Learn How To Invest In Gold The Role It Plays In A Portfolio And The Risks And Rewards On Offer
Gold is a commodity or ‘raw material’ that trades based on supply and demand. The interplay between supply and demand ultimately determines what the price of gold is at any given time.
There are different ways to invest in gold, so if you wish to do so, you should ensure you take time to find out which method best suits your investment appetite.
Here, we explain the pros and cons of buying gold, and how you can invest.
A: Set Up Automatic Deposits
The best way to invest in stocks is to do it on a consistent basis.
Now that you’ve set up your initial deposit into your brokerage, most online brokers allow you to set up recurring deposits so that you can continue to add to your positions in your self directed account.
In order to set up automatic deposits, you can tell your brokerage to set up pre-authorized deposits, or you can be in full control yourself and head to your online banking and set it up like a recurring bill payment.
For me, setting up automatic deposits was as easy as:
- Heading to my payees in my online banking
- Selecting add new payee
- Typing in the name of your brokerage, in my case “Qtrade“
- Setting a specific amount of money and a recurring date in which the money is withdrawn.
Investing in the stock market is best when it’s automated. If you’ve ever heard the term “pay yourself first” this is one of the best ways to go about it.
With automatic deposits, contributions to your online brokerage account are out of sight, out of mind, and continue to build your wealth.
How Much Should You Invest In Gold
Gold can be a volatile investment, so you shouldn’t put a large amount of your assets into it — it’s best to keep it to less than 10% of your overall stock portfolio. The real benefit, for new and experienced investors alike, comes from the diversification that gold can offer. Once you’ve built your gold position, make sure to periodically balance your portfolio so that your relative exposure to it remains the same.
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Trading Vs Investing In Gold
You might want to trade gold if:
- You want to speculate on the price of gold rising or falling
- You want to leverage your exposure
- You want to take shorter-term positions on gold
- You want to hedge your portfolio
- You want to trade without owning the underlying asset
You might want to invest in gold if:
- Youre interested in buying and selling gold stocks and ETFs
- Youre focused on longer-term growth
- You want to build a diversified portfolio
- You want to take ownership of the underlying asset
- You want to gain voting rights and dividends
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This article is provided for informational purposes only. It does not cover every aspect of the topic it addresses. The content is not intended to be investment advice, tax, legal or any other kind of professional advice. Before taking any action based on this information you should consult a professional. This will ensure that your individual circumstances have been considered properly and that action is taken on the latest available information. We do not endorse any third parties referenced within the article. When you invest, your money is at risk and it is possible that you may lose some or all of your investment. Past performance is not a guarantee of future results. Historical returns, hypothetical returns, expected returns and images included in this content are for illustrative purposes only.
We provide investment services and other financial products through several affiliates.
Wealthsimple Trade is offered by Canadian ShareOwner Investments Inc. , a registered investment dealer in each province and territory of Canada, a member of the Investment Industry Regulatory Organization of Canada and a member of the Canadian Investor Protection Fund , the benefits of which are limited to activities undertaken by ShareOwner.
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How To Buy And Keep Gold Coins
If you decide to buy gold coins, get it from a reputable dealer or financial institution. We wouldnt buy gold coins on Craigslist, but thats just us.
If you buy gold coins from individuals or from anyone else youre not sure of, have the gold coins authenticity verified first. You dont want a collection of gold-plated lead.
U.S. gold coins come in one, one-half, one-quarter, and one-tenth ounce denominations. You pay a premium over the price per ounce when you buy gold coins, which is how the dealer makes a profit.
You may pay a higher premium if you buy gold coins less than one ounce each. You should generally buy bullion coins, such as the American Gold Eagle, Canadian Gold Maple Leaf, or South African Krugerrand.
Collectors coins, called numismatic coins, are a different game than bullion gold coins. They can sell at a very high premium, and their prices are dependent on more factors.
Unless you are very knowledgeable about collectors coins, stick with bullion coins.
Once you have the coins, you may be tempted to run the coins through your hands, like Ebenezer Scrooge.
But of course you wont you should leave coins in their cases, away from scratches and fingerprints.
Dont even think of hiding gold in your house, unless you have a safe. Thieves know where to look, or they can find it with a metal detector.
For very little money, you can rent a safe at a bank for your gold and other valuables.
Is Gold A Good Investment In A Recession
Gold has a reputation for being a recession-friendly investment when the stock market has a big pullback, the price of gold often goes up. But that’s not the full picture, says Deaton Smith, a certified financial planner and founder of Thayer Financial in Hickory, North Carolina. The idea is that its a safer investment than equities, but the long-term price valuations just havent been there.
