[Thank you for the queries sent into the Personal Finance Clinic. We received 27 questions that I, Money Gardener and Triaging My Way will be answering (most of them anyway) over the next little while. Today’s post is in response to a question received from SG of Toronto who wondered how to invest in gold bullion.]

I’ve written many posts in the past on why gold is not a very attractive investment. Physical gold does not provide an ongoing income stream in the form of dividends or interest — in fact, it costs money to store and insure and over the long term — and the best that can be said for gold is that it keeps pace with inflation, though there may be periods when gold performs spectacularly. In Stocks for the Long Run, Jeremy Siegel notes that from 1800 to 2008, $1 invested in gold would have grown to an inflation-adjusted $2.59, which is much lower than the $306 that even lowly T-bills would have grown into. Despite the low correlation that gold has with other asset classes, the poor risk-reward characteristics provides a good reason for avoiding gold altogether. Still, some investors like the idea of keeping a bit of gold near at hand as a sort of “disaster insurance”.

Investors wanting to invest in bullion could do so through gold coins or gold bars. Various national mints produce gold coins of varying purity that are legal tender. The Royal Canadian Mint produces the popular Maple Leaf gold coins that are 99.99% pure or better and available in one, 1/2, 1/4, 1/10 and 1/20 ounce sizes. The one ounce coin has a $50 face value, which is quite a bit lower than the value of gold content. Other popular gold coins are the South African Krugerrand and the US Eagle. Gold bars are produced by various refiners, are available in various sizes and tend to be slightly cheaper than a gold coin of the same size.

I do not personally invest in gold bullion but have purchased Maple Leaf coins as gifts. There is no GST on Maple Leafs or gold bars but the coins attract a PST in Ontario but not in BC. Vancouver-based J and M ships gold bullion to customers across Canada for a small charge and do not charge any sales tax on pure bullion products. In this thread on Canadian Money Forum, a member suggests Border Gold, another BC-based vendor for buying or selling gold bullion.

This article has 32 comments

  1. Don’t know if gold is a good investment but I have invested heavily in it, read further and you will see the reason. We in Malaysia seem to be doing well we have high growth and high inflation. An example of inflation would be the local desert “cendol” bought about a month ago at the price of $1.20 in local currency would now sell for $ 1.80 in local currency. Job growth is also strong as we have 2 jobs for every worker and Malaysia imports in foreign labour to do jobs that local workers do not want to do. Hence our problem in Malaysia is now high inflation and good news, high growth.. We do not understand why the Western Media keeps on saying we are in a Recession. Yes our economy slowed down in March 2009 but after that period our economy is now experiencing high growth and high inflation thanks to China’s strong buying of Malaysian goods and services, thank you China ! So please do not say Malaysia is in a Recession when it is not, only the US is in a Recession, the rest of the World is booming thanks to China !

  2. Gold is certainly pretty to look at, but as you say its not a good investment. I wouldn’t consider it an investment at all since I consider gold to be much like dollars. Its a form of currency, I would never store a large amount of cash and I feel the same about gold. The main reason to buy gold is a hedge, a way of protecting yourself against the local currency. Since gold is basically “useless” as a practical material it will maintain its basic value throughout turmoil. This is what makes gold valuable. Its a hedge, nothing more than buying insurance against your currency crapping out on you.

    Having some gold on hand is likely a good idea. Much like everyone should have a 3-6 month supply of food and water, guns, a generator, and other emergency supplies.

  3. I think gold itself (bullion) is not an investment as much as it is insurance or a hedge. Gold companies, however, can be an investment.

    Have you tried GoldMoney? I invested with them a few years ago. Very serious, reputable, reliable.

    I’ve also checked out Border Gold, they look good, but I haven’t used them yet. Never heard of J and M.

  4. Buffett has a quote about gold, “It gets dug out in Africa or some place. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head”

    But we can’t all be Buffetts.
    I like gold producers more than the bullion. As much as the doomsday sayers think that having gold is a good idea when the world collapses, it’s hard to break that bar/coin into an appreciable amount to exchange for goods/services. Like buying rice or potatoes (here’s a sliver of gold). Not going to happen.

