Gold has long been seen as a commodity with significant value. Investors have been using it as a hedge for decades – whether against inflation, currency weakness, or stock market volatility.
While gold doesn’t have a lot of utility like many other investments you can make, it is a store of value that has stood the test of time.
Regardless of the debate about gold actually providing any tangible benefits as a hedge to protect your capital, investors worldwide have been pouring money into buying gold and driving prices higher.
Are you interested in investing in gold?
My guide on how to buy gold in Canada will tell you everything you need to know to make a sound investment decision.
Why Invest In Gold?
Gold is regarded highly as a good store of value, and that is probably the reason why it still holds relevance in global financial markets despite so many new asset classes.
Gold is still considered to be a speculative asset class that tends to be volatile. The commodity arguably does not have any intrinsic value compared to many other investments.
Gold does not produce any returns for investors like real estate or stocks. The commodity’s future value is merely linked to price speculation. There are no earnings or dividends associated with it.
Despite any negative sentiment about gold, it has a proven track record for low correlations, liquidity, and returns.
Gold tends to perform inversely to stocks and bonds. The price of gold may go up when the prices of stocks and bonds go down and vice versa.
If you invest in certain gold-related assets, you can easily convert them to cash and enjoy significant liquidity.
Gold has also outperformed equity markets over certain periods, even though it does not always beat the market’s performance in the long run.
Additionally, gold is not generally correlated to other asset classes, allowing you to use the commodity to diversify your portfolio and potentially reduce its overall volatility.
Investors also often retreat to gold as a safe-haven asset when they perceive any threats to the broader economy, making it a defensive store of value.
Buying physical gold and storing it in a safe or a vault somewhere might be the first thing that pops up in your mind when you think about buying gold in Canada.
But that is just one of the ways you can invest in the asset.
This section of my guide on how to buy gold in Canada will discuss the different methods you can use to gain exposure to the yellow metal’s performance.
Buying physical gold is the most long-standing and traditional approach to investing in gold. You could purchase gold bullions in the form of traditional bars or gold coins.
Gold coins and bars are available in various weights and sizes, ranging from one gram to 400 ounces.
You can purchase gold bars online through CIBC Precious Metals or the bank’s physical branches throughout the country.
Besides gold bullion, you can also consider buying gold jewelry to invest in physical gold.
Gold jewelry effectively has more value because it has some utility, adding sentimental or even artistic value to it.
Gold jewelry is also a more liquid method to invest in gold because you can quickly sell it in exchange for cash if you ever find yourself in a situation where you need some money.
The biggest risk with buying physical gold as bullion or jewelry is the risk of losing it to theft if you don’t store it properly.
Another issue with owning physical gold as an investment is being able to sell it for the full market value of your holdings, especially if you’re in a bind and need money quickly.
Gold certificates are another way you can buy gold in Canada. Investing in a gold certificate means that you can own gold without the hassle that comes with storing and securing the physical asset yourself.
Instead of physical gold, you receive a certificate of ownership of the gold by a company or other entity that owns the gold.
You get a certificate that represents the ownership of a specific quantity of gold worth a certain amount of money.
However, you have to acquire the certificate through a gold dealer, much like with gold bullion.
Gold certificates were a popular way to own gold for a long time, especially when they could be used as currency in the US when its currency was directly linked to the commodity and gold had a fixed price.
Modern-day investors tend to veer more towards other assets, like Exchange-Traded Funds (ETFs) that own gold.
If you want a hassle-free method of owning physical gold, buying an ETF that tracks the commodity can be an excellent alternative for you to consider.
ETFs that seek to provide you with investment returns by matching the price performance of the yellow metal before fees and expenses.
The annual management expense ratios on funds that track the price performance of gold are not too high.
Owning gold ETFs presents a considerable advantage over owning gold bullion because you can easily trade your holdings for cash at the market price, even if you are in a bind and need the money quickly.
You can trade the ETF on the stock market just like selling individual stock, making it a more liquid investment than physical gold.
It’s important to remember that the fund’s performance is directly related to the price of gold.
The value of the ETF can rise and fall with the price of gold before the cost of owning the fund itself.
4. Buy Gold Stocks
Another method to take advantage of rising gold prices is to invest in companies with gold mining operations.
A gold mining company’s financial performance is directly linked with the price of the commodity that it is producing.
