with market conditions and political situation. The demand for gold will increase with uncertainties in these areas.

There is also the spot price of gold which is the value of the metal at the time of trade which is dependent on the net worth of gold futures bought and sold in recent days. The price of gold futures is dependent on many factors and includes transportation and storage costs.

There are downsides to owning gold bullions:

  • Gold needs to be stored securely
  • Gold dealers charge a premium on gold in any form
  • The quality of the gold may vary depending on the reputability of the dealer
  • There are fees involved in transporting gold
  • Should you wish to sell the gold, there are associated fees
  • High insurance costs 

What are the Best Gold ETFs in Canada to Invest in?

Gold ETFs shares can be purchased for a small amount of money. Most gold ETF shares are selling for under $200, which makes them very affordable to investors. This compares very favorably with the cost of one ounce of gold bullion.

A gold ETF can be composed of gold mining companies, gold retailers, gold mints, Gold Share Indices, and gold futures. Many, however, will have no physical gold as a component. Having a diverse source of gold assets increases the stability of a Canadian gold ETF.

You have a lot of choices in Gold-based Exchange Traded Funds. You can opt for a fund that closely mirrors the price of gold. You can choose a fund that is based on gold mining and the gold industry. You can select a fund which allocates a portion of its portfolio to physical gold.

iShares S&P/TSX Global Gold Index ETF

This fund is from BlackRock. It is diversified globally in Canada, the United States, South Africa, and Peru.

It invests in gold mining companies such as Barrick Gold, Newmont, Franco Nevada, and Wheaton Precious Metals Corporation. Its Management Expense Ratio (MER) is 0.61%. This gold ETF has a 5-year average annual return of 9.74%. Its ticker symbol is XGD.

BMO Equal Weight Global Gold Index ETF

This fund is managed by BMO Global Asset Management. It invests globally with most of its holdings in Canada, the United States, and South Africa, and the remainder in Ivory Coast, Brazil, Tanzania, Australia, Turkey, Burkina Faso, and Kyrgyzstan.

It contains mining stocks from companies such as K92 Mining, Wesdome Gold Mines, Endeavour Mining Corp, Dundee Precious Metals, and Franco Nevada. It has a 5-year average annual return of 8.55% and an MER of 0.61%. Its ticker symbol is ZGD.

CI First Assets Gold+ Giants Covered Call ETF

This fund is managed by CI Investments. It invests in stocks of many large gold and precious metal firms in North America. To reduce investor risk, it uses covered call options and securities. Its MER is 0.65% and its 5-year average annual return is 5.36%. Its ticker symbol is CGXF.

Aberdeen Standard Physical Gold Shares ETF

This is an American fund which Canadian investors can also purchase.  It is backed with physical gold. JPMorgan handles this ETF and the gold that backs this fund is housed in Zurich and London.

It has a very low MER of 0.17% and its 5-year average annual return is 6.43%. Its ticker symbol is SGOL. SGOL shares currently are at 1/100th of the spot price of gold, which is appealing to smaller investors.

SPDR Gold Shares ETF

This is another American gold fund available to Canadian investors. 

It is the largest gold ETF. It is also backed with physical gold which is stored in locations around the world including HSBC's vaults in London. Though backed by gold, investors cannot redeem their shares for gold bullion. The MER for this fund is 0.4% and the 5-year average annual return is 7.83%. The ticker symbol for this ETF is GDL. 

How Can I Invest in Gold ETFs?

Most investment or futures brokerages will facilitate investing in gold in Canada. A Canadian gold ETF can be bought or sold like any other stock. Most brokerages charge a commission for buying or selling a gold ETF, so it's a good idea to calculate the trading cost. 

Questrade is a well-known and reputable Canadian brokerage. They offer the option of self-directed investing using a mobile or desktop app and you can purchase stocks yourself. If you don't have the time or confidence to do it yourself, you can have the experts at the firm build a portfolio for you according to your needs and specifications and then actively manage it.

Wealthsimple is another prominent Canadian brokerage. They have highly qualified financial advisors who will work with you to help you reach your financial goals. They also have an investing masterclass you can sign up for and learn how to invest and manage your own wealth. Self-directed investment is also available with its standout feature of no fees for any trades.

Other Ways to Invest in Gold

There are several ways to buy gold. You can buy the gold bullion, you can buy gold ETFs, you can buy stock in a gold mining company, or you can buy gold futures. 

If you want to buy gold in Canada, you can obtain the bullion from several sources. 

You can buy coins from the Royal Canadian Mint. Canada Gold and Canadian Bullion are two very reputable platforms for gold purchases.

These firms sell gold in bars weighing anywhere from one troy ounce (31.1 grams) to a kilogram. They also sell gold coins and gold rounds. The gold rounds can vary in weight (up to five troy ounces) whereas the coins are mostly all one ounce of pure gold and can have different emblems or images on them.

If you decide to buy gold online, be sure to check for hidden fees or premiums that might be added to a gold purchase. Also, be sure to purchase from a reputable seller.

Stocks for gold mining companies are traded on the stock exchange and can be purchased online or through a brokerage. You should be aware that mining companies can succeed or fail based on their individual operating performance, so this can be a fairly higher-risk option.

You can purchase gold futures through a futures broker. You don't have to invest a lot of capital in gold futures since they represent the right - not the obligation - to buy or sell the gold at a specific price for a specific amount of time. If you guess the futures value incorrectly, you only lose your premium.

Is Now a Good Time to Invest in Gold?

Currently, the Canadian dollar value is dropping on the international markets and the inflation rate is rising steadily. Canada has reached record unemployment with a very shaky economy. The COVID lockdowns have led to many businesses closing their doors permanently, sending their employees home with no hope of finding another job.

Historically, this situation is the ideal time to invest in gold. Whether you choose to purchase gold bullion, invest in gold mining stocks or gold futures or purchase a gold ETF in Canada, that is your choice. Ideally, a wise investor would opt for low risk option that promises higher than average returns.

As a wise investor, you also want to get the most out of your banking and insurance choices. If you need compare insurance quotes, we're here for you! Get a quote today!

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