How To Add Gold To Your Portfolio
Gold is becoming increasingly more popular as an investment and prices continue to climb to new heights. With growing debt concerns across the globe, particularly in the United States, some investors are looking to invest in gold as a hedge against the next economic crisis.
As a value investor I will generally steer clear of any asset class that has reached a 52-week high, let alone one that is at an all-time high. However, with global currencies under severe pressure due to massive government deficits and interest rates remaining at record lows, investors may be wise to allocate a portion of their investment portfolio to gold.
If you are looking for information on how to invest in gold, there are a number of different options to choose from:
Invest in Gold Stocks
The Canadian landscape is rich in resources and gold mining companies make up a large portion of the TSX 60. By purchasing a Canadian equity index fund you are naturally exposing your investment portfolio to gold.
Investors can also purchase the shares of individual gold mining companies like Kinross (K), Barrick (ABX), and Goldcorp (G). All three of these gold mining stocks are rated strong buys from stock analysts. If the price of gold rises, it should be expected that the profits and stock price of these companies should rise along with it.
Invest in Gold Exchange-traded Funds
Exchange-traded Funds, or ETF’s, are bought and sold on the major stock markets just like common shares.
The Claymore Gold Bullion ETF (CGL) holds physical gold bullion and is designed to replicate the performance of the price of gold bullion.
Horizon BetaPro’s COMEX Gold ETF (HUG) looks for investment results with gold futures contracts, or paper gold. Any U.S. dollar gains or losses will be hedged back to Canadian dollars, which is important because it offers no protection for Canadian investors against a falling U.S. currency.
iShares CDN Gold Sector Index Fund (XGD) essentially tracks the S&P/TSX Global Gold Index. With management fees of 0.55%, XGD looks like a solid alternative to speculating on individual gold mining companies.
Invest in Gold Coins and Gold Bars
If you are wondering how to invest your money in physical gold bullion, investors can do so by purchasing gold coins or gold bars.
The Canadian Gold Maple Leaf produced by the Royal Mint is the official bullion gold coin of Canada. They produce a wide variety of 99.99% pure gold coins ranging from 1/20 to 1 ounce. In 2007, the Royal Mint produced the world’s first million dollar coin, which weighed 100 kilograms (3,215 troy ounces). Incredibly, the Mint has sold 5 of these coins to investors from around the world.
Gold bars are the most traditional way to invest in gold. They can be purchased in a variety of weights and sizes ranging from one gram to 400 troy ounces. In Canada investors can buy gold bars through ScotiaMocatta, the global bullion banking division of ScotiaBank.
Buying and selling gold is subject to an administration fee of 0.25% for any transaction under $5,000. Gold and other precious metals are exempt from GST and HST.
Is it the Right Time to Invest in Gold?
As you can see, there are a number of different ways for investors to buy gold. In a period of economic uncertainty, gold definitely has a place in any investors asset allocation mix. Your allocation of gold will vary depending on how optimistic or pessimistic you are on the global economy.
There are plenty of opinions on the future of investing in gold. The bears are sceptical and see a gold-bubble that’s about to burst while the bulls view gold as a safe haven and paint a doomsday scenario of collapsing economies and falling currencies.
Gold is an intriguing investment option to me, but I would only consider adding a small percentage to my investment portfolio. And given the record high gold prices that we are seeing, I’d prefer to sit on the sidelines and wait for a market correction.
Now that you know how to invest in gold, would you consider adding gold to your portfolio? Is this a good time to buy gold?
I like the idea of using ETFs to own gold (vs. stocks), just not planning to do so in the near future. Focused on owning a bunch of dividend-paying stocks and broad-market ETFs instead. Nice post.
@My Own Advisor
So does Gold not fit into your strategy at this point or do you just think the entry point is too high right now?
Hey Echo,
About 25% of my RRSP is in XIU, so indirectly I’ve got Goldcorp, Barrick and Yamana stocks to name a few in my portfolio. Based on this, I don’t intend to own any Gold ETFs in the near future. Down the road, if I chose anything, I might go the route of XGD although the distributions are only once/year, which is a deterent for me; I’d rather have income and reinvestments occur quarterly or monthly.
Your comment just shows you don’t understand the core value in accumulating gold and silver. That’s alright, since you don’t understand, it’s best you don’t buy 🙂
Good article thanks – I dugg it
Thanks for the Digg!
As a value investor, its important to realize the difficulty in trying to determine the intrinsic value of the metal or other metals.
I personally cannot determine or estimate its fair price, and am limited to only determining the likelihood of whether it will increase/decrease from its current price level, based on the conditions which influence/affect it.
