Dig gold? Gold is hot again and the number of supporters is quietly on the rise. Famously, billionaire investors Ray Dalio and Jeff Gundlach have both recently announced their support for the metal but there are many others coming out of the woodwork. After a multi-year hiatus it seems like the case for gold is strong again.
If you’re so inclined, you can read Ray Dalio’s entire article on the paradigm shift that will underpin gold prices.
According to Dalio:
“…the world is leveraged long, holding assets that have low real and nominal expected returns that are also providing historically low returns relative to cash returns (because of the enormous amount of money that has been pumped into the hands of investors by central banks and because of other economic forces that are making companies flush with cash). I think these are unlikely to be good real returning investments and that those that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold. Additionally, for reasons I will explain in the near future, most investors are underweighted in such assets, meaning that if they just wanted to have a better balanced portfolio to reduce risk, they would have more of this sort of asset. For this reason, I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio.”
Ray Dalio
Canadian investors looking to buy gold first have to decide whether they want to own gold mining stocks or gold bullion. My preference is gold bullion since it is a pure play on the price of gold. In contrast, gold mining stocks are influenced by extraction costs and management decisions, in addition to the price of gold.
There are a number of ETFs in Canada that buy and hold actual gold bullion (not gold futures contracts). I prefer a fund that owns bullion to gold future contracts because I don’t want exposure to the added complexities introduced by the shape of the futures curve. (The futures curve is a problem for many commodity ETFs.)
What Gold Bullion ETFs Exist for Canadian Investors?
Below I have identified 4 low cost gold bullion ETFs available on the TSX:
1a) iShares Gold Bullion ETF CAD Hedged: CGL (MER = 0.56%)
1b) iShares Gold Bullion ETF Unhedged: CGL.c (MER = 0.55%)
2a) Purpose Gold Bullion Fund CAD Hedged: KILO (MER = 0.28%)
2b) Purpose Gold Bullion Fund Unhedged: KILO.b (MER = 0.28%)
3) Sprott Physical Gold Trust: PHYS (MER = 0.48%)
4) Canadian Gold Reserves Exchange Traded Receipt: MNT (MER = 0.35%)