Owning gold

What do you think about buying and holding gold in either our TFSAs or RRIFs?

Q – Lots of folks have been discussing buying and holding gold in their portfolios. We are interested to know your thoughts about buying and holding gold in either our TFSAs or RRIFs. What products: stocks, bonds, ETFs, etc. Thank you in advance for your response. – Dave H.

A – The gold price has moved higher recently, buoyed by negative interest rates in Europe and Japan, the escalating trade disputes between the U.S. and the rest of the world, and recession fears.

You can own gold, including physical gold, in a self-directed RRSP, RRIF, or TFSA. However, I prefer more liquid forms of assets, such as stocks or ETFs.

My favourite gold stock, and one I own myself, is Franco-Nevada (TSX, NYSE: FNV). It’s a gold royalty company, which means it does not bear the costs and risks of exploring for and developing new mines. It simply acts as a type of bank, providing financing in exchange for a share of a mine’s production. We recommended it in this newsletter in July 2010 at $31.69. It closed on Friday at $125.70, an increase of almost 300%. So far this year, the shares are up about 32%.

There are many ETFs that specialize in gold, if you prefer a direct play on the metal. The biggest is SPDR Gold Shares, which trades in New York under the symbol GLD. It has net assets of about US$44 billion and is up about 17% year to date.

Another option, and a very unique one, is the Canadian Gold Reserves’ Exchange Traded Receipts (ETRs), sponsored by the Royal Canadian Mint. The units trade on the TSX under the symbol MTN.

Each ETR provides evidence of ownership in physical gold bullion held in the custody of the Mint at its facilities in Ottawa. Unlike other gold investment products, the purchaser owns the actual gold rather than a unit or share in an entity that owns the gold. Subject to certain restrictions, ETR holders are entitled to redeem their units for physical gold products in the form of 99.99 per cent pure gold bars or coins, or for cash based on the lesser of the gold price on the redemption date and the market price of the ETRs. The price is up 17.7% this year.

There are many other options available but these are all good places to start. – G.P.