I prefer mining stocks as they are businesses which I understand in depth and can valuate, rather than bullion itself or related ETFs. At the end of the day they are businesses, rather than a hunk of metal that doesn’t really do anything (unless sold for industrial or jewellery). I think you’ll be able to find better value here, may be able to generate better overall returns.
I have a sizable portion of metals (gold, silver, copper) related investments in my portfolio and have continued to add within the last 3 years. There are still undervalued mining equities at the moment, especially after commodities declined for the past month. It was a opportunity to add, but I’ve now stopped after they’ve increased in price within the last few days. Although, at current levels, bargains are still available.
Not sure if you’ve read it before, but if you are more interested in the bullion itself or related ETFs, you might find some of the background conditions (main ones) affecting gold to be useful:
http://theinvestmentblog.net/2010/11/02/reasons-to-invest-in-gold-and-why-gold-still-has-room-to-climb/
Good post!
@The Investment Blogger
Thanks for sharing your insight into precious metals.
I think the folks who are buying physical gold and silver are legitimately concerened about the economy collapsing. I’m not that pessimistic, so I’d be more interested in stocks or XGD.
I think having exposure to commodities in general through ETFs is good and efficient investing; however, now is not the time to invest in Gold. People like Glenn Beck have been spreading irrational fear which has pushed prices way higher than they should be. Uranium or Copper are much better options at this point in my opinion.
@My University Money
I’d like to think that Glenn Beck doesn’t have that much influence over the price of gold, but you are right…there is an irrational fear spreading about the economy and that gold will be the ultimate safe haven investment.
Investing in anything at an all-time high is unlikely to be profitable in the long term.
The gold is always the best to protect our money value. Therefore, since the world is still in economy crisis, it is good to diverse our portfolio by including the gold.
Good view of the options for investors. I think the only people that should be buying gold here is those who don’t have any. Hopefully, people are diversified and already own a small amount. Due to the high price I have the Arbor Asset Allocation Model Portfolio (AAAMP) Gold asset allocation down to about 2%.
@Ken
My challenge is that even if I should have a small amount of gold in my portfolio, I can’t bring myself to buy at these levels.
I don’t have gold in my pf, but I’m not fanatically against it either!
If I were to add gold, I’d probably go the ETF route. Possession of physical gold carries a different set of problems!
Gold is a great investment when there is gloom and doom. Might not be a good bet if the economy is doing well or picking up.
Nice coverage btw!
@Moneycone
Thanks for stopping by! I’m also not fanatically for or against owning gold, although I agree that holding physical gold certainly does carry a different set of issues.
The subject is fascinating to me because so many people (for and against) get really worked up about gold.
I agree with Echo. People get really worked up about gold, very similar to when you talk to people about real estate as an investment. Some are totally for, while others are totally against it. Real estate proved to do well prior to the crash, not so when it crashed, and perhaps will well again in a few years time.
I think its more profitable to understand that in different conditions & circumstances, different investments will do well, while in others it will not. Being flexible enough, and understanding the underlying conditions is key to selecting the most suitable one under a particular circumstance. Investors tend to stubbornly fixate on a particular type or whether it be gold, bonds, real estate, stocks, ETFs, etc.
I wouldn’t say that investing in gold would be unprofitable, just because its at an all time high though. A while back, gold was still profitable at $800, $1000, $1200 (their then all time highs). I recommend focusing more on the conditions to determine if gold is still a good investment rather than the current price.
Under current conditions, I still expect gold to increase from its current level. How much further is anyone’s guess because its not a business that can easily be valuated. However, I expect equities related to gold and other metals (copper, iron, etc) to give better returns than gold itself or ETFs that track it.
Nice article. I’d not heard or researched those ETFs. My ETF of choice is Central Fund of Canada (CEF). Also have gold and silver coins, a natural resources mutual fund (Toqueville) and a fair number of gold and silver mining stocks. I guess one could say I like precious metals as an asset class.
With S&P having downgraded the US, the Central Banks of many countries have now started invetsing in gold which has resulted in Gold touching $1880 per ounce on the International Market and is expected to go higher.
It would be advisable for individuals to allocate a part of their funds to gold as well
That’s a really great observation
With our weakening currency and the possibility of another downgrade, gold still may be a good investment despite the fear of a bubble. The thought of buying gold bullion or coins is really appealing… yet feels risky.
I will definitely research ETF’s. thanks for the info!
I am thinking that the country needs to go back to the gold standard so the dollar will become worth more again. hence drive sales down from inflation.