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How to Invest in Gold ETFs in Canada?

Posted on May 12, 2023 by Amine Rahal in Gold, Investing // 0 Comments

Gold ETFs, or gold exchange-traded funds, are investment funds that aim to track the price of gold. Buying Gold ETFs is probably the easiest way to have exposure to gold in your portfolio. However, note that ETFs don’t give you the same benefits as buying physical gold bullion.

How do they work?

Gold ETFs allow investors to gain exposure to the price movement of gold without directly owning physical gold. ETFs are traded on stock exchanges, making them easily accessible to investors.

Here’s how gold ETFs typically work:

  1. Structure: Gold ETFs are typically structured as open-ended investment funds or trusts. They issue shares that represent fractional ownership in the underlying gold holdings.
  2. Gold Ownership: while you do NOT own physical gold directly when you invest in a gold ETF, the ETFs themselves own physical gold bullion or invest in gold derivatives (such as futures contracts) to track the performance of the gold market. Some gold ETFs may also hold shares of gold mining companies or invest in other gold-related assets.
  3. Price Tracking: A gold ETF’s objective is to track gold price closely. For example, if the price of gold increases by 1%, the value of the ETF should also increase by a similar percentage (minus any expenses or fees associated with managing the ETF).
  4. Stock Exchange Trading: Gold ETF shares are traded on stock exchanges, allowing investors to buy and sell them throughout the trading day at market prices. This provides liquidity and flexibility to investors who want exposure to gold without the need for physical ownership.
  5. Benefits: Gold ETFs offer several advantages to investors. They provide a convenient way to invest in gold, eliminate the need for storing and securing physical gold, and offer diversification within a portfolio. Gold ETFs can also be more cost-effective than buying and selling physical gold.
  6. Expenses: Gold ETFs have expense ratios, which are the fees charged by the fund manager for managing the ETF. These expenses are typically low compared to actively managed funds but can vary across different ETFs.

It’s important to note that investing in gold ETFs carries risks, similar to any other investment. The value of gold can fluctuate, and the performance of a gold ETF is subject to factors like supply and demand dynamics, geopolitical events, and market sentiment.

Before investing, it’s advisable to conduct thorough research, consider your investment objectives, and consult with a financial advisor to determine if gold ETFs align with your overall investment strategy.

List of Gold ETFs in Canada

In Canada, there are dozens of gold ETFs available for investors and retirees. Some popular gold ETFs available in Canada include:

  1. iShares Gold Bullion ETF (CGL): This ETF aims to replicate the performance of the price of gold bullion, minus expenses. It is managed by BlackRock and provides exposure to the price movement of gold by investing in physical gold bullion.
  2. BMO Equal Weight Global Gold Index ETF (ZGD): This ETF tracks the performance of an index composed of global gold mining companies. It provides exposure to the gold mining industry rather than directly to the price of gold.
  3. Horizons Gold ETF (HUG): This ETF aims to replicate the performance of the Solactive Gold Front Month MD Rolling Futures Index. It invests in gold futures contracts and provides exposure to the price of gold.
  4. Purpose Gold Bullion Fund (KILO): Managed by Purpose Investments, this ETF aims to provide exposure to the price of gold by investing in physical gold bullion. Each unit of the ETF represents fractional ownership in allocated gold bullion held in a secure vault.
  5. RBC Global Precious Metals Fund (RPF): While not strictly a gold ETF, this mutual fund offered by RBC Global Asset Management focuses on investing in precious metals, including gold. It provides exposure to a diversified portfolio of precious metal mining companies.
  6. Sprott Physical Gold Trust (PHYS): This trust holds physical gold bullion and aims to provide a secure and convenient way to invest in gold. Each share represents a fractional interest in the trust’s gold holdings.
  7. CI Gold Bullion Fund (CGL.C): Managed by CI Investments, this fund seeks to provide exposure to the performance of gold bullion. It invests primarily in physical gold and may also hold cash or cash equivalents.
  8. TD Gold Bullion Fund (TDGB): Offered by TD Asset Management, this fund aims to provide exposure to the price of gold by investing primarily in physical gold bullion. It may also invest in other permitted gold-related instruments.
  9. Invesco Physical Gold ETF (PHAU): This ETF is designed to replicate the LBMA Gold Price PM (USD) performance by investing in physical gold bullion. Invesco manages it and provides a cost-effective way to gain exposure to gold.
  10. Scotia ETFs: Scotiabank offers a range of gold ETFs in Canada, including Scotia Gold Bullion ETF (SGB) and Scotia Global Gold Index ETF (SGDM). These ETFs provide exposure to the price of gold or gold mining companies, respectively.
  11. First Asset Gold+ Trust (BAR): Managed by First Asset Investment Management, this ETF seeks to provide exposure to the performance of gold bullion. It holds physical gold and aims to track the price of gold.
  12. Evolve Gold Miners Fund (GLC): This ETF focuses on gold mining companies and seeks to provide long-term capital appreciation by investing primarily in equity securities of global gold producers.
  13. Global X Gold Explorers ETF (GOEX): This ETF targets companies involved in the exploration and production of gold. It provides exposure to smaller gold mining companies with a focus on exploration activities.
  14. Purpose Gold Class ETF (KILOG): Managed by Purpose Investments, this ETF aims to replicate the performance of the gold bullion market by investing in allocated gold bullion held in a secure vault. Each unit represents a fractional ownership interest in the gold.
  15. Franklin Gold and Precious Metals Fund (FKRCX): This mutual fund offered by Franklin Templeton focuses on investing in gold and precious metals mining companies globally. It provides exposure to the gold sector through equity investments.
  16. BMO Junior Gold Index ETF (ZJG): This ETF tracks the performance of an index composed of junior gold mining companies. It offers exposure to smaller mining companies engaged in the exploration and production of gold.
  17. iShares S&P/TSX Global Gold Index ETF (XGD): This ETF seeks to track the performance of the S&P/TSX Global Gold Index, which includes gold mining companies listed on the Toronto Stock Exchange (TSX) and select foreign exchanges.
  18. Horizons Enhanced Income Gold Producers ETF (HEP): This ETF focuses on providing exposure to the performance of gold producers while also generating enhanced income through an option writing strategy.
  19. RBC Strategic Global Gold & Precious Metals Fund (RGF): Offered by RBC Global Asset Management, this mutual fund invests in gold, precious metals, and related securities globally. It aims to provide long-term capital growth.
  20. Sprott Junior Gold Miners ETF (SGDJ): This ETF focuses on junior gold mining companies, which are typically smaller and have a higher potential for growth. It provides exposure to this segment of the gold mining industry.
  21. WisdomTree Physical Gold (GLDM): This ETF aims to provide exposure to the price of gold by investing in physical gold bullion. It is designed to track the spot price of gold, net of expenses.
  22. VanEck Vectors Gold Miners ETF (GDX) focuses on large-cap and mid-tier gold mining companies. It seeks to replicate the performance of the NYSE Arca Gold Miners Index.

