Some investors worry it’s too late to join the gold party.Lemon_tm/iStockPhoto / Getty Images
Gold has been rallying at breakneck speed, leaving some investors wondering whether it’s too late to join the party.
The precious metal hit a record high of US$4,380 an ounce last week. It’s now trading around US$4,375 for a gain of 68 per cent this year. Bitcoin, which some investors refer to as “digital gold,” is up 19 per cent this year after its recent pullback.
Some U.S. financial institutions see gold heading even higher. Bank of America forecasts the yellow metal to hit US$5,000 an ounce in 2026 despite the risk of a short-term correction. Goldman Sachs has a US$4,900-target for this safe-haven commodity.
Investment experts, meanwhile, still see gold bullion exchange-traded funds (ETFs), which are easier to own than bars, as playing a key role as diversifiers within an investment portfolio, while riskier gold equity ETFs can potentially add higher returns.
“Gold can be a prudent addition to a long-term portfolio if an investor lacks uncorrelated assets to their stocks and bonds,” says Linda Ma, director of ETF and financial products research at National Bank Financial Inc. in Toronto.
Economists at National Bank Capital Markets are bullish on gold because they expect sticky inflation and a depreciating U.S. dollar, Ms. Ma says. “But the upside for gold may not be linear in the short term.”
Gold bullion vs. equity ETFs
Gold bullion ETFs differ on fees, liquidity and currency hedging, Ms. Ma says. iShares Gold Bullion ETF (CAD-hedged) CGL-T, which has a 0.55-per-cent management expense ratio (MER), and the U.S.-dollar CI Gold Bullion Fund VALT.U-T, which has a 0.17-per-cent MER, have seen most of the inflows this year in Canada.
Some gold bullion ETFs provide a yield, too. Global X Gold Yield ETF HGY-T, which is hedged to the Canadian dollar, uses a covered-call option-writing strategy to generate income, but the trade-off is less upside potential when gold rallies, she says.
On the other hand, BMO Covered Call Spread Gold Bullion ETF ZWGD-T, which is currency unhedged, will potentially give better upside if the gold price rises sharply, but generates less income, she adds.
Gold equity ETFs, however, are a leveraged play on the precious metal, Ms. Ma says. As gold rises, gold mining stocks typically move up more than the price, and when its price pulls back, the equities usually fall harder, she says.
In the Canadian market, some passive, large-cap gold equity ETFs include iShares S&P/TSX Global Gold Index ETF XGD-T and Global X Gold Producers Index ETF GLDX-T.
But there are also gold equity ETFs run by mutual fund managers – such as Dynamic Active Global Gold ETF DXAU-T and RBC Global Precious Metals Fund ETF series RGPM-NE – and they invest in smaller-cap names, too, she adds.
Active ETFs could outperform the S&P/TSX Global Gold Index, but their fees may also be higher than passive funds, Ms. Ma notes.
Some gold-miner ETFs offering a yield include CI Gold + Giants Covered Call ETF CGXF-T, Hamilton Gold Producer Yield Maximizer ETF AMAX-T, and Global X Gold Producer Equity Covered Call ETF GLCC-T. These ETFs’ covered-call strategy, though, limits upside potential when the gold equities rise, she says.
Bryan Armour, director of ETF and passive strategies research for North America at Chicago-based Morningstar Research Services LLC, also says gold has a place in a portfolio over the long term.
“A 5- to 10-per-cent weighting in gold is reasonable,” he says, but gold equity ETFs can be included in that mix.
A gold bullion ETF, however, is a better way to get exposure to the metal because of risks in owning gold equity ETFs, where the returns of miners depend on other factors, too, he says.
U.S. options
For long-term investors, low fees are important, Mr. Armour says. In the U.S., SPDR Gold MiniShares Trust GLDM-A, which has a 0.10-per-cent MER, is his preferred ETF. It’s cheaper than SPDR Gold Shares GLD-A, which has more liquidity but charges a 0.40-per-cent MER.
iShares Gold Trust Micro ETF IAUM-A is the cheapest North American gold bullion ETF, with a 0.09-per-cent MER, but it’s less liquid than SPDR Gold MiniShares Trust, he notes.
Among large-cap gold equity ETFs, the popular VanEck Gold Miners ETF GDX-A has a 0.51-per-cent MER, while iShares MSCI Global Gold Miners ETF RING-Q is cheaper with a 0.39-per-cent MER.
But investors may not always get what they expect from ETFs, Mr. Armour warns. In 2017, VanEck Junior Gold Miners ETF GDXJ-A had to temporarily add the “larger-cap sibling,” VanEck Gold Miners ETF, to its holdings “to manage its capacity issues after it got too big,” he says.
Too late to join the party?
Mike Philbrick, chief executive officer of ReSolve Asset Management Inc. in Toronto, says investors who don’t own any gold can accumulate it gradually through ETFs and take advantage of pullbacks.
Purpose Gold Bullion Fund KILO-T and the Royal Canadian Mint’s Canadian Gold Reserves exchange-traded receipt MNT-T also let investors redeem units for physical gold if they meet minimum redemption amounts, Mr. Philbrick notes.
Although gold bullion has had “quite a run, and from a technical [analysis] perspective, it’s quite overbought,” that doesn’t mean the rally is over, he says.
“It means the trend is strong and may need to digest,” he adds. “On my chart, a normal pullback that preserves the uptrend would be [to] the US$4,000-to US$3,800-per-ounce zone. … A pause, or a few weeks of sideways action would be healthy for the next leg.”
Mr. Philbrick became bullish on gold in March, 2024, after seeing a sign of technical breakout when the metal traded in the US$2,200-range.
He’s also upbeat on bitcoin, which, like gold, should benefit from monetary debasement and geopolitical uncertainty, he says.
“Governments, which have a lot of debt to finance, are printing money,” he says. “Gold and bitcoin are scarce assets that can’t be printed out of thin air.”
That’s why his firm runs two U.S.-listed ETFs that hold bitcoin and gold through futures and other funds, and use some leverage: STKd 100% Bitcoin & 100% Gold ETF BTGD-Q and ReturnStacked U.S. Stocks & Gold/Bitcoin ETF RSSX-A.
Bitcoin has been range-bound between about US$95,000 and US$125,000 since May, but it could wind up taking up the mantle as gold undergoes some consolidation, Mr. Philbrick says. “Gold and bitcoin work best as a pair because they respond to different drivers.”