The post about asset allocation from a few days ago has generated a great deal of feedback and questions. I will answer each question personally, but I think there may well be some others with similar questions who perhaps didn’t wish to email me directly. This brief post will address a few of the common questions about buying gold and silver. I will do a later post on how to go about starting the saving/investing process, including finding a good advisor and/or how to educate yourself. It’s not nearly as difficult as you think.
General thoughts about gold and silver
I think that gold is in a secular bull market and, though it will no doubt experience some violent corrections, the trend in price should remain. It belongs in your portfolio, but it should not be ALL of your portfolio!
Since the TSX is naturally overweighted with resource stocks relative to most exchanges, most Canadians who invest have more exposure to gold and silver than they think. As such, I think that UP TO 25% of your portfolio should be allocated to gold. This percentage should be allocated lower for those with lower risk tolerance or those in need of a more income-oriented portfolio.
As an aside, I am actually more bullish on silver long term than I am gold. My precious metals allocation is almost 50-50 gold and silver. When I add to my holdings at some point, it will likely be largely in silver.
Buying physical gold and silver
If you want to buy physical gold, I have always had good luck with this company out of BC. I have used their services several times in the past. I have found their bid/ask spread to be reasonable (the bid is what they are willing to buy gold from you form while the ask is what they will sell it for….it reflects their profit margin).
For what it is worth, I suggest buying recognized gold, which has a serial number on it and is produced by a large, well-recognized bullion company.
If you don’t feel comfortable doing business online, go talk to your local Scotia bank. They can get you all set up.
Buying gold/silver substitutes
I have always been a big believer in holding physical gold or an appropriate substitute. I also like gold stocks, though I don’t want to get into specific advice about any one gold or silver stock.
If you decide to get your gold/silver exposure through a substitute, you do have some options.
Many ETFs that claim to hold gold, such as GLD on the New York Stock Exchange (the largest gold ETF in the world) actually engage in what is known as securities lending. All you need to know about securities lending is that it creates multiple claims on the same underlying piece of property, in this case the gold. That weirds me out!
A couple cool options for getting gold/silver exposure is through the Sprott Physical Gold and Physical Silver Trusts. Both are independently audited and do not engage in securities lending. You can exchange your shares for actual physical gold at any point, which is kind of cool. More info can be found at both of the homepages. If you are considering buying this, keep your eye on the NAV premium listed on the homepages. Try to buy when the premium is low (below 5% if possible).
Other good options for gaining gold/silver exposure is the Central Fund of Canada, ticker symbol CEF.A on the TSX. They don’t have a convertibility option, but they are independently audited. They hold a mix of gold and silver.
Do your own research. Decide for yourself how precious metals should fit into your overall asset allocation. Above all, don’t blow your brains out on it! Don’t go sell everything you own including all stock exposure to buy gold and silver. You may win big or you may lose your shirt. If you want to do that, go to the casino. I view silver and gold as part of an overall investment approach.