Amid the rising uncertainties of global markets, gold remains a go-to investment for many. But while the idea of gold as a safe haven during catastrophic times might not hold up, its value as an investment asset cannot be ignored. In fact, gold prices recently hit an all-time high, signalling renewed interest among investors.
As global inflation concerns, geopolitical tensions, and central bank purchases continue to fuel demand for gold, many are looking for the easiest way to add this valuable asset to their portfolios. But how should you go about it? Should you buy actual gold, or are there smarter ways to gain exposure to the metal without the hassle of physical ownership?
Gold: A Portfolio Diversifier, Not a Doomsday Asset
The belief that gold will protect you in extreme situations may be overblown. As financial expert Rob Carrick points out, “Will your grocery store take gold if the power grid fails? Will gas stations exchange fuel for gold? If you find people who will deal in gold, can you just imagine the markups they’ll force on you?” The reality of using gold in a post-apocalyptic scenario is much less practical than some may imagine.
However, as a diversification tool or a speculative asset, gold still has a place in an investment portfolio. Experts recommend allocating around 5% of your holdings to gold, as its performance can provide stability when other asset classes falter.
The Pitfalls of Physical Gold Ownership
Buying physical gold—coins, bars, or jewelry—comes with its own set of challenges. Beyond the need for secure storage, you face the complexities of buying and selling at consistent, transparent prices. Moreover, handling physical gold can be cumbersome, especially for those looking for convenience in managing their investments.
Gold, much like cryptocurrency, can be difficult to own directly. This is where exchange-traded funds (ETFs) come in, offering a more efficient way to hold gold.
Gold ETFs: A Convenient Solution
For investors seeking exposure to gold without the complications of physical ownership, ETFs offer a streamlined alternative. Much like cryptocurrency ETFs, gold ETFs can be easily traded within your investment account, allowing you to buy and sell throughout the trading day.
Here’s a look at some of the top gold ETFs listed on the Toronto Stock Exchange:
- BMO Gold Bullion ETF (ZGLD-T): A relatively new fund with assets of $590 million and a management expense ratio (MER) of 0.23%.
- iShares Gold Bullion ETF (CGL-T): With assets of $951 million and an MER of 0.55%, this ETF employs currency hedging to neutralize the effects of exchange rate fluctuations between the Canadian and U.S. dollars. For those who prefer not to hedge, there’s CGL.C.
- Purpose Gold Bullion Fund (KILO-T): This ETF holds $480 million in gold bullion stored at the Royal Canadian Mint, with an MER of 0.28%. A non-hedged version (KILO.B) and a U.S.-dollar version (KILO.U) are also available.
Additionally, the Sprott Physical Gold Trust (PHYS-T), a closed-end fund with assets of $8.7 billion and an MER of 0.41%, is another option. Closed-end funds like this one may trade at a larger discount or premium to their net asset value compared to ETFs.
Understanding the Risks of Gold
While gold has seen a surge in prices, driven by fears of inflation and geopolitical instability, it’s important to recognize that gold doesn’t generate revenues, profits, or dividends. This makes it difficult to assess its value on a purely rational basis, leaving it more susceptible to emotional valuations and sudden price drops.
As poet Robert Frost famously wrote, “Nothing gold can stay.” The same holds true for gold price surges. While it can provide a sense of security in uncertain times, it’s essential to keep a balanced perspective on gold’s role in your investment strategy.
In conclusion, for those looking to diversify their portfolio, gold remains a viable option—just not in the way many imagine it during a societal collapse. By using ETFs, investors can gain exposure to this precious metal with ease, minimizing the hassles of physical ownership while still reaping the potential benefits.
