Yahoo Finance As gold hovers near record highs, some experts warn against going all in
With gold hovering near record highs, some experts have warned against diverting savings into the precious metal.
In early April, gold reached a new record price just shy of US$2,400 per ounce, and while the price of bullion has since slipped, it has still advanced more than 12 per cent this year.
With prices high, hype surrounding the commodity has remained resilient, and retailers like Costco (COST) are even getting in on the action. According to a report from Wells Fargo, sales of gold bars brought in US$200 million per month to the company.
Some experts, however, warn against getting heavily involved with gold.
“We're not huge fans of it,” Colin White, portfolio manager and CEO of Verecan Capital Management, told Yahoo Finance Canada in a recent phone interview.
“For me, the definition of investing is you buy something that is making money. If I buy shares in a business that's making money, I know I get a piece of that... You buy gold, you're hoping somebody buys it from you at a higher price later. In our world, we would describe that more as speculation.”
Still, for those looking to get in on the gold hype, there are several options to consider.
Gold bars, ETFs and mining companies
On top of owning physical gold bars through a bank or other means, such as Costco, you can get exposure to gold through exchange-traded funds (ETFs), or through owning shares of mining companies.
Will Huggins, an associate professor of finance and economics at McMaster University's DeGroote School of Business, recommends ETFs to retail investors looking for exposure to the price of gold.
“An ETF that tracks (the price of gold) is pretty decent for retail access, but that's really for people who want to day trade,” he said. “If you want to follow gold prices hour to hour, day to day, ETFs are good for that.”
Many Canadians are already exposed to gold through Canadian indexes, Huggins says.
“You're buying a bunch of natural resources and given that we have lots of territory, we tend to have lots of gold miners,” he said. “People have already got gold exposure in their portfolios, frankly.”
However, White is not a big fan of owning shares in gold mining companies.
“The Canadian mining industry, gold miners specifically, have got an amazing track record of just burning money,” he said.
Gold as a long-term investment
While gold is often seen as a stable investment in times of turmoil or economic downturn, Huggins pushes back on that notion.
“There are some cherry-picked moments where it does work very well, but for instance, when we had higher inflation back in 2021 (and) 2022, gold prices didn't move,” he said.
White says gold was a promising investment during the COVID-19 pandemic, but it’s impossible to predict when the next world-changing event might come. April's record-breaking rally has been linked to strong central bank purchases, demand from Asian markets and haven buying amid conflicts in Ukraine and the Middle East.
“It does really well when completely unexpected things happen,” he said.
“When the global pandemic hit, it held its value quite nicely, but nobody could predict the global pandemic and then the recovery in the equity market was way stronger than what gold did.”
For those planning to hold onto gold as a long-term investment strategy, White believes there are better options available, such as the U.S. dollar or a Guaranteed Investment Certificate (GIC), which offers clients protection on their investment and returns topping five per cent in some cases.
Consider the hidden costs when investing in gold
Huggins says there are fees people need to be aware of if they’re looking at a gold investment. For one, if an investor is looking to own physical gold, they’ll need to figure out how to store it.
“Some people have this idea of owning physical gold, but there is an enormous amount of risk associated with keeping physical gold in your house,” he said.
“Keeping it in your house is just begging for someone to break in and steal it, right? Like, ‘Oh, I keep my $50,000 worth of gold at home.’ You're going to get robbed.”
Additionally, large sums of physical gold should likely be insured, Huggins says. When it comes time to sell, you could also face a brokerage fee.
With a file from Bloomberg.
Ben Cousins is a journalist based in Toronto. Follow him on Twitter @cousins_ben.
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