Investing in a gold mining company’s stock offers two benefits. First off, rising gold prices improve profit margins, translating to better returns for you.
Secondly, the mining company can also increase production over time, leading to even greater profitability.
It is crucial to understand the business if you decide to invest in a gold mining stock.
Not all miners out there have the most profitable or sustainable operations. It is best to consider proven and well-established gold mining companies instead of choosing small miners that don’t have mines producing gold yet.
Suppose that you want to invest in gold mining companies to leverage the benefits of indirect exposure they offer, but you don’t have the time to invest in researching different gold mining companies.
In that case, you can purchase an ETF that tracks the performance of gold mining stocks.
Investing in ETFs that own mining stocks present you with the advantage of diversification.
ETF investing can mitigate your losses if one of the companies held by a fund underperforms while the rest are doing well.
Buying an ETF that owns mining stock can mitigate your losses if one of the companies underperforms.
However, the fund’s diversification cannot protect your capital if there are any factors disrupting the entire industry. As with individual stock, all ETFs are not the same.
Some funds focus on established miners, and others focus on riskier mining companies. It’s important to invest after conducting your due diligence on the fund.
Gold futures contracts are another indirect way to invest in gold. When investing in gold futures, you are speculating on the rising or falling prices of gold.
You can even take physical delivery of gold, but gold futures don’t attract investor interest due to that.
The most significant benefit of using futures contracts to invest in gold is the leverage you can use.
It means that you can own a lot of gold futures for a comparatively smaller amount of money.
If the futures move in the direction you think, gold futures contracts can provide you with substantial returns in a short time.
Gold futures are a risky method to invest in gold because leverage is a double-edged sword. If gold moves in the opposite direction, you might be forced to put up a significant amount of money to maintain the contract.
Otherwise, the broker will close the position, and you will lose the money you invested.
Gold futures are a high-risk and high-reward method to invest in the rare yellow metal that I would not recommend to risk-averse investors looking for long-term hedges through gold.
The cheapest way to buy stocks or ETFs is from discount brokers. My top choices in Canada are:
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Is It Legal To Own Gold In Canada?
Yes, it is possible for you to own physical gold in Canada. There are no legal restrictions in Canada regarding ownership of gold in the country. Whether it is a good idea to buy physical gold is a whole different matter.
Usually, when you invest in something, you hope that it increases in value over time in some sort of predictable way. When you own an ounce of gold and set it aside, you just own an ounce of gold.
You do not get any dividends or compounded growth because there are no earnings or cash flows generated by the gold assets you hold – only the speculative price changes.
Ensuring the safe and secure storage of your gold might only add to your expenses and hassles of owning the commodity.
There are no restrictions on how much gold you are allowed to own in Canada. However, you do need to report your holdings if you are bringing in gold from another country into Canada at the border.
Canada has a currency declaration amount. Suppose that you have any form of currency or its monetary equivalents, like gold, diamonds, or other securities that can be readily exchanged for cash that is worth over $10,000.
In that case, you have to declare them when entering the country.
You don’t need to declare it if you own anything below $10,000 in value, but you must do so if it’s even worth $10,001.
Do Canadian Banks Sell Gold?
If you decide to buy physical gold in the form of gold bars or coins, you can buy it from Canadian banks.
Not all Canadian banks sell gold. Canada’s Big Five banks, namely Scotiabank, Royal Bank of Canada, TD Bank, BMO, and CIBC, sell gold and other precious metals. You can purchase gold online through CIBC Precious Metals.
Talking to a local bank representative at one of these banks is a better way to find out your options for buying gold from a bank.
If you are already a customer at the financial institution you’re purchasing the gold from, you are likelier to get a better price.
Gold is undoubtedly an intriguing investment option for any investor to consider. Dedicating a small percentage of your portfolio to gold could be an excellent way for you to hedge against inflationary markets and overall stock market volatility.
But buying and holding physical gold is not the only method you should consider to gain exposure to the rare yellow metal.
Investing in gold stocks and ETFs offers you indirect exposure to gold without the hassle of purchasing and storing physical gold bullion or gold coins.
Check out my breakdown of the Best Gold Stocks in Canada if you are interested in investing in gold-related companies.
My guide to the Best Gold ETFs in Canada can narrow down your search for the top gold-related funds you can consider for this purpose.