So you went to Costco, bought a shiny gold bar, and now you’re standing in your kitchen wondering what to do with it. Dig a hole in the backyard and bury it? Probably not. Rent a safety deposit box? Now your gold is sitting in someone else’s vault and you’re paying for the privilege. Physical gold looks simple, but storage is inconvenient and adds ongoing costs.
Gold funds avoid all of that. They’re liquid, easy to buy or sell, and eligible for registered accounts like the Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), and First Home Savings Account (FHSA). You can choose between an exchange-traded fund (ETF) or a closed-end fund (CEF). Here are two I like.
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Gold CEF
The Sprott Physical Gold Trust (TSX:PHYS) is one of the most widely used gold CEFs in Canada. It launched in February 2010 and works differently from a gold ETF, despite often being mistaken for one.
As a CEF, its units trade independently of the net asset value (NAV) of the gold it holds. Units can trade at a premium when buying demand is high or at a discount when selling pressure dominates. As of mid-November, the trust trades at a –2% discount, meaning you can buy its gold exposure slightly below intrinsic value.
This premium/discount behaviour exists because CEFs do not use the in-kind creation and redemption mechanism that keeps ETF prices aligned with NAV. Even so, the trust remains massive, with about $15.2 billion in gold.
It holds roughly 3,736,085 ounces of fully allocated, unencumbered London Good Delivery bars stored at the Royal Canadian Mint. Fully allocated means each bar is individually identified, segregated, and not loaned out or used as collateral. The Mint provides custody, and holdings are audited by KPMG, a Big Four firm. With 480,371,393 units outstanding, each unit represents about 0.0078 ounces of gold.
The management expense ratio (MER) is 0.39%, equal to $39 of fee drag per $10,000 invested annually. Just remember that unit prices may deviate from NAV for long periods.
Gold ETF
The iShares Gold Bullion ETF (TSX:CGL) is the cleaner, simpler option. It holds physical gold for investors, but unlike a CEF, its unit price stays tightly aligned with NAV thanks to the ETF creation and redemption process.
It is CAD-hedged, which reduces the impact of USD/CAD currency swings. That keeps returns closer to the underlying gold price in CAD without additional volatility from foreign exchange rates.
This ETF holds about 370,210.24 ounces of gold with 67,250,000 units outstanding, meaning each unit represents roughly 0.0055 ounces. Total assets sit near $2.1 billion. The MER is 0.55%, or $55 per $10,000 invested each year.
CGL pays no dividends and is eligible for TFSA, RRSP, and FHSA accounts. It trades with tight bid-ask spreads and avoids the premium/discount issues seen in CEFs.
