What is the price of gold in Canada? And more about gold investing

That, together with the fear of a stock-market correction, has prompted a lot of Canadians who never considered owning the precious metal before to wonder whether this age-old asset should be part of their portfolios. After all, Canada’s largest robo-advisor, Wealthsimple, allocates 2.5% of its clients’ accounts to gold—and 10% in its halal portfolios.

Should it be part of yours? Or would you just be buying in at the peak? There’s no way to know, except in hindsight. There will always be “gold bugs” out there urging you to sell everything and buy gold before the world goes to pot. Their advice is best avoided.

Here instead are some important facts around investing in gold that will help you make a better-informed decision.

Why is gold so valued?

Gold is used for a wide range of products—such as jewellery, dental fillings and electronics—but most of it is simply stored in vaults, in the form of gold bars. Like money itself or cryptocurrency, gold is valuable because people have decided it is. But unlike the other two, it’s immune to manipulation.

As of mid-October, all the refined gold in the world, an estimated 212,582 tonnes, was worth a staggering USD$18.3 trillion. Mines around the world poured another 1,788 tonnes in the first half of 2024. So, the supply of gold is increasing, but slowly. And there’s little anyone can do to change that.

Why do investors buy gold in Canada?

As an investment, gold is classified as a commodity. That is, it’s a standardized and graded substance that trades globally. But unlike, say, soybeans or Brent crude oil, you can store a meaningful amount of gold in your jewellery drawer or safe deposit box. It’s also uniquely non-perishable; part of its appeal in ancient times was the fact it didn’t corrode like other metals. So, you can hold it indefinitely.

If you own gold as an investment, it won’t generate any income; it’ll just go up and down in value according to supply and demand. Over the very long term, its price tends to track the rate of inflation.

Most importantly, gold has a history as a store of value and unit of exchange. Many central banks still hold it to help stabilize their currencies. In developing countries like India and China, many people consider it more trustworthy than paper or electronic money. This is why it continues to hold a privileged place in investment portfolios.

What influences gold’s price?

Before investing, it’s important to understand where the demand for gold comes from. Key players in the gold marketplace include:

• Central banks, which can be major buyers or sellers of gold at any time
• Investors, especially during times of uncertainty
• Upwardly mobile consumers in India and China

The rise in gold prices in 2024 can be attributed to net purchases by central banks, especially in the developing world. The U.S. confiscated Russian reserves of U.S. dollars following Russia’s invasion of Ukraine. That forced Moscow to buy gold instead and encouraged other non-aligned countries to diversify their reserves too.

Gold holdings in exchange-traded funds (ETFs), by contrast, are currently down from their peaks, suggesting demand from retail and institutional investors could easily go higher. One possible trigger would be a prolonged downturn in stock markets.

How to buy gold in Canada

There are three basic ways to get exposure to gold:

• Own it physically. Buy gold jewelry, coins or bars. You can find shops that buy and sell precious metals (sometimes jewellers themselves) in most cities and towns. Even Costco sells one-ounce gold bars. Pros: If the world really does descend into anarchy, this is what will define the haves. Cons: There is a risk of loss through theft, misplacement or fire. You can insure your gold or pay to have it stored in a bank safe deposit box or vault, but these expenses will detract from your returns.
• Own securities invested in physical gold. With a brokerage account, you can buy gold futures or ETFs that own gold stored in vaults. Since futures have a maturity date (whereupon you have to take delivery of physical gold), ETFs make better sense for most investors. The granddaddy of gold ETFs is the SPDR Gold Shares (GLD) fund trading in the U.S., but there are now Canadian-listed options such as the iShares Gold Bullion ETF (CGL), BMO Gold Bullion ETF (ZGLD) and Purpose Gold Bullion Fund (KILO). Pros: You get direct exposure to the commodity price with no storage headaches, and ETF shares are easily bought and sold. Cons: You can’t wear the gold, and ETFs have (small) management fees.
• Own stocks of gold producers and exploration companies. Holding shares in individual gold miners or sector ETFs is like owning gold that happens to be still in the ground. Pros: Issued by profit-seeking companies, gold equities are designed to grow shareholder value over time, and in some cases generate dividend income. A small increase in the price of gold can translate into a big increase in profitability (and the opposite can happen should the gold price drop). Cons: Gold stocks only partly reflect the underlying commodity price and come with company and country risks.

Which of the three investment vehicles you choose will depend on your time horizon and risk tolerance, personal preference and the role that the gold holding is meant to play in your portfolio.

What is the history of gold prices?

Comparing gold’s performance to that of other assets depends a great deal on the time frame examined. Most academic comparisons begin in 1971, when the U.S. dollar became unlinked to gold. Since then, gold has posted an annualized return of around 8%, below the total returns of the S&P 500 Index but above that of bonds.

Gold tends to suffer in times of high real interest rates as investors opt for higher-yielding assets. Its highs are often short-lived, such as in 1980, 2011 and 2020. It remains to be seen whether its 2024 highs will last.

Can gold provide a hedge against chaos?

Think back to 2011. Thanks in large part to coordinated government action, we got through the Global Financial Crisis and the Great Recession that followed. But then the massive deficit spending required threatened to push several European economies into default when the recovery faltered. Gold soared to a new high.

Why? Because of its history and how easy it is to buy and sell, gold is like money. Only, unlike legal tender, governments and central banks can’t print more of it (or use more contemporary tactics like quantitative easing). Its value rests on the fact that its supply stays relatively constant over time.

Whenever geopolitical and financial uncertainty threatens to undermine the value of major currencies, investors flock to gold because it exists outside governments’ control. For decades, gold has tended to trade inversely to the value of the U.S. dollar, the world’s most important reserve currency. When the greenback is strong, gold languishes and vice versa.

In recent years, gold has been outshone at times by cryptocurrency, a novel asset class that shares many of the same attributes, such as a fixed supply. But whereas gold has retained its allure over thousands of years, bitcoin and its ilk have been around just 15. And even in that time, crypto has shown a weak positive correlation to equities. Gold, by contrast, is a proven hedge against economic shocks and the extremes of inflation and deflation.

How much gold should you hold?

Because it does not generate income and its price tends to fluctuate, gold is ill-suited to be a core component of an investment portfolio. As a small holding—less than 10%—however, it offers these advantages:

• It helps diversify a portfolio. The price of gold has a low correlation to mainstream assets such as stocks and bonds. Holding some of it therefore reduces portfolio-wide risk in case those assets fall in value.
• It’s a hedge against uncertainty. Gold tends to rise in value when financial and political risks loom large because it is widely recognized to have value and its supply is more or less fixed. Should U.S. or Canadian dollars become devalued, gold will almost certainly hold its own.
• It’s a hedge against inflation. Gold tends to track the rate of inflation over long periods. The same amount of gold bought a Canadian house 50 years ago as could buy a comparable property today, for example.

More about investing:

• Should you hold gold in a RRIF?
• Gemini is exiting the Canadian market, plus more crypto news
• Scared of selling? When holding on to stocks can hurt you financially
• Boost your portfolio: Why and how to increase small-cap exposure with ETFs
• WeBull Canada review

About Michael McCullough

Michael is a financial writer and editor in Duncan, B.C. He’s a former managing editor of Canadian Business and editorial director of Canada Wide Media. He also writes for The Globe and Mail and BCBusiness.

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