The idea of gold as a reservoir of value in catastrophic times does not stand up.
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? And what about the potential to be robbed or worse if you’re seen flashing your gold as society breaks down? Haven’t you read The Road?
As a lifeline if things go south, gold is overrated. But the fact that gold prices hit an all-time high this month tells us it has value as an investment asset. Think of it as a diversifier or a speculative holding suitable for maybe 5 per cent of your portfolio.
Buying actual gold is one way to get exposure, but why would you do that? In a sense, gold as the world’s oldest investment is much like one of the newest, cryptocurrency. They’re both a pain to own directly because you need to store them securely, and you have the challenges of buying and selling at consistent, transparent, competitive prices.
Solution: consider exchange-traded funds that hold gold bullion as their asset. Again, crypto ETFs are a good comparison. The ETF format turns crypto into something you can slide in and out of your investment account any time during the trading day, and it does the same for gold.
A selection of gold ETFs traded on the Toronto Stock Exchange:
- BMO Gold Bullion ETF (ZGLD-T): A newish fund with assets of $590-million and a management expense ratio of 0.23 per cent.
- iShares Gold Bullion ETF (CGL-T): Assets of $951-million and an MER of 0.55 per cent; uses currency hedging to eliminate the impact of changes in the Canada-U.S. exchange rate; CGL.C is the less popular unhedged version.
- Purpose Gold Bullion Fund (KILO-T): Assets of $480-million and an MER of 0.28 per cent; holds gold bullion stored at the Royal Canadian Mint. KILO is hedged – the non-hedged version is KILO.B, and a U.S.-dollar version is KILO.U.
Also, there’s a closed-end fund called the Sprott Physical Gold Trust (PHYS-T). This fund has assets of $8.7-billion and a management expense ratio of 0.41 per cent. It’s available in a U.S.-dollar version that has the ticker PHYS.U. Note that closed-end funds may trade at a bigger discount or premium to their net asset value than ETFs.
Gold prices have been on the rise lately for reasons that include lingering concerns about inflation, global geopolitical tensions, industrial demand and buying by central banks. But because it generates no revenues, profits or dividends, gold is hard to value on a rational basis. This opens the doors to emotion-based valuations, and inevitable declines in price. Nothing gold can stay, the poet Robert Frost wrote. The same applies to gold price surges.