    That being said Kitco is another place to buy

  5. Actually gold was trading at $20/ounce back in 1800. thus at almost $1000/ounce, a $1 investment in gold almost 200 years ago should be worth at least $50.. Adjusted for inflation however, gold is not a good investment.

  6. I take a slightly different approach to my view on gold coins. Like many of the others commenters, I’m not a fan of it as a pure base metal commodity. However, when I was much younger, I was an avid coin collector. As such, SOME gold coins hold much more value as the specific type of coin that they are… Such as, for example, limited edition commemorative coins which are typically issued, say, at the end of a war or a notable achievement or like the Olympics. In that sort of respect, it doesn’t even have to be gold (such as for example, defective coins which may have the same image on both sides – a two headed coin), but of course, precious metals DO make the collectible coins that much more alluring…

    Another example is the fellow who was renovating his home in London many years ago and found a small chest buried below his basement containing a handful of gold Roman coins representing a Legionnaire’s life savings… The value of the actual metal in those coins is maybe about a hundred thousand dollars, but the COLLECTIBLE value of those original Roman coins are PRICELESS!!! I saw those coins on display in the Museum of London while I was there. I wish I could afford to have one of those in my own collection – just for the historical significance of having an original likeness of Julius Caesar stamped on an ancient coin!

    • Canadian Capitalist

      @Phil: Some of the gold websites I checked out yesterday mention collectible coins that have numismatic value as investments. This is not an area I’m familiar with. But I can see how some rare coins can turn out to be great investments.

  7. You may want to look at Scotiabank as well:

    http://www.scotiamocatta.com/products/investment.htm

    I suspect other banks have the same service but Scotiabank seems the most popular dealer among the big banks. There’s a counter in the branch at Scotia Plaza in Toronto where people buy the coins. Always seems busy.

  8. TMW,

    The site said that you could use your credit card to purchase gold. Hmm I wonder if you could earn points for that..

  9. @cam birch, what about a bomb shelter?

  10. Canadian Capitalist

    @DGI: Good point that the growth in value of the gold in Stocks for the Long Run is after adjusting for inflation. That’s what I meant but it should be made clearer in the post.

    @Thicken: One thing to watch out for is Ontario residents pay the PST on Maple Leaf gold coins. Buying a one ounce coin could result in a $80 tax; so it may be better to buy from a mail order company and just pay S&H.

    @DGI: The mail order companies that I’ve used before charges a 2% premium for bullion purchases if paying by credit card. I’m pretty sure any credit card fee will be built in when buying through ScotiaBank.

  11. Isn’t the purpose of gold coins to be able to transfer large amounts of money across the border without having to declare it. 100 * 1oz = ~$90000 value. But 100 * $50(face value of valid currency) is only $5000. “Are you transporting more then $5000 in currency?” Nope.

    • Canadian Capitalist

      @Bryce: I’m not sure if there won’t be any customs problems with transporting large amounts of gold across borders. I personally think it is not worth the risk. In fact, Canada Customs recommends traveling with as little jewelry as possible due to the significant gold content.

  12. @Mat H, absolutely.

    @Bryce. Gold is currency. Anything that is directly convertable into a monitary unit is considered required to be declared. That means, bonds, cash, large checks, a bucket full of coins, stock certificates. Its not illegal to transport more than $10k, they just require you to declare that you are.

    If you say no, and they decide to do a follow up search you will likely be arrested for smuggling. Playing around with face value, vs actual value is a sticky situation.

  13. In Vancouver I bought gold Maple Leaf as presents at Vancouver Bullion and Currency Exchange http://www.vbce.ca/index.cfm?fuseaction=fx_services.Gold&Silver
    which is slightly cheaper than J&M and Border Gold and it has several branches in the city. Don’t know if they ship, but worth asking.

  14. Many of the comments seem to separate “investment” and “hedge”. This is all well and good but I think every portfolio should have some gold in it in the same sense that everyone should have health insurance.