In fact, when you look at longer time horizons, like the past 30 years, the Dow Jones Industrial Average a good representation of the overall stock market has significantly outperformed gold. And while the stock market has its ups and downs, investing in physical gold can involve a lot of unexpected costs and considerations, including insurance and secure storage.
Adding gold to your portfolio can help you diversify your assets, which can help you better weather a recession, but gold does not produce cash flow like other assets, and should be added to your investment mix in a limited quantity and with caution.
» Stressed about the stock market? Heres what to do when the stock market crashes
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Do I Pay Capital Gains Tax On Gold Coins
Gold coins minted in and after 1837 that are legal UK tender at the time they were purchased or sold should be exempt from Capital Gains Tax . They also need to be in Sterling to qualify, so a Sovereign that is a £1 sterling-based gold coin, would qualify for the exemption, while Kruggerrands would not as these a form of South African currency. Those buying gold coins minted before 1837 should be aware these are not classed as legal tender and are treated as chattels. There is the possibility that these could be exempt from CGT, if the gain does not exceed certain values set out in HRMC guidance.Investors also need to bear in mind the rules for the selling of sets of coins and again should refer to HRMC guidance.Gold that is not deemed to be legal tender will have CGT applied at the appropriate rate for profits over a set amount.
Read the Moneyfacts Taxfacts to find out the current rates and limits for CGT.
Top Canadian Gold Etfs For 2022 And Beyond
With the advent of Canadian exchange-traded funds , passive investing in Canada has become simple.
These days you don’t need to learn how to buy individual stocks. You can instead deploy a more passive approach with ETFs.
ETFs are also an excellent way to gain exposure to particular industries without having to pick individual stocks.
A piece of investment advice we often give is that every portfolio should have some sort of exposure to gold.
Gold has long been considered a defensive investment and helps insulate your portfolio against a variety of market conditions, potential bear markets, or market volatility.
There are some investors who buy bonds, or even Canadian bond ETFs for stability, which isn’t a bad decision either. But in an ultra low interest rate environment, bonds will no doubt struggle.
With that being said, stocks that rely on a commodity, like oil, gold or even other precious metals like cobalt, pose more risk. And our stock exchange here in Canada, the TSX, is loaded with these types of stocks.
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Buying Gold Futures Options
More experienced investors who dont want to risk a lot of capital might consider options on gold futures or options on a gold ETF. These contracts represent the rightbut not the obligationto buy or sell an asset at a specific price for a certain amount of time. Options can be used whether you think the price of gold is going up or going down. If you guess wrong, the maximum risk associated with buying options is the premium you paid to enter the contract.
Available in the U.S. through the Chicago Mercantile Exchange, put and call options on gold futures can be bought and sold through a futures broker. Options on SPDR Gold Shares ETF are also available to investors and can be traded in a standard brokerage account that has received approval for options trading. Meanwhile, some traders buy and sell gold futures contractswhich trade on CME under the symbol GCto speculate on short-term moves higher or lower in the yellow metal.
It Doesnt Provide An Income
Unlike a cash savings account, gold doesnt pay interest or unlike a stocks and shares investment it doesnt pay any dividends. The aim is that gold providers long-term returns on the value of the capital. Although this may not be the case and the value of your gold will depend upon the demand and availability of supply at any single point in time.
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Understand What Moves The Price Of Gold
The price of gold is determined by supply and demand. There are a huge range of factors that can impact the market price, including:
- Global demand
- The US dollar
- Financial stress and political insecurity
Since the 1970s, the demand for gold has quadrupled every year driving up the gold price. Gold is used all over the world for a variety of reasons, such as jewellery, technology and as a value store for central banks and investors. In fact, jewellery demand accounts for roughly 50% of the global demand, while 29% comes from exchange traded funds .1
A large portion of gold demand comes from middle-class expansion in India, China and South-East Asia.
The rate at which mining companies produce gold is declining, as its estimated that most of worlds gold supply has already been dug up. Production declined by approximately 26% between 2011 and 2019, because companies have cut down on exploration to preserve cash.2
To find new gold supplies, scientists have begun developing technologies to detect previously unreachable gold sources, and even exploring the possibility of mining in outer space.
Although there is a finite supply of gold as it cannot be grown in the same way as some other commodities what gold there is will always remain in circulation. This means a lot of gold is now recycled to continue to meet demand.
If demand continues to rise and supply continues to fall, golds price will rise.
How Well Does Gold Hold Its Value In A Downturn
The answer depends partly on how you invest in gold, but a quick look at gold prices relative to stock prices during the bear market of the 2007-2009 recession provides a telling example.
Between Nov. 30, 2007, and June 1, 2009, the S& P 500 index fell 36%. The price of gold, on the other hand, rose 25%. This is the most recent example of a material and prolonged stock downturn, but it’s also a particularly dramatic one because, at the time, there were very real concerns about the viability of the global financial system.
When capital markets are in turmoil, gold often performs relatively well as investors seek out safe-haven investments.
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B: Deciding On Your Account: Rrsp Or Tfsa
Whether it be ETFs, mutual funds, stocks or even bonds, the vast majority of investors buy investments in Canada through one of these two accounts.
The question now that you want to open an account is, which account is right for you?
Many articles you will see will make two blanket type statements as to what type of account you can open:
- Open and contribute to a TFSA if you’re in a lower tax bracket to invest in stocks
- Open and contribute to an RRSP if you’re in a higher tax bracket to invest in stocks
And for the most part, this is the true. RRSP contributions are tax deductible, meaning that Canadians in higher tax brackets will get more income tax back when they file the contributions as deductions.
However, there are many situations, such as employer contribution matching or the RRSP First Time Home Buyers plan, that make contributing to and buying shares of strong companies within an RRSP beneficial regardless of your current income.
Overall, it doesn’t hurt to open up both accounts. Just check to see if your online broker requires you to keep a minimum amount of capital inside of the account. If so, you might want to figure out what type of account works best for you in terms of your tax situation, and open that one.
How To Buy Physical Gold
If you decide that investing in physical gold is the right move for you, here are some things to keep in mind.
1. Find a reputable dealer. From working with pushy salespeople to falling victim to scams, navigating the world of buying and selling gold can be sketchy. Sellers can inflate their products value, or use persuasion tactics to create a sense of urgency to buy immediately. Doing some homework ahead of time can help you avoid a bad investment.
You can use the National Futures Associations Background Affiliation Status Information Center to check on a firm or individuals background.
2. Watch out for fees. Gold dealers typically charge more than golds spot price, or the price at which gold trades on a commodities exchange. This premium typically consists of a dealers fee and manufacturing and distribution charges.
3. Find secure storage. People joke about burying gold for a reason: Its valuable, and because it’s a physical commodity, people may try to steal it. Its important to anticipate storing your gold somewhere safe, whether that is a literal safe or a safety deposit box at a bank. Storing gold safely can get expensive. Depending on their size, safety deposit boxes at a bank can run from $30 to a couple hundred dollars a year.
4. Consider purchasing insurance. Insurance is an additional cost of owning physical gold. If you purchase insurance, be sure your policy covers the exact type of asset you have.
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How To Buy Gold Online
Like many other products buying gold online can be as easy as point-and-click. The best dealers have a well-organized website with easy navigation to find and compare products by category . When you find a product you want, you click on it to review the details. As with any online shop, you can add it to your cart. You can then enter the quantity you want. From there, you can continue to shop or move on to checkout.
Once you start the checkout process with most dealers, your price is locked in for a short period, typically 10 to 15 minutes. You need to complete your purchase before the pricing expires, or you may see the price adjusted up or down based on how the market is moving.
Once you complete checkout, you will receive an email confirmation along with ongoing shipping notifications.
How To Buy Stocks Faq
This guide should be more than enough to get your started in terms of buying individual stocks and investing in general.
However, we do realize that investing comes with many other questions, so we’ve decided to add this FAQ for those who are looking to start investing, but still have questions about stock trading after reading this guide.
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Invest In Gold Via The Futures Market
An alternative to buying gold stocks or units in an ETF is to speculate on price movements through CFD investing in the futures market. CFD investors try to profit from gold price movements whether up or down.
That means that even if gold prices are falling, CFD investors can still make a profit . However, because CFDs are risky and are complex derivative products, CFDs are better suited to advanced traders.
You can read more about CFDs in our comprehensive guide.
Decide On Your Strategy For Investing In Stocks
I know we’re on step 5 and we haven’t even begun to buy and sell stocks yet, but it’s very important you get all your ducks in a row before you buy your first stocks online.
Much like a chess player goes into a match with a specific strategy, you must do so with your investments.
Fortunes have been lost by ill-informed investors, and this is your retirement and financial future at stake here. So, taking the time to learn how to properly buy stocks online in Canada is key.
Before we start to buy and sell stocks, we need to decide what type we’re going to buy.
A solid investment strategy will allow us to do this.
When it comes to stock trading, there are 4 key long term strategies we’re going to go over.
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