Pros & Cons of Investing in a Gold ETF

Before buying your first gold ETF, it’s important to review the pros and cons of investing in such assets. Let’s cover the most common pros and cons that come with buying into a gold ETF:

Pros of Investing in Gold ETFs:

  1. Diversification: Gold ETFs expose investors to the price of gold, which can act as a diversification tool within an investment portfolio. Gold tends to have a low correlation with other asset classes like stocks and bonds, which can help reduce overall portfolio risk.
  2. Accessibility: Gold ETFs are traded on stock exchanges, making them easily accessible to individual investors. They can be bought and sold throughout the trading day at market prices, offering liquidity and flexibility.
  3. Cost Efficiency: Gold ETFs often have lower expense ratios than actively managed mutual funds. These lower costs can benefit investors by reducing the impact of fees on investment returns.
  4. No Storage Hassles: Unlike owning physical gold, investing in gold ETFs eliminates the need for storage and security concerns. Investors do not need to worry about purchasing, storing, or insuring physical gold bullion.
  5. Transparent Pricing: Gold ETFs typically provide transparent pricing that closely tracks the price of gold. Investors can easily monitor the value of their investment and track the performance of the underlying asset.

Cons of Investing in Gold ETFs:

  1. Volatility: The price of gold can be volatile, experiencing significant short-term fluctuations. This volatility may result in potential losses or gains for investors, depending on the timing of buying and selling.
  2. No Income Generation: Gold ETFs do not generate income or dividends like stocks or bonds. The return on investment primarily depends on the price movement of gold. Investors looking for regular income may need to consider other investment options.
  3. Counterparty Risk: Some gold ETFs may use derivatives or financial instruments to track the price of gold. This introduces counterparty risk, as the performance of the ETF depends on the financial institution or counterparty fulfilling its obligations. This is why many Canadian investors and retirees prefer buying physical gold, which has no counterparty risk.
  4. Currency Risk: If investing in a gold ETF that is denominated in a currency different from the investor’s base currency, fluctuations in exchange rates can impact the overall returns.
  5. Potential Regulatory Changes: Changes in government regulations or tax policies related to gold or ETFs could affect the performance and profitability of gold ETF investments.

Conclusion

While investing in a Gold ETF can be an easy way to get exposure to the price of gold in your portfolio, remember that owning physical gold and silver will provide you with benefits that ETFs and other forms of paper gold won’t. You can use your RRSP, TFSA or any other retirement account to invest in fully insured physical gold bullion coins and bars. Silver Gold Bull, Canada’s top rated gold company with over 300,000 five-star reviews, has some of the lowest fees for gold bullion bars and coins. Request their free investment guide if you want to learn more.

 

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About Amine Rahal (6 Articles)
Amine Rahal is a Canadian entrepreneur and investor that enjoys writing about alternative investments such as precious metals, cryptocurrencies, venture capital and other similar topics.

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