    Gold is a turmoil/disaster/debasement of currency hedge, and has some inflation hedging power (though on a total return basis not always due to negative roll). Its the only currency that isn’t someone else’s liability. Buffett might have a point about gold being practically useless but the same analogy applies to fiat currency.

    One should not just focus on the return, but also on the risk side. If holding gold lowers your overall portfolio risk such that you can take on more risk in equities or bonds, then all the better.

  15. Hmm… Interesting comments about holding gold as a form of “disaster” insurance. Exactly what kind of a “disaster” are we talking about? If there was a nuclear war and everything is wiped out, is that where gold would be of value? Or are we just talking about an economic disaster where Governments and currencies collapse? In Cam Birch’s scenario of running to the hills with a shotgun and cans of spam, how valuable would gold be? I would think a food and clean water supply, shelter and medical supplies would be of much more value…?

  16. Pingback: How to invest in physical gold bullion through bars or coins … | BondsArea.Com

  17. @Phil S, love that spam… :). I think that gold as “disaster” insurance in a highly industrialized nation such as Canada isn’t very helpful. As a hedge against the government killing our currency like the US is experiencing it could be helpful though. Unfortunately it is valued is US$ and that screws things up somewhat.

    I would recommend people invest in physical gold before investing in a fund or using a service. I know several people who play the markets and they have been stung badly by companies not trading their gold when instructed.

    As far as using gold as an “insurance” or risk reduction I personally find that the volitility of the gold market to be way too high to be comfortable using it as a risk reduction tool. I feel that it would add more volitility to my portfolio and thus reduce the ease of sleeping quotient.

    I may consider buying gold as a long term way of storing cash (if I ever did such a thing) or just to play the market. I would consider it much as I would any other non-dividend paying stock.

  18. I believe in Gold Bullion and especially now!
    I purchased @ $298. an ounce and sold @ $1000. an ounce.
    I purchased again @ $770. and will sell again, hopefully, @ $1100 + an ounce.
    In my opinion, there is not enough actual gold to cover the paper (gold stock) that’s sold.
    Maybe we will have a run and the price will go to $2000+!
    As a citizen of the United States, I think all Americans should have a gold position, regardless how small.
    How do you feel and why?

  19. Pingback: Why Gold could be a Bubble | Canadian Capitalist

  20. FYI – you can bring as much bullion across the border into Canada as you want as long as it is at least 99.9%. Below that it is taxed. This explains why the Krugerand is lower value though it contains the same amount of gold.

  21. “Since gold is basically “useless” as a practical material”
    ya sure it is you are a moron that knows nothing about what gold is used for.

    • I agree with eric every cell phone in the world has 1.60$ worth of gold in it for starters! Thats just the tip of iceberg!

  22. Propganda at best.

    You figure the writer would nnot buy gold or recomend it….but has bought it for friends…..

    What a joke.

  23. Pingback: Investors are Chasing Gold | Canadian Capitalist

  24. For people who collect gold bullion, are not well known gold coins known as Krugerrands of South Africa. Between other popular choices is the European Golden Crown the period from late 1800 to 1900, the Canadian Maple Leaf gold coins and American Eagle coins. You may also want to go to the British sovereign, Helvetas Swiss, French, or roosters. These are available on the Internet.

  25. Hi there we are located in Kelowna BC
    so feel free to contact us!

    http://canadiangoldsilver.ca/

  26. The most traditional way of investing into precious metals is by buying physical gold, silver, platinum or palladium bullion
    This is the best investment if you’re into safety and diversity.
    http://www.bullioninvestorhelp.com/bullion-bars-and-coins/

  27. I’ve been working on putting together a list of bullion dealers that Canadians especially can view to find reputable dealers close by. The web site is http://icanhazgoldbug.com. Hope it helps. If anyone would like to have a dealer listed that isn’t there, please send me an email (contact information is on the web site).

  28. Pingback: Where To Put My Retirement Investments:

  29. In economic colapse,sure the food and water will be the most valuable but haw you gona pay for it when cash will be trash out of value.You need silver or gold……..

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