In this column, which appears every two weeks, we give you concrete ideas for investing.
In December, gold hit a new all-time high of over $2,135 per ounce, causing several investors to show renewed interest in it. What different ways are there to bet on this timeless asset?
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With some delay, gold has once again proven in recent months that it can play a useful role as a hedge against inflation.
In December, the price of gold also benefited from the relative weakness of the US dollar compared to other currencies.
Development of the gold price since the 1970s. “Goldprice.org”
“What determines the evolution of the price of gold is inflation and the value of the American dollar,” emphasizes François Riverin, co-author of the book Investing in Gold, published in 2021 by Éditions Saint-Jean.
To summarize: the price of gold rises when inflation is high and/or when the value of the greenback falls.
Safe investment?
Gold also has a reputation as a safe haven, meaning it retains its value when other asset classes suffer, especially during global crises. But Mr. Riverin doesn't really believe it.
“When there are geopolitical events, that plays a role [en faveur de l’or]“But as soon as the situation calms down, the price of gold will fall again,” he says.
How much of your portfolio should you invest in gold? Of course, this depends on the individual – most investors have no direct exposure to this asset and are no worse off as a result.
“For someone starting out, it is better not to exceed 5% of the portfolio because gold fluctuates a lot,” advises François Riverin.
If you're ready to take the plunge, here are some ways to invest in gold.
1. Buy coins or bars
This is the classic way: you purchase a coin or bar that you keep in a safe deposit box at your bank. The Royal Canadian Mint, banks like TD, and even Costco sell gold coins that can be ordered online. Perfect for anyone who fears the end of the financial system and isn't afraid to take the risk of theft! Note that the price of a 1 ounce gold coin is generally higher than the price of gold.
2. Invest in a gold bullion ETF
This is the easy way to reflect the price of gold in your portfolio. Several exchange-traded funds (ETFs) offer you the opportunity to invest in gold without having to hold gold bullion directly. The managers of these funds buy gold and store it in a safe place. Sprott, BlackRock (iShares) and Purpose offer such ETFs in Canada (see table below). The Royal Canadian Mint offers a similar product, stock transaction receipts, but unfortunately detailed information on the subject is difficult to find on the Crown corporation's website.
3. Invest in gold companies
“Photo courtesy of Agnico Eagle”
For the more adventurous, there are funds that bring together several mining companies specializing in gold extraction. The stock prices of these companies are heavily influenced by those of gold, but there can be significant differences. “Mining companies offer an influence on the price of gold,” explains François Riverin. “This means that if the price of gold rises by 10%, these companies' profits can increase by 30, 40 or 50%. So if it goes up, you'll get a better return than investing directly in the metal. But if it sinks, it will be difficult for you.”
4. Invest in licensing companies
It is a kind of hybrid solution between a direct investment in gold and an investment in gold companies. Royalty companies receive payments for gold shipments from producers with whom they have agreements. These payments depend on the price of gold and the production levels of gold mining companies. “It reduces a little bit the risk of exploitation,” Mr. Riverin notes. The Quebecer Pierre Lassonde was a co-founder of the largest gold royalty company Franco-Nevada. Montreal company Osisko Gold Royalties has the same model, but on a smaller scale.
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