Canada: Gold Investing 101

Gold bullion and coins | Physical gold ETFs | Gold stocks, ETFs, and indices | Gold futures

Gold Price in Canadian Dollars (CAD): C$1115.49

With the gold price near all-time highs, investors in Canada, home to some of the largest gold producers in the world, have increasingly looked for ways to obtain exposure to the gold price. While the gold price in U.S. dollars receives the bulk of the media attention due to the high correlation between the weak U.S. dollar and the gold price, the yellow metal has appreciated strongly in terms of Canadian dollars as well. In fact, while the Canadian dollar has strengthened versus most global currencies over the course of the past few years, it has weakened markedly versus the gold price. For example, while the gold price has risen, on average 18.5% in U.S. dollars over the past 6 years, it has still risen, on average 14.5% in terms of the Canadian dollar. There are many ways for Canadians to diversify their assets away from the Canadian dollar, but if one wishes to expand beyond the rest of the global fiat currencies, then gold-related investments is one of the few options.


Gold bullion and coins - While the traditional favorite gold coin amongst Canadians is the one ounce Canadian Maple Leaf, investors can also opt for the most popular gold coin in the world, the one ounce American Eagle or the traditional South African Kruggerand. As with all gold coins, the price of the premium paid above spot gold is an important factor to consider before a purchase is made. Furthermore, sales taxes may apply, in addition to shipping costs, insurance, and the costs of physical storage.
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Physical gold ETFs - It is for this reason that many investors whom have sought exposure to physical gold have decided to purchase one of the many gold-backed exchange traded funds. Exchange-traded funds are specialized investment vehicles known as unit trusts which issue stock to raise funds and then use the proceeds to purchase the asset for which they have been established. With a gold ETF, obtaining exposure to the gold price is just as easy as purchasing and holding any other traditional stock - with similar transaction costs.

While the SPDR Gold Trust (GLD) has emerged as the most popular gold ETF, many Canadian investors, as well as investors across the globe have chosen to invest in Central Fund of Canada (CEF). This closed-end fund invests in both gold and silver bullion, with a minimum of 85% in the form of physical bullion holdings. CEF was founded in 1961 and is an Alberta-based Canadian company listed on both the Toronto Stock Exchange (TSX) as well as the U.S.-based AMEX. Central Fund of Canada does often trade at a premium to its net asset value, currently 6.2%, hence investors interested should attempt to accumulate shares with as a low a premium as possible.

Other gold ETFs include: ETFS Physical Gold (GOLD: ASX); iShares COMEX Gold Trust (IGT: TSX); Central Gold Trust (CEF: NYSE); PowerShares DB Gold ETF (DGL: NYSE); UTI Gold Exchange Traded Fund (GOLDSHARE: NSE - India); Gold Benchmark Exchange Traded Scheme (GOLDBEES: NSE - India).
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Gold stocks, gold stock ETFs, gold funds and gold stock indices - Another option for investors seeking exposure to the gold price is the shares of gold mining companies. The share prices of gold mining companies fluctuate not solely based upon the movement in physical gold, but also numerous other factors such as each company's individual production profile, cash costs, exploration expenses, mine construction, extraction, processing, and general administration. Furthermore, gold companies are subject to the additional risks posed by permitting and other operational issues.

Canada is home to many of the largest gold companies in the world and is widely cited as one of the most favorable climates to operate a gold mining company. Specifically, Quebec is known for being the most stable mining jurisdictions in the world. The Canadian-based S&P/TSX Global Gold Index is one of the most widely followed gold stock indices in the world and Canada is home to some of the most well-known gold stock mutual funds, including the Tocqueville Gold Fund, run by John Hathaway.
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Gold futures - A riskier and more leveraged way to invest in gold is through gold futures. Like physical gold ETFs, gold futures enable investors to obtain exposure to the gold price without taking delivery of the metal. In addition, futures contracts allow investors to access gold exposure utilizing less capital than is required for purchasing the physical metal, affording the investor considerably more financial leverage. The futures market in gold also tends to very liquid and compares favorably in terms of transaction and holding costs. Gold futures contracts are traded electronically and through open-outcry on the COMEX division of the CME and the eCBOT platform of the CME Group. The risks inherent in an investment vehicle that contains leverage such as COMEX gold futures may make them unsuitable for novice investors.
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The above list of gold-related investment vehicles are a few examples of ways for investors to obtain exposure to the price of gold. Gold has been one of the best performing investments over the past decade as it has appreciated in value and performed far better than traditional common stocks. If fiat currencies across the globe - notably the U.S. dollar - continue to depreciate as a result of deteriorating government balance sheets, then gold should protect savings from a loss of purchasing power moving forward. There are individual risk factors that impact each of the above investment vehicles and as with any investment, individual investment professionals and advisors should be consulted to determine suitability before making any decisions.