Money & Career

Gold prices are expected to climb high, should you invest?

This year, gold prices are expected to climb to record highs as investors grow giddy with anticipation. But before you invest in precious jewellery -- here's what you should know.

gold bars in safe

Masterfile

Owning gold can be about a lot more than a wedding band or grandma’s gold locket. Gold can be a part of your investment portfolio. Consider this: an ounce of gold was worth $600 in 2007, before the Financial Crisis hit. Today, as I write this, that same ounce of gold is worth over $1,680. That’s a growth of 180 percent in less than six years. Why the huge jump? Because gold prices thrive on stress: the more worried investors get about the stock market and the economy, the more they seek out supposedly “safe” investments. For many, that means gold. Does this mean you should be buying gold today? Not necessarily. The sharp run-up in prices could mean it’s nothing but a gold bubble waiting to burst (and another way to lose your shirt). Still, with plenty of uncertainty on the horizon for the global economy and lots of geopolitical risk in the air, gold prices might just continue to rise in the future. If you do decide to buy gold, there are four basic ways to do it in Canada. Here’s what you should know about each investment type:

Get physical: Gold bars and gold coins (physical gold) come in all shapes and sizes. You can buy coins right from the Royal Canadian Mint. Bars can be bought by different dealers, including some banks. But if you do decide to go the physical route, make sure you store it in a safe place. Gold isn’t like stocks: if you lose your gold, you lose your money. You can store gold at home in a safe or put it in a safety deposit box at your bank. Some gold owners like to pay a third-party to store it (in a Swiss vault for example). And don’t forget the insurance: you’ll need to pay to make sure you’re covered in the event you lose it.

Gold certificates: If storing physical gold stresses you out, then you could consider buying gold certificates. They’re issued by banks and can be exchanged for gold that comes directly from the bank’s vault or for the cash equivalent. While you’ll typically have to pay a fee to buy it, you don’t have to pay sales tax, storage or insurance to own it.

ETFs: Gold exchange-traded funds are another way to get some gold in your portfolio, without the hassle of storing the physical stuff. These are funds that are traded on a stock exchange like shares – they track the performance of a specific gold-related index and they’re relatively cheap to buy and own. They’re definitely the preferred way to go for a lot of investors, in fact, even some of Japan’s biggest pension funds are getting into the game.

Jewelry: While it might be more fun, buying rings and bracelets isn’t a great way to get gold into your portfolio. For one thing, you’re not just paying for the gold – you’re paying for the design and the craftsmanship. These costs cut into your bottom line. That being said, good gold jewelry should rise in value over the years and at least keep up with inflation. But if you factor in insurance and storage costs, I’m not sure you’ll end up with much of a profit.

 

Money expert Caroline Cakebread has been writing for Chatelaine.com since 2006. She is a recovering academic and the mother of two small kids. She lives in Toronto where she writes and reads about all things financial. Follow Caroline at Twitter.com/ccakebread.