Even before King Croesus of Lydia introduced the first gold coinage in the 6th Century BC, gold, silver, and other precious metals have been coveted for their beauty, scarcity, and status. In this article, we look at the investment case for precious metal ETFs including gold and other metals. We also explore the options for Canadian investors to gain access to these assets.

What makes gold precious?

Gold has an amazing ability to transcend the boundaries of time, space, and culture to be valued and desired by almost all societies in history – but what’s so special about it and why do investors want to own gold? The key characteristics help explain its long-term appeal:

• Scarcity: All the gold on earth is believed to have gotten here as the result of a supernova explosion billions of years ago – it’s literally stardust. There’s only a finite amount on earth and it’s becoming more difficult and more expensive to locate and mine. Due to golds’ rarity and cost, it has long been associated with prestige, royalty, and power.
• Utility: Gold has many uses – it’s malleable and can be easily made into jewelry, gold bullion, coins, wire, and many other products. It is widely used across engineering, electronics, healthcare, fashion, art, and manufacturing industries. While jewelry still accounts for most of the demand for gold, the growth of Gold ETFs now puts finance and investment as the second-largest demand center for the yellow metal.
• Immutability: Gold and Silver are elements and are virtually indestructible. Gold doesn’t rust, tarnish, or corrode and can be melted down and recycled easily. This means that all gold that ever existed on earth is still around in some form or other.
• Beauty: There’s no denying that gold and silver are eye-catching, easy to spot, and look good. Their distinctive appearance makes them ideal status symbols.

The role of gold in a portfolio

Most governments hold a significant amount of their nation’s wealth in the form of gold. Why is it such an important asset for investors? 

• Store of value: Unlike cash, gold cannot be devalued by a government, meaning it retains ‘store-of-value’ characteristics. Most currencies, for example, have fallen in value against gold over time. Therefore, gold can be used by investors to hedge inflation and currency risks.
• Diversification: Gold is one of the most efficient and effective diversifiers against traditional stock and bond portfolios, with the potential to reduce overall portfolio risk and improve returns. Gold is often used as a ‘safe haven’ asset when markets get volatile as it tends to rally during times of uncertainty.
• Growth: Over the long-term, gold has performed well compared to other major asset classes and can be an additional source of uncorrelated returns for a portfolio
• Liquidity: The market for gold is broad and diverse meaning it is highly liquid and can be traded at a transparent price.
• Growing demand: Since 2001, demand for gold has grown by about 15% a year[1], driven by new investment products like Gold ETFs and rising demand from middle classes in emerging markets like China and India.

How to invest in gold and precious metals?

Investors seeking exposure to precious metals have several ways of doing so. They can purchase bullion commodities in the form of coins and bars. Nevertheless, investing in physical commodities can be difficult and comes with its own set of risks such as purity and theft to name a few. Alternatively, investors can purchase commodities certificates to avoid such risk. Certificates offer the benefits of physical commodity ownership without actually owning it.

Furthermore, financial markets participants can gain exposure via equities, futures, options, mutual funds, and, of course, exchange-traded funds.

Invest in gold and other metals with Precious Metals ETFs

Precious Metals ETFs allow investors exposure to the metals markets without the costs and risks associated with holding the physical commodity. Such ETFs are traded on stock exchanges while their performance is closely related to the metals’ price.

The NEO ETF Screener identifies 17 Precious Metals ETFs excluding Leveraged and Inverse ETFs. Out of those 10 are Gold ETFs and 6 are Silver ETFs.

Assets under management reached CAD$1.7 billion. The biggest Precious Metal ETF as measured by assets under management is the iShares Gold Bullion ETF (CGL) with CAD$760 million. Similarly, iShares Silver Bullion ETF (SVR) tops silver ETFs as measured by assets under management with CAD$98 million.

The 5 largest Gold ETFs measured by assets under management:

• iShares Gold Bullion ETF (CGL)
• iShares Gold Bullion ETF (CGL.C)
• CI Gold Bullion Fund ETF (VALT.U)
• Purpose Gold Bullion Fund ETF (KILO)
• Purpose Gold Bullion Fund ETF (KILO.B)

The 5 largest Silver ETFs measured by assets under management:

• iShares Silver Bullion ETF (SVR)
• Purpose Silver Bullion Trust ETF (SBT.B)
• Horizons Silver ETF (HUZ)
• iShares Silver Bullion ETF (SVR.C)
• Purpose Silver Bullion Trust ETF (SBT)

Bitcoin went head-to-head with Gold for its inflation hedging benefits (Bitcoin vs. Gold